Real Estate Information Archive

If you are obtaining financing to purchase a new home, it is important to understand that your lender will look at what is called a debt-to-income ratio. Of course your lender will look at various different aspects of your financial situation but this is an important aspect and the loan could be denied if the ratio is too high. Below is more information on why is it important to you and how it effects your financing.

What the debt-to-income ratio means is that lenders will do a comparison of the money you earn to the money you owe. It includes credit card debt, existing mortgages, auto loans, and any other personal debt.

Your mortgage lender will look at your Debt-To-Income (DTI) to evaluate your ability to afford your new mortgage. You should have a good idea of what your DTI ratio is before you approach a lender or consider buying a new home.

You ultimately want to achieve a low DTI ratio. A high number means that you have less disposable income and less ability to maintain the home once you purchase it. With foreclosures at an all time high, lenders are not willing to assume any additional risk in lending.

Most lenders seek DTI ratios in the 20-36% range or lower, with no more than 28% of debt dedicated to the mortgage itself. While some lenders will consider higher ratios, DTIs in the upper 30% range are considered high risk.

There are several different calculators available online to help you determine your ratio, and you can always check with your financial institution for guidance on determining your DTI ratio.

Here’s a simple formula:

1. Add all your monthly payments (mortgage or rent, car, credit cards, any other debt payments)
2. Add your gross income (before taxes), bonuses, alimony, or any other outside income and divide by 12
3. Then divide the total number in (1) by the final number in (2)
4. The result is your DTI ratio

Whether you are ready to buy a new home or are just interested in your financial health, it’s a good idea to know your DTI and understand the steps to lower your ratio and become as close to debt-free as you can.

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Once you have purchased a new home there are many things to be done. First and foremost is packing and making the actual move. While most new homeowners are not looking forward to this process, you can make the chore less stressful if you are organized and make a plan.

 Below are a few tips to get you started.

 

• Having a plan as well as budgeting for moving expenses before the move will be vital to having a smooth move. You will need to make decision such as: Will you be moving yourself or will you require the assistance of a moving company? If you are planning to use a moving company it’s a good idea to price this out ahead of time by using a moving calculator.
• Make sure you stock up on the following packing supplies: strong packing boxes (more than you think you will need), markers and tags to label boxes, rolls of packing tape, bubble wrap for fragile items, packing paper, scissors and a knife for opening boxes.
• Pack room-to-room keeping similar items together.
• Use towels, linens and curtains to line the bottom and sides of boxes with fragile items. All fragile items should be individually wrapped. Clearly mark these boxes FRAGILE.
• Create a color coded system. Use colorful tags to identify the contents of the box and which room it will be taken to in your new home.
• Pack any rugs last so that they will be the first thing unpacked and placed in the home.
• Be sure to pack a box with all the essentials and mark it “Open Me First”. This box may contain items such as: a few basic tools (flashlight, pocket knife, masking tape, light bulbs), bathroom essentials (toilet paper, soap, shampoo, toothbrushes & paste, hand towel), Kitchen items (paper towels, coffee maker & filter, paper plates, cups, utensils, pet food, trash bags). 

Having a plan will help to make your move successful and smooth. Check out additional tips for your move here.

 

Shopping for a home can be an exciting time, but when house hunting you may find two houses in which you cannot decide which one is the right one. It might be that you have found what seems like two perfect homes and deciding between the two can be a difficult decision.

Purchasing a home is a major decision and shouldn't be taken lightly, so it is a good idea to approach it rationally and not be guided by emotion, which can be easier said that done.

Making a decision may at times be necessary if the seller has received multiple offers. Start the decision process by making a list of your needs as well as the pros and cons of each house.  Some things you'll want to compare include:

•Which neighborhood offers the most benefits? If the two homes you are looking at are in different neighborhoods, evaluate the pros and cons. Perhaps you have children and need to be close to schools or parks or even other families with children. Also consider the proximity to shopping, restaurants as well as your work commute, church, and other services? Are the streets maintained? Do homeowners landscape and maintain their homes nicely? How long will  Don't forget to inspect the other homes in the area, are they well maintained?

