How Much Do I Need To Make To Buy A $150,000 Home?

It will depend on your credit score and the other debts from your credit report but let’s say we want to keep your debt to income ratio at 31% or less of your income. I feel this is a good place to be. You can go higher and actually much higher but I think it is best to not go over 36%.

Here is a breakdown of the payment based on putting 3.5% on an FHA loan with an interest rate at 5% on a property in South Florida:

Loan Amount – $146,197
Principle & Interest – $784.82
Homeowners Insurance – $225
Property Taxes – $250
Mortgage Insurance – $137.79

Total Payment of $1,397.61/month

You would have to make $26.50/hour working 40 hours per week individually or $13.25/person if you are buying with someone else. That comes out to $55,120/year.

Always make sure to consult a mortgage expert to make sure your credit, income, assets, etc. meet FHA lending standards.

Your Estimated Mortgage Payment

All too often I see estimates that borrowers get from other mortgage originators that have the taxes and insurance estimated way too low.  I don’t know about you but I don’t want to see the best case scenario.  I don’t necessarily want to see the worst case scenario but shouldn’t the mortgage professional be good at estimating what the payment will be?  You would think so.

In South Florida it is hard to estimate what the taxes will be since the first year or so are based on the seller’s current tax rate however we shouldn’t be concerned so much with what it will be for a short period of time but what it will be going forward.  Right now the tax rates are relatively low because property values have come down.  It is best to use 2% of your purchase price to calculate what your taxes will be once they are reassessed based on your purchase price.  If you want to be more accurate you can use Broward County Property Appraiser’s tax estimator, http://bcpa.net/TaxCalc.asp, but make sure to read the disclaimer because your purchase price may not be market value.  I tell all of my clients to make sure to call or email me with the address of the property that they are looking to purchase so I can put together a new estimate based on the seller’s current tax rate. 

The other tricky estimate is the homeowners insurance because it is going to depend on the age of the property, the age of the roof, if there are shutters, hurricane proof glass, etc.  You will want to make sure to get a wind mitigation inspection which costs around $150 to help reduce your yearly insurance premiums.  It is best to use 1.25% to 1.5% of the loan amount.  Even if you are not in a flood zone it isn’t a bad idea to have flood insurance so I would suggest adding another $400/year to your estimate. 

This shouldn’t be something you as a consumer should ever have to worry about if you are dealing with a mortgage professional but unfortunately sometimes you just don’t know who you are dealing with and if they are trying to make their estimate look good versus their competitors.  Be careful.

Home Loan Rates

We all continually hear how low interest rates are and the interest rate seems to be the most important item to a borrower with a mortgage.   When you get something for less money you are most likely giving up something somewhere else.

A friend of mine got a haircut yesterday and when I saw him I asked him what happened.   He said he when he was getting his haircut the barber asked him if he wanted the back of his neck squared or rounded off and he said do “whatever.”  Whatever ended up being a point in the back of his head like an arrow, see below.  I asked him how much he you pay for it and he said $15.  I immediately said that makes sense, you get what you pay for.

When you are cheap with a haircut you can either try to fix it or wait a week or so for it to grow back but you can’t do wthat with a mortgage.  No matter what you are buying you can always find something for less but you are giving up something somewhere.   I once heard someone say that an eighth of a point higher on your interest rate won’t change your life but a mortgage gone bad will and he was right.  Don’t treat your mortgage like a haircut, make sure you work with an expert or you might end up paying a lot more in the end.

FHA’s Increased Monthly Mortgage Insurance Goes Into Effect Today

Now more than ever it is better to go with a Conventional loan than an FHA loan.  In the State ofFlorida, an FHA loan requires 3.5% down and a Conventional loan requires a minimum of 5% down.  The only problem some may run into with getting a Conventional loan is that you need a minimum of a 680 credit score.

The debt to income ratio requirements on a Conventional loan are more strict limiting it to a maximum of 41% and sometimes as high as 45% but really you shouldn’t be any higher than that anyway.  Just based upon what the mortgage insurance companies are doing you can see more liquidity is coming back to the market.  You can now get financing on attached housing in Florida and go up to 45% debt to income ratios where before no one was going over 41%. 

With a Conventional loan the monthly mortgage insurance is less than that of an FHA loan.  Typcially a Conventional loan only requires you to keep the mortgage insurance on for a minimum of 2 years AND until you have 20% equity in the property where FHA is 5 years AND 22% equity.  It is your responsibility as the borrower to contact your mortgage servicer to get it removed.

