Some Facts To Help You Determine Your Home Affordability
March 8, 2010 by · Leave a Comment
Before applying for a loan to get a home, you should ask yourself – “How much home can I afford?” The answer will let you know the range of homes you can afford.
4 factors lenders consider when determining your ability to repay
• Monthly gross income: The more your monthly gross income is, the more expensive home you can afford.
• Credit score: A high credit score means you can apply for a greater loan amount.
• Down payment: If you can pay 20% of the sale price as upfront money, then, you don’t have to pay for private mortgage insurance (PMI).
• Monthly repayment: The amount you can afford for monthly repayment, calculating your monthly debt amount (like auto loan, credit card bills etc). The more your debt amount is, the less expensive home you can afford.
Some tips to follow before you apply for a loan
There are some factors which you need to keep in mind before you answer the question: “How much home can I afford?”
If you buy a large house with garage and duplex facility, then, it will increase your buying power. You can rent out a part of your home and the rent you will get can be a part of your monthly repayment.
It will be wiser to go for a 30-year loan, because, monthly repayments will be much lower and you can qualify for a bigger loan. You can also make prepayments to pay off the loan in 15 years.
You also need to keep in mind the closing costs you need to pay.
If you are thinking, “How much home can I afford?”, you can take help of mortgage affordability calculator which will enable you to estimate a loan amount based on your income, debt, down payment etc.
Mortgage Loan Origination Fees And Charges
February 12, 2010 by · Leave a Comment
You may wonder how many origination points you can legally be charged by your mortgage broker. The maximum fee cap varies from state to state. Wisconsin for example the broker is capped at 6% total commission. This means that you could be charged up to 6 points origination fee by your broker. This can also be split up between lender paid Yield spread rebates to the broker and origination fees.
Depending on your situation you may want to re-think the question. It isn’t how many points can I be charged but instead should be “how many points will I allow myself to be charged”? Many direct lenders charge a lot of points. One way to avoid being overcharged is to work with a broker or mortgage professional that is not a direct lender. Look over your good faith estimate and make sure your comfortable with the charges.
As a rule of thumb, 1% percent is what most reputable brokers will charge for an origination fees, if the loan falls within normal loan amounts.
Your loan officer is probably willing to work with you on how they make their money. For example, if you want lower closing costs, they may increase your interest rate to be paid yield spread from the lender that completely covers their fees. On the other hand, if you want the lowest interest rate, they may put all of their fees in ‘origination fee’, and you will pay for it out of your closing costs. Tell your loan officer what is important to you, and they should be willing to work with you on it. If not, you might consider finding a new one.
Not only does the maximum fee or number of points that a mortgage broker can charge vary by state, but it also varies by each lender. Each lender has their own policy in force that determines how much they will let a loan officer charge a customer. Many lenders are starting to cap the maximum points that can be charged to a borrower to 5%.
Usually, depending on the loan program, things such as points are negotiable. Very rarely will the number of points charged be at the maximum amount possible.
If you are wondering whether the mortgage broker you are working with is charging the maximum number of points allowed, you may consider working with another broker. However, there are situations that can exist, that would merit an unusually high fee (points) be charged for a loan. If you are wondering, call two or three other mortgage brokers and explain your scenario with great detail to see where your deal ranks with what they may be able to do for you.
Compare Mortgage Rates , Can You Afford To Buy A Home
January 24, 2010 by · Leave a Comment
Can I afford to buy a home? There are many different factors that go into deciding if you can afford to purchase a home. The most important factors are what is my present income and how much do I have saved. Borrowers can qualify for many different loan purchase programs however they must decide if they can afford it and compare mortgage rates
When someone asks “can I afford to buy a home?”, he or she is often thinking of the short term of 1 or 2 years.
Instead, try thinking of the long term. In many parts of the country, over a period of several years, homes increase in value by at least 5% a year. So, home owners have an asset that is growing.