•Do your research on the crime statistics in the area. You can get this information from the local police or sheriff department.  You might find theft or vandalism to be more prevalent in one area than another.

•If you have children who are in school, having a good school system is an important aspect to consider in your decision. You can find school ratings, reviews and test scores at Greatschools.com to help you make the decision that is right for you.

•In your list of pros and cons be sure to identify the specifics of the house and your current and future needs. Does the home have enough room? Is the layout what you want?st. Then, rate how each house measures up to each need on your list.

If you are still having difficulty deciding, it is a good idea to visit  each home at least two more times, at different times of the day to get a feeling for how the house and neighborhood look and feel. It can be a difficult decision but you want to make sure you are comfortable as it is one of the largest decisions you will make.

 

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Home equity loans are a great way to access the equity in your home and provide you with extra funds to pay off debt, remodel or even for a vacation. Most homeowners don't know that there are also some tax benefits in doing so as well.

 There are two basic types of home equity loans.  One type is a traditional loan where you borrow the whole amount of the loan, then pay it back with specified monthly payments over a specified term.  The second type is a Home Equity Line of Credit (HELOC) where you obtain a fixed line of credit based on the equity of your house.   Typically with this type of loan you only pay interest on the amount that you borrow, and your monthly payments may vary also.

The interest is deducible up to the purchase price of the house plus any improvements.  Many people mistakenly think that all real estate related interest is deductible.  Several years ago the held true but tax reform has since been passed. However, for most people the tax deductions are still substantial, but you may want to consult a tax professional to determine how much you can deduct in your specific case.

However, even if the interest is not deductible, the savings associated with the lower interest rates charged on a home equity loan, will still be beneficial to pay off other higher interest credit cards or other loans.

It is important however to do the math and be responsible when considering these types of loans. Many homeowners found themselves in trouble when they borrowed against the equity in their home and then when housing values declined, they owed more than the house was worth.

When researching mortgage financing, potential homebuyers will often receive quotes from lenders that include both loan rates and "points." Many people are unaware as to exactly what is a point?

A point is a fee equal to 1 percent of the loan amount. For example, A 30-year, $200,000 mortgage might have a rate of 6 percent, but come with a charge of 1 point, or $2,000. A lender can charge 1, 2 or more points. There are two kinds of points: discount points and origination points.

 •Discount points:These types of points are really prepaid interest on the mortgage loan. Because, the more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. The advantage to this type of point is that it is tax-deductible.
 
 •Origination fee: This is charged by the lender to cover the costs of making the loan. The origination fee is deductible if it was used to obtain the mortgage and not to pay other closing costs. The IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs, and inspection fees, it is not deductible.
 

There are many different factors that will effect whether or not you pay points as well as how many. The amount of money you have to put down at closing as well as how long you plan on staying in your house can be a factor. If you plan to stay in your home for a while, it may be worth reducing the interest rate by paying points. Be sure to have your lender carefully explain these fees if you have any questions.

 

In the news lately you may have heard of the new website launched by the federal government - Making Home Affordable.   This new website offers online tools that will help today's homeowner determine if they are eligible to participate in the “Making Home Affordable” loan modification and refinancing program.

This site shares information about how this program works and who is eligible for assistance. This is the same $75 billion program you may have heard of recently in the media. You should have the following available:

* Information about your first mortgage, such as your monthly mortgage statement.

* Information about any second mortgage or home equity line of credit on the house.

* Account balances and minimum monthly payments due on all of your credit cards.

* Account balances and monthly payments on all your other debts such as student loans and car loans.

* Your most recent income tax return.

* Information about your savings and other assets * Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.

* It may also be helpful to have:A letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.) if applicable.

There are several programs out there right now, new energy tax credit, $8000 tax credit for first time home buyers, and long term interest rates lower than 5%. There is something for everyone. Check out these opportunities and see if any of them can help you or call me to discuss your current situation.  Together we can find a solution to your real estate needs.

How much home can you really afford? The first step in buying a home is to have a budget and figure out how much you can actually afford. Your agent or lender can help you with this in a couple of ways:

 

•  Pre-qualifying process This process will give you a general "estimate" of what you will be able to afford.