In addition to an FHA loan having a higher monthly mortgage insurance premium there is also a one time Upfront Mortgage Insurance Premium (UFMIP) of 1% of your loan amount.  This does get wrapped into your loan amount but is a charge nonetheless. 

MGIC, one of the mortgage insurance companies, has a great illustration comparing a Conventional loan to an FHA loan http://mgic.com/education/mi_better_option.html. 

I am not a real estate agent nor do I pretend to be but my experience has been that a seller is more inclined to accept a Conventional loan over an FHA loan because there is a misconception that a Conventional loan is more likely to get approved.  The appraisal guidelines are a little less strict than FHA but that is about it. 

Both loans are good loans but as you will see a Conventional loan is less expensive.  No matter what I would always suggest looking at putting less money down if you do not have a lot of money leftover after closing and if you are not maxing out your retirement.

10 Things your clients need to buy a home

This is from a Blog that was posted on Trulia.com and a must read in my opinion:

Home buyers and -sellers alike often bristle with anticipatory irritation at the mere thought of all the paperwork they expect they’ll have to come up with to do their transaction, above and beyond the basic loan application, contract, disclosures and closing docs. And these worries start way in advance; it’s as though, before they even start visiting open houses, buyers begin to visualize – and dread – spending hours upon hours in the dank catacombs of the Vatican (à la Da Vinci Code) combing through ancient files, seeking some rare and precious artifact documenting their childhood dental history or genealogy.

In some respects, this vision of the experience of obtaining a home loan might not be far off – there are oodles of hoops through which to jump and, occasionally, the loan underwriter requests something sort of bizarre. But more commonly, there’s a pretty finite universe of documents you’ll really need to scrounge up to get your home bought – or sold. Here they are:

1. ID (e.g., driver’s license, state-issued ID, passport).  Who must produce it?  Buyers and sellers.  Why?  Uh, hello!?!  Lender wants to know that you are who you say you are, buyers, and the title insurance company wants to make sure, sellers, that you actually have the right to sell the home.  Funny enough, this commonly goes unrequested until you get to the closing table, when the notary requests to see it before signing, but some mortgage brokers and even some real estate brokers and agents may ask to see it earlier on.
2. Paycheck Stubs.  Who must produce it?  Any buyer financing their purchase with a mortgage.  Sellers, usually only in the case of a short sale.  Why? Buyers’ purchase price ranges are determined, in part, by their income. And short sellers have to prove an economic hardship.
3. Two months’ bank account statements. Who must produce it?  Buyers getting financing; sellers selling short. Why? Buyers’ lenders now require proof of regular income and proof that the down payment money is your own.  Short sellers?  It’s all about the hardship.
4. Two years’ W-2 forms or tax returns. Who must produce it?  Mortgage-seeking buyers and short selling sellers. Why? Banks want to see a stable, long-term income. They also limit you to claiming as income the amount on which you pay taxes (attn: all business owners!). And in short sales, again, they want documentation of every single facet of your finances.
5. Updated everything. Who must produce it? Buyer/mortgage applicants. Why? Because things change, and because the time period between the first loan application and closing can be many months – even years! – on today’s market. During the time between contract and closing it’s not at all unusual for underwriters to demand buyers produce updated mortgage statements, checks stubs, and such – and its quite common for them to call your office the day before closing to request a last minute verification of employment!
6. Quitclaim deed. Who must produce it?  Married buyers purchasing homes they plan to own as separate property.  Married sellers selling homes that they own separately, or joint owners selling their interests separately.  Why? With the Quitclaim Deed, the other spouse or owner signs any and all interests they even might have had in the property over the the selling owner, making it possible for the title insurer to guarantee clear, undisputed title is being transferred in the sale.
7. Divorce decree.  Who must produce it? Buyers and sellers who need to document their solo status or the property-splitting terms of their divorce. Why? Again, to ensure that the seller has the right to sell.  Recently single buyers might need to prove that they shouldn’t be held to account for their ex’s separate debts or credit report dings.
8. Gift letters.  Who must produce it? Buyers using gift money toward their down payment.  Why? The bank wants to be sure the gift came from a relative, and is their own money to give.  They also want the relative to confirm in writing that it’s a gift, not a loan – a loan would need to be factored into your debt load.
9. Compliance certificates. Who must produce it? Usually sellers, but sometimes buyers, by contract. Why? Some local governments require various condition requirements be met before the property is transferred, like some cities which require a sewer line be video scoped and repaired, cities which require a checklist of items be met before a certificate of occupancy be issued (usually relevant to brand new and really old homes, the latter of which are often subject to lead paint concerns) and energy conservation ordinances which require low-flow toilets and shower heads to be installed. Ask your real estate pro for advice about which, if any, such ordinances apply in your area.
10. Mortgage statements. Who must produce it?  Any seller with a mortgage. Why? the escrow holder or title company will need to use them to order payoff demands from any mortgage holder who has to get paid before the property’s title can be transferred.

