How much house can I
amount of a loan
for which you qualify is based on two different calculations. Using
what are known as qualification ratios, lenders evaluate your income
and long-term debts to determine a "safe" amount for your mortgage
payments. A fairly standard ratio is 28/33. Certain mortgage plans
sometimes use more liberal ratios-for example, the Fair Housing
Authority currently uses 29/41.
Here's how it works: With a 28/33 ratio, you are allowed to spend up to
28% of your gross monthly income for mortgage payments.
The lender will then run a different calculation. This one is your loan
payment and debt payments combined, which may not exceed 33% of your
gross monthly income.
To calculate exactly how much you may borrow, you also need an estimate
of interest rates. For example: Suppose you had $1,000 a month for
mortgage payment; at 7% that would let you borrow about $160,000 on a
30-year loan. At 6% the loan amount would be nearly $175,000. If your
rate were 8%, the loan amount would be a bit less than $150,000.
As part of this calculation, you also need to estimate and include the
property taxes, homeowner's insurance, and homeowner association fees
(if applicable) you might need to pay, which are considered part of
your monthly expense.
Why do I need to
check my credit prior to
purchasing a house?
you're sure you
have excellent credit, it's wise to double-check at the outset.
Straightening out any errors or disputed items now will avoid
troublesome holdups down the road when you're waiting for mortgage
You may see disputed items, in addition to errors caused by a faulty
social security number, a name similar to yours, or a court ordered
judgment you paid off that hasn't been cleared from the public records.
If such items appear, write a letter to the appropriate credit bureau.
Credit bureaus are required to help you straighten things out in a
reasonable time (usually 30 days).
How much do I need
to put down for a down
depends on many
factors. For purchases, we have loan programs that allow financing from
95%, 97%, to even 100% of the home value. Of course, loans with a
loan-to-value ratio (LTV) of greater than 80% will likely require
private mortgage insurance (PMI) by the lender. For refinance loans, we
have several "no out of pocket" loans available. For exact amounts,
please contact us.
pre-qualification different from
estate broker will "pre-qualify" you for a mortgage before you start
house hunting. This process includes analyzing your income, assets and
present debt to estimate what you may be able to afford on a house
purchase. Mortgage brokers or a lender's own mortgage counselor can
also calculate the same sort of informal estimate for you.
Obtaining mortgage "pre-approval" is another thing entirely. It means
that you have in hand a lender's written commitment to put together a
loan for you (subject to verification of income and employment).
Pre-approval makes you a strong buyer, welcomed by sellers. With most
other purchases, sellers must tie the house up on a contract while
waiting to see if the would-be buyer can really obtain financing.
What is the
difference between Conforming
and Non-Conforming loans?
loans that comply with the guidelines set forth by the federal
government for "conforming" lending. Some of the guidelines are
borrower credit scores, and total loan amounts.
do not abide by these guidelines. Non-conforming loans have higher loan
limits. They can also be advantageous to borrower with credit scores
that make conforming loans unavailable to them.
Should I choose
fixed or adjustable
interest rate mortgage?
usually expressed as an annual percentage of the amount borrowed. You
can choose a mortgage with an interest rate that is fixed for the
entire term of the loan or one that changes throughout. A fixed-rate
loan gives you the security of knowing that your interest rate will
never change during the term of the loan. An adjustable-rate mortgage
(called an ARM) has an interest rate that will vary during the life of
the loan, with the possibility of both increases and decreases to the
interest rate and consequently to your mortgage payments.
What are points?
vocabulary of mortgage lending, "points" are a type of fee that lenders
charge (the full term to describe this fee is "discount points").
Simply put, a point is a unit of measure that means 1% of the loan
payment. So, if you take out a $100,000 loan, one point equals $1,000.
Discount points represent additional money you can pay at closing to
the lender to get a lower interest rate on your loan. Usually, for each
point on a 30-year loan, your interest rate is reduced by about 1/8th
(or .125) of a percentage point.
TIP: Usually, the longer you plan to stay in your home, the more sense
it makes to pay discount points.
What is APR (Annual
a yearly rate
that captures the total cost of the mortgage; such as Interest,
Mortgage Insurance (MI), Loan Origination Fee (Points), lender Funding
What are closing
day you actually
buy your new home, in addition to your down payment, the prepaid
property tax and homeowners insurance premiums, you'll need cash for
various fees associated with the purchase. These expenses are known as
closing costs and are paid by both buyers and sellers.
Some closing costs you pay up-front when you apply for a mortgage loan.
Those include money for a credit check on all applicants and an
appraisal on the property. Keep in mind that even if you don't
eventually receive the loan, that money is not refundable.
Other closing costs are possible and should be considered when
evaluating your financial situation. These may include, but are not
Title insurance fee
Loan origination fee
Attorney fees or escrow fees
Document preparation fee
Garbage or trash collection fees; and the big one
Points-up-front interest paid in return for a lower interest rate. Each
point is one percent of the loan amount. Sometimes you can contract for
the seller to pay your points.
What is LTV (Loan To
the ratio of the
loan amount to the appraised value of the property. LTV will affect the
kind of rate and programs available to a borrower. The lower the LTV
the better terms and programs offered by the lenders.
What is Mortgage
MI is an
required by the lenders for loans over 80% LTV (Loan To Value) of the
What is a Rate Lock
or Locking in a Rate?
with a lender that a borrower will be guaranteed a special Interest
Rate if the loan is closed within a specific period of time (Lock
Period), which is usually 30 or 45 days.