• Pre-approval process This process will allow your lender to review your finances in more detail in order to determine the amount of money they agree to loan you for your home purchase.

Your lender will review your finances and focus on a few main areas such as:

• Gross monthly income
  
• Credit history
  
• Amount of outstanding debts
  
• Source and amount of money available for down payment and closing costs
  
• Interest rates, etc.

All these things put together will help your lender determine two important qualifying ratios.

1. Debt-to-Income Ratio Generally the amount of debt you pay each month should not exceed 36 percent of your gross monthly income
   
2. Housing Expense Ratio Most lenders will not approve your loan if the mortgage payment exceeds 28 to 33 percent of your gross monthly income

These are the first steps in determining how much you can afford when purchasing a new home. For more mortgage and finance information feel free to contact me at any time or visit my Finance Information page.

Though you may be willing to spend a certain amount, the real determination of how much house you can afford is driven by how much a lender calculates you can afford. So before you begin to search for the perfect house, it is very important to begin the home buying process by getting pre-approved. Getting pre-approved for a home mortgage loan will provide you with a preliminary statement on the size of loan for which you can qualify. Knowing this, you can then focus your home search.

In general, lenders allow your total monthly housing costs to go as high as but not more than 30 percent of your gross monthly income. The second requirement is that not more than 36 percent of your gross monthly income can be tied up in the total monthly house payment and payments on long-term debt.

Lenders use slightly different formulas for determining the "total monthly house payment.” These costs generally include the mortgage principal and interest payment, property taxes as a monthly sum, and hazard insurance as a monthly sum. These four items are referred to as PITI (principal, interest, taxes and insurance). Other costs may be included in this calculation if your down payment is less than 20 percent or if you are responsible for homeowner’s association dues. The calculations may vary from lender to lender, but will provide you with a gauge.
The Pre-approval Letter

Your friends and family may know you to be reliable, dependable and someone who pays bills on time, but all others in a real estate transaction will require you to prove it. That’s where preapproval comes in. A preapproval letter is more reliable than a pre-qualification letter. In the preapproval process, a lender will examine your finances and will make a preliminary statement on the size of the loan for which you’ll qualify.

Preapproval is an involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This procedure will ultimately give you the exact loan amount that you will be eligible for (depending on what type of loan you decide to select.) Being preapproved lets the seller know that you have gone through an extensive financial evaluation and there should be no unexpected obstacles to buying the home. It makes your offer much more powerful.

Preapproval gives you a very good indication of:

• How much down payment you’ll need

• Your closing costs

• Your monthly payment (including PITI: principal, interest, taxes and insurance)

• The type of loan for which you qualify and which best suits your needs; and,

• Special programs for which you may be qualified, including those for veterans, first-time buyers, teachers, etc.

• To become pre-approved you will need to provide a lender with the following:

• Your employment and income history (including recent pay stubs)

• Your monthly debts

• The amount and source of cash available for the down payment and closing costs

Pre-approval letters are not binding on the lender, they are subject to an appraisal of the home you want to purchase and are time sensitive. If your financial situation changes, interest rates rise or a pre-determined date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly. You can research lenders yourself and ask them to pre-approve you.

How much home can you really afford? The first step in buying a home is to have a budget and figure out how much you can actually afford. Your agent or lender can help you with this in a couple of ways:

 

•  Pre-qualifying process This process will give you a general "estimate" of what you will be able to afford.

• Pre-approval process This process will allow your lender to review your finances in more detail in order to determine the amount of money they agree to loan you for your home purchase.

Your lender will review your finances and focus on a few main areas such as:

• Gross monthly income
  
• Credit history
  
• Amount of outstanding debts
  
• Source and amount of money available for down payment and closing costs
  
• Interest rates, etc.

All these things put together will help your lender determine two important qualifying ratios.

1. Debt-to-Income Ratio Generally the amount of debt you pay each month should not exceed 36 percent of your gross monthly income
   
2. Housing Expense Ratio Most lenders will not approve your loan if the mortgage payment exceeds 28 to 33 percent of your gross monthly income

These are the first steps in determining how much you can afford when purchasing a new home. For more mortgage and finance information feel free to contact me at any time or visit my Finance Information page.