By no means is this an exhaustive list.  

http://www.trulia.com/blog/taranelson/2011/03/10_pieces_of_paper_you_must_round_up_to_buy_or_sell_a_home

What You Need To Know About Proving Assets For A Mortgage

I cannot stress the importance of getting pre-qualified for a mortgage in advance.  If I were to give you an exact time frame I would say at least 2 months.  The biggest reason I say that is due to what is involved in proving the assets needed for closing costs, prepaid items, and down payment. 

In most instances we will want your 2 most recent mortgage statements however on a Conventional loan Fannie Mae & Freddie Mac really only need the most recent.  We will ALWAYS need all pages of your statements even if they are blank.  For example, if it shows pages 1 of 6, we will need all 6 pages even if page 6 is blank.  There are no ifs, ands, or buts about it.  This is not difficult. 

We don’t necessarily care about what is going out as much as we doing as to the monies coming in.  The only time we care about what is going out is if we see a debit of a loan or some type of debt that isn’t included on your credit report.

You will need to prove where all monies come from for your deposits if we are not able to determine where the monies came from.  For instance, we can obviously see a direct deposit from your employer or a transfer from one account to the next.   If we cannot determine what is we will need a letter of explanation and show proof of where it came from.  My suggestion is to NOT make any cash deposits or take any monies from someone personally unless it is going to be a gift from a relative.  Also, I highly recommend to NOT make any transfers between accounts until after closing.  It just simplifies the documentation process for everyone. 

Getting a mortgage in today’s environment is not difficult IF you are dealing with a mortgage professional who is going to give you all of the correct information and IF you plan in advance.  Make sure to set aside your most recent paystub, 2 years of tax returns both business and personal if applicable, and your 2 most recent statements statements for all assets.

Your Estimated Mortgage Payment

All too often I see estimates that borrowers get from other mortgage originators that have the taxes and insurance estimated way too low.  I don’t know about you but I don’t want to see the best case scenario.  I don’t necessarily want to see the worst case scenario but shouldn’t the mortgage professional be good at estimating what the payment will be?  You would think so.

In South Florida it is hard to estimate what the taxes will be since the first year or so are based on the seller’s current tax rate however we shouldn’t be concerned so much with what it will be for a short period of time but what it will be going forward.  Right now the tax rates are relatively low because property values have come down.  It is best to use 2% of your purchase price to calculate what your taxes will be once they are reassessed based on your purchase price.  If you want to be more accurate you can use Broward County Property Appraiser’s tax estimator, http://bcpa.net/TaxCalc.asp, but make sure to read the disclaimer because your purchase price may not be market value.  I tell all of my clients to make sure to call or email me with the address of the property that they are looking to purchase so I can put together a new estimate based on the seller’s current tax rate. 

The other tricky estimate is the homeowners insurance because it is going to depend on the age of the property, the age of the roof, if there are shutters, hurricane proof glass, etc.  You will want to make sure to get a wind mitigation inspection which costs around $150 to help reduce your yearly insurance premiums.  It is best to use 1.25% to 1.5% of the loan amount.  Even if you are not in a flood zone it isn’t a bad idea to have flood insurance so I would suggest adding another $400/year to your estimate. 

This shouldn’t be something you as a consumer should ever have to worry about if you are dealing with a mortgage professional but unfortunately sometimes you just don’t know who you are dealing with and if they are trying to make their estimate look good versus their competitors.  Be careful.

Should You Get An Adjustable or Fixed Rate Mortgage?

It’s a tough call especially now when interest rates have been in the rise and the spread between fixed rate and adjustable rate mortgages is at an all time high.  Even though rates have risen they are still at historical lows.  We have all gotten spoiled because they were in the low 4%’s and high 3%’s at one time.

Let’s do some comparing.  We will use a purchase price of $200,000 with 20% down which will leave us with a loan amount of $160,000 all paying no points.  Keep in mind most rates that you find online are with paying a 1% or more loan origination fee which is 1% of your loan amount so in this example it would be an extra $1600.  Make sure you are always comparing apples to apples.

