Featured Posts
Home Builder Confidence At 5 Year High
The National Association of Home Builders/Wells Fargo builder sentiment index rose this month to 29, the highest level 
it’s been since May 2007! Another hopeful sign of an improving housing market, the index rose from the reported 24 last month. Home builders report that they’ve seen an increase in sales and a high amount of traffic from prospective buyers.
This good news follows other positive signs that the home market is improving. In March, builders requested the highest number of permits to build new homes in three and a half years. In addition, the number of signed contract for new home purchases increased in March to the highest level in two years.
Qualifying For A Mortgage
One of the most anxiety-driven parts of buying a new home is seeing if you qualify for your mortgage. To some, it may seem like a gamble, with no way of predicting if you’ll qualify or not. However, it’s a very specific equation to not only help the lender decide if you’re a reliable risk, but also to make sure that you won’t be overextending yourself in order to afford your new home.
But what is this equation? How do you know if you make enough to afford the new home of your dreams?
Previously, it was a good tip that a borrower could afford three times their gross annual income on a home loan. That would mean, if you made $40,000 per year, you could afford a $120,000 mortgage.
However, it’s wiser to take a much deeper look into what mortgage amount would fit your lifestyle. Take the time to look into your individual budget and figure out how much money you have to spare. Decide what a monthly payment on a new home will be, while figuring in taxes, maintenance, insurance and any other expenses that come along with owning a new home.
Generally, lenders want borrowers to have monthly payments around 28-44% of a borrower’s monthly income, but with a total monthly debt that doesn’t exceed 35% of that income.
To do this, lenders determine your mortgage amount in two ways:
1. Total Monthly Housing Costs Compared To Total Monthly Income
Through this process, a lender will take your total gross amount you receive per month and multiply it by .28 to determine what the total housing costs are going to be for you.
For example, say you make the $40,000 annually we mentioned above and you only want your max payment to be 28% of that. Your lender would take 40,000 and multiply it by 0.28 to get 11,200. Then they would divide this number by 12 months and your max monthly payment should be $933.33.
2. Debt To Income
To figure out your debt, the lender then takes all of your monthly payments, extending beyond 11 months into the future (this includes installment loans, car loans, credit card payments and more) then multiplies that number by .35. The total calculated should not be exceeded by the total monthly debt for you to qualify for a new home loan.
For this, your lender would take your annual earnings of $40,000 and multiple it by 0.35 to get 14,000. Divide 14,000 by 12 months and your monthly debt, including your new mortgage payments, shouldn’t exceed $1,200.
For more help figuring out exactly what you can afford in order to qualify for a new mortgage, check out our Mortgage calculator.
Related articles
- Your Credit Score and How It Affects Your Interest Rate (greatloanadvice.com)
Should You Refinance Again?
When rates originally feel just below 5% last year, many borrowers refinanced their mortgages. Then, when rates fell a full percentage lower, the same borrowers who refinanced a year earlier began to refinance again. So how do you know if it’s worth refinancing again?
First, you should consider your financial goals. Then you should decide how long you plan to live in your current house. If refinancing will only save you a small amount and you plan on moving out of your home in a few years, you may realize it’s not worth the hassle of refinancing. However, if you plan on staying in your home for multiple years, that small amount of savings could be a much larger savings by the time you pay off your loan.
For more info on when you should refinance again, check out this article by NYTimes, or contact your home loan expert to discuss your options