At the same time, if their mortgage has a fixed rate, their housing expenses are staying relatively constant, unlike renters, who are seeing an increase in housing expenses generally of 3% to 5% a year.So, in the long term, home owners have less money going out and an asset increasing in value.
Why should you pay for someone else’s mortgage? In a sense that is what you are doing when you are renting. Contact your mortgage professional to see what price range of home is right for you and let your money work for you and not your landlords,
Investing in a home is still one of the safest places to invest your money. Real estate will almost always appreciate and give a good return on the initial investment.
When considering to buy a home and figuring out how much you can afford, it is a good idea to sit down with your spouse and calculate your total monthly expenses. This should include all of your monthly bills such as car payment, credit card payments, cell phones payment, personal loans, cable/satellite television bills, etc… This way you can calculate how much you can comfortably afford to spend on a monthly mortgage payment and not fall into the trap of buying a home that is out of your price/payment range. Many homeowners and potential homeowners can qualify for homes and monthly payments that are much, much more expensive than what they can comfortably afford, while living the same lifestyle that they are used to. Please remember just because you can qualify for a $400,000 home does not mean you have to buy a $400,000. Buy a home because it meets your needs and most importantly it is within your budget comfortably. Allowing your home to own you instead of you owning your home has been an increasing trend over the past few years with the availability of all of the new mortgage programs and competitive underwriting programs available out there.
Can you afford to continue renting? Home ownership is the most popular investment tool. With a mortgage you gain equity be paying down principle as well as through property appreciation. You can also use the interest paid on your mortgage as a tax deduction, however you may need help with taxes . To determine if you can afford a home you need the experience and expertise of both a good loan officer and a good real estate agent. Together they will help you determine how much you can afford and if there are homes in your area that meet your preference and price range.
As far as most banks loan qualification guidelines are concerned, home owners should have debt payments, including mortgage and other necessary housing expenses, of no more than approximately 45% of gross income. However, since people have different spending habits, homeowners should decide for themselves how much of a mortgage can they afford.
A good rule of thumb is to keep your mortgage payment approximately the same as your current rent payment. If you have been able to pay a rent payment every month, then you should be able to afford a mortgage payment of the same amount.
Regardless of where you live, how much you earn or what type of house you are shopping for, as soon as you find out how much the seller is asking, your first reaction might be something like, “Wow! That’s expensive!” Your initial assessment is correct. With prices rising quickly, particularly in areas like New York and Boston, even starter homes can carry hefty six-figure price tags. Your next reaction is likely to be, “Can I afford that?”
Generally speaking, most prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. Under this formula, a person earning $100,000 per year can afford to mortgage between $200,000 and $250,000. But this calculation is only a general guideline.
Ultimately, when deciding on a property, you need to consider a few more factors. First, it’s a good idea to have an understanding of what your lender thinks you can afford – to gain a precise idea of what size of mortgage their clients can handle, lenders use formulas that are much more complex and thorough. Secondly, you need to determine some personal criteria by evaluating not only your finances but also your preferences.
Many brokers are able to perform a rent vs. buy analysis that will not only compare rate quotes and your monthly payments, but also the potential tax savings, the appreciation of the home, and other factors you may not have considered. In many cases it is actually cheaper in the long run to purchase a home than to continue renting.
Reverse Mortgages
January 24, 2010 by · Leave a Comment
A great deal has been said lately about reverse mortgages which are geared towards senior citizens. For those unfamiliar with a reverse mortgage, it is a type of loan whereby a homeowner can continue to own and live in their place of residence at the same time as they take a portion of their equity and allow it to be turned into money that they can use right now.
A reverse mortgage, as the name implies, works the exact opposite from a conventional mortgage. The homeowner does not make a monthly payment to the lender but the opposite happens- the lender gives money to the homeowner.
