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| How Much can you Borrow? | |
| What are the Costs of Refinancing? | |
| Which loan is right for me? | |
| So How Much of a Mortgage Can You Afford? | |
| Can I apply for a purchase loan before I find a property? |
Can I still refinance when my house value is going down?
Yes, as long as you house still worth at least as much as you owe. We have several programs that can help you.
Lenders use qualifying ratios to determine how much of a mortgage you can reasonably afford. It is important to remember that these ratios may vary from lender to lender and each application is handled on an individual basis.
Housing Expenses
Your monthly housing costs include the mortgage
principle, interest, taxes and insurance often abbreviated PITI.
· Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26% to 28% of your gross monthly income.
· For FHA loans, the ratio is 29% of gross monthly income.
Example
|
Annual Income |
|
Gross Monthly Income |
Maximum Conventional Loan Housing Expense |
Monthly Housing Payments |
|
$30,000 |
÷12 |
$2,500 |
X28% |
$700 |
Long-Term Debt
Any expenses that extend 11 months or more into the
future, such as car loans, are termed long-term debt.
Budgeting for Your Home
When budgeting to buy a home, it is important to
allow enough money for additional expenses such as:
What are the costs of Refinancing?
The fees described below are the charges that you are most likely to encounter in a refinancing.
Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. You could save up to 70 percent of what it would cost you for a new policy.
Because costs may vary significantly from area to area and from lender to lender, the following are estimates only. Your actual closing costs may be higher or lower than the ranges indicated below.
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In conclusion, a homeowner should plan on paying an average of 3 to 6 percent of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist.
One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could include the fees for the title search, surveys, inspections, and so on.
The information contained in this brochure is intended to help you ask the right questions when considering a possible refinancing of your loan. It is not a replacement for professional advice. Talk with mortgage lenders, real estate agents, attorneys, and other advisors about lending practices, mortgage instruments, and your own interests before you commit to any specific loan.
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So How Much of a Mortgage Can You Afford?
There are two basic formulas commonly used to determine how much of a mortgage
you can reasonably afford. These formulas are called qualifying ratios because
they estimate the amount of money you should spend on mortgage payments in
relation to your income and other expenses.
It is important to remember that the following ratios may vary and each application is handled on an individual basis, so the guidelines are just that -- guidelines. There are many affordability programs, both government and conventional, that have more lenient requirements for low and moderate income families.
Many of these programs involve financial counseling for low and moderate income people interested in buying a home and in return, offer more lenient requirements.
Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26% to 28% of your gross monthly income. For FHA loans, the ratio is 29% of gross monthly income. Monthly housing costs include the mortgage principal, interest, taxes and insurance, often abbreviated PITI. For example, if your annual income is $30,000, your gross monthly income is $2,500, times 28% = $700. So you would probably qualify for a conventional home loan that requires monthly payments of $700.
Any expenses that extend 11 months or more into the future are termed long term debt, such as a car loan. Total monthly costs, including PITI and all other long term debt, should equal no greater than 33% to 36% of your gross monthly income for conventional loans. Using the same example, $2,500 x 36% = $900. So the total of your monthly housing expenses plus any long term debts each month cannot exceed $900. For FHA the ratio is 41%.
Maximum
Allowable Monthly Housing Expense
26% - 28% of gross monthly income - Conventional
29% of gross monthly income - FHA
Maximum
Allowable Monthly Housing Expense and Long Term Debt
33% - 36% of gross monthly income - Conventional
41% of gross monthly income - FHA
One way to determine how much to spend for housing is to compare your monthly income with monthly long term obligations and expenses. Use the worksheet, "Evaluating Your Financial Resources," to determine how much money you can spend on housing. Be sure to only include income you can definitely count on.
When budgeting to buy a home, it is important to allow enough money for additional expenses such as maintenance and insurance costs. If you are purchasing an existing home, gather information such as utility cost averages and maintenance costs from previous owners or tenants to help you better prepare for home ownership.
Homeowner's insurance or property insurance is another cost you will have to consider. The lending institution holding the mortgage will require insurance in an amount sufficient to cover the loan. However, to protect the full value of your investment, you might want to consider purchasing insurance that provides the full replacement cost if the home is destroyed. Some insurance only provides a fixed dollar amount which may be insufficient to rebuild a badly damaged house.
Qualifying for a Low Down Payment Loan
To be considered for a low down payment loan, you generally need to have:
Closing costs, or settlement costs, are paid when the home buyer and the seller meet to exchange the necessary papers for the house to be legally transferred. On the average, closing costs run approximately 2% to 3% of the house price. This percentage may vary, depending on where you live.
Closing costs include the loan origination fee (if not already paid), points, prepaid homeowner's insurance, appraisal fee, lawyer's fee, recording fee, title search and insurance, tax adjustments, agent commissions, mortgage insurance (if you are putting less than 20% down) and other expenses. Your mortgage professional will give you a more exact estimate of your closing costs.
Points are finance charges that are calculated at closing. Each point equals 1% of the loan amount. For example, 2 points on a $100,000 loan equals $2,000. Companies may charge 1, 2 or 3 points in upfront costs in addition to the down payment. The more points you pay, the lower your interest rate will be. In some cases, you may be able to finance the points.
Can I apply for a purchase loan before I find a property?
Yes! In fact if you are in the process of looking for a property we recommend
that you apply for pre-approval. A pre-approval will review your financial
situation to determine if you are likely to qualify based on the estimated loan
amount and purchase price information that you provide in your application. A
pre-approval gives you greater flexibility and leverage while you conduct your
home search. Please note that We cannot lock your rate until you specify a
property address.