The payment on a 30 year fixed at 5.125% would be $871.18, on a 7 year adjustable at 4.5% it would be $810.70, and on a 5 year adjustable it would be $752.38.  That can add up to a lot of money saved if, and it’s a big if, you decide to sell.

I think a 5 year adjustable is a very short period of time and should only be used for a very select few.  There is no rule of thumb for everyone.  Remember, with adjustable rate mortgages there are caps that prevent the rate from going up past a certain point each adjustment period.  Make sure you know what your margin is, the initial rate adjustable cap, and the ceiling on the rate.  Always talk to a mortgage expert. 

Below is a great article from MarketWatch on this topic too:

http://www.marketwatch.com/story/adjustable-versus-fixed-rate-mortgages-2011-02-16?siteid=rss&rss=1     

What You Need To Know After a Bankruptcy or Foreclosure

If you have had either there is still hope for you when trying to buy a home.  Even though Fannie Mae, Freddie Mac, and the government (FHA, VA, & USDA) have their own guidelines each individual bank, broker, lender, or whatever you want to call all of us may have their own policy that is different.  Make sure to always check with who you are getting a loan through. 

Being a Mortgage Bank we have access to many different lenders which enables us to be able to do a lot more than your traditional bank.  At the end of the day you will want to make sure you are dealing with an expert tells you what I am about to explain. 

It’s probably best to break the policies down based up what type of loan you are getting so let’s start with a government loan.  For a Chapter 7 bankruptcy typically you will need it to be discharged for 2 years.  Less than 2 years but not less than 1 year may be acceptable if you can show that the bankruptcy was caused by extenuating circumstances beyond your control that you can document and have since shown you can manage your finances.  This will be to the underwriter’s discretion.  For a Chapter 13 bankruptcy you need 1 full year of payments made on time, get written permission from the court to buy a home, have no delinquencies, and an explanation.  Lastly, with a foreclosure, short sale, or deed-in-lieu of foreclosure you will have to wait 3 years from the date the property was sold.  It’s not the date that the bank forecloses and takes back the property from you.  It’s the date that they dispose of it after taking it back from you.

Conventional loans are different and I am going to give you the guidelines when putting 20% down.  For a Chapter 7 Bankruptcy you will have to wait 4 years and 2 years with documented extenuating circumstances from the discharge date.  For a Chapter 13 you will need to 2 years from the discharge date, 4 years from the dismissal date, and with extenuating circumstances it will be 2 years from the discharge or dismissal date.  A Foreclosure is 7 years from the completion date as described above and 3 years with extenuating circumstances.  A Deed-In-Lieu of Foreclosure and a Short Sale require 2 years. 

The credit score requirements for government and Conventional loans vary among lenders.  Many are 620 for Conventional and a lot are going to 640 middle credit scores for government loans.  That is subject to change.

FHA versus Conventional Loans

Now more than ever it is better to go with a Conventional loan than an FHA loan.  In the State of Florida, and FHA loan requires 3.5% down and a Conventional loan requires a minimum of 5% down.  The only problem some may run into with getting a Conventional loan is that you need a minimum of a 720 credit score and it cannot be a condo.

The debt to income ratio requirements on a Conventional loan are more strict limiting it to a maximum of 41% and sometimes as high as 45% but really you shouldn’t be any higher than that anyway.  Just based upon what the mortgage insurance companies are doing you can see more liquidity is coming back to the market.  You can now get financing on attached housing in Florida and go up to 45% debt to income ratios where before no one was going over 41%. 

With a Conventional loan the monthly mortgage insurance is less than that of an FHA loan.  Typcially a Conventional loan only requires you to keep the mortgage insurance on for a minimum of 2 years AND until you have 20% equity in the property where FHA is 5 years AND 22% equity.  It is your responsibility as the borrower to contact your mortgage servicer to get it removed.

In addition to an FHA loan having a higher monthly mortgage insurance premium there is also a one time Upfront Mortgage Insurance Premium (UFMIP) of 1% of your loan amount.  This does get wrapped into your loan amount but is a charge nonetheless. 

MGIC, one of the mortgage insurance companies, has a great illustration comparing a Conventional loan to an FHA loan http://mgic.com/education/mi_better_option.html. 

I am not a real estate agent nor do I pretend to be but my experience has been that a seller is more inclined to accept a Conventional loan over an FHA loan because there is a misconception that a Conventional loan is more likely to get approved.  The appraisal guidelines are a little less strict than FHA but that is about it. 

Both loans are good loans but as you will see a Conventional loan is less expensive.  No matter what I would always suggest looking at putting less money down if you do not have a lot of money leftover after closing and if you are not maxing out your retirement.