Eligibility for a Reverse Mortgage
Your income does not play a role in whether you will be eligible for a reverse mortgage or not. What does matter is that every individual who is listed on the title of the home must be 62 years of age or older (no exceptions are made for adult children living in the residence) and the person or persons listed must have paid off their mortgage or presently have a small portion of money remaining on their mortgage. The title will always remain with you. As well, if the homeowners own more than one house, it is THIS house that must be their primary residence. A reverse mortgage will not work for a summer cottage for example.
The reverse mortgage is an anomaly in the financial world. There can be more than one name on the mortgage but the mortgage remains in effect until the last person listed either moves out of the home, sells the home or dies.
How much money is owed at the end of the loan’s term? All of the money that was advanced to the homeowner throughout the duration of the loan plus all of the interest that has built up in that time period is the answer.
A reverse mortgage can also work in another unique scenario, i.e. in a purchase transaction. To explain this further, a senior can buy a home but not make any mortgage payments, which runs counter to how a traditional mortgage would be structured.
The Benefits of a Reverse Mortgage
How can this benefit those of an advancing age? If a senior wishes to relocate to be in closer proximity to other family members then mortgage and/or financial worries need not be a deterrent to doing so.
Other benefits to seniors include:
· Being entitled to an extra monthly income that is not taxable
Or
· Receiving a lump sum payment
· Paying for health and medical care needed in the home
· Paying for long-term care insurance
· Canceling a mortgage payment that is due and payable
· Paying for repairs and renovations needed for a home
If you are on a fixed income and fit the aforementioned criteria, a reverse mortgage is something that would be well worth considering. This is especially the case if you find yourself constantly worried about how you are going to pay this bill or that bill. You can supplement your small income with a reverse mortgage. The money you receive from the mortgage should not affect your eligibility for social security or your need for Medicare.
The Options for a Reverse Mortgage
There are three options for a reverse mortgage if you decide that it is in your best interests. Firstly, you can choose to accept a lump sum of money. The second option is to choose payments on a monthly basis. There is also a third option and this is the one that tends to be favored by most individuals. That option is to accept a line of credit. If you do this then you will be granted access to money any time you require it. The positive side to this is that the money gains interest as time passes and you therefore do not get stuck with a penalty as those for example, who choose the first option, that of receiving a lump sum all at once.
Improve Your Credit Score One Step at a Time
January 24, 2010 by · Leave a Comment
If you plan to apply for a mortgage or a loan in the future but you have had credit problems in the past then you need to improve your credit score before you can do anything else.
Your credit score is a very important number. Every time you apply for any kind of financial assistance a lender will take a look at your credit score. If you are approved for credit then the number will play a role in the terms of the loan and the interest rate.
A higher credit score is much more advantageous than is a lower one. If you have a lower score you may be approved for credit but you will have a higher interest rate because the lender considers you to be a high risk. This is one reason that you need to work as hard as possible to improve your credit score.
Before you can figure out how to improve your credit score it helps to understand what it is made up of. Your credit score is made up of five specific areas:
· Payment history makes up 35 percent
· Your debts make up 30 percent
· The length of your credit history accounts for 15 percent
· New credit makes up 10 percent
· The credit that you are using at present accounts for 10 percent
In order to improve your credit score one of the most important things you can do is to get into a habit of paying all of your bills on time. This is the most vital aspect that plays a role in your credit score. If you have any payment that is past due by 30 days or more then this can be a black mark on your credit rating. Negative marks such as this can show on your credit report for as long a period as seven years. Don’t let this happen to you. If you want to improve your credit score then pay all of your bills on time. Do not let a credit card bill or utility bill cause you problems with your credit.
The money you owe on any given debt makes a difference in your credit score. To improve your credit score do not live beyond your means. Do not overuse credit and do not borrow more money than you can afford to pay back in the allotted period of time.
If you presently have a great deal of debt then it would do you well to take steps to cut back on extravagant spending. To improve your credit score you must become responsible financially. Pay your bills in a timely way. Pull up your financial straps and improve your credit score. Take it one step at a time and you will find that you are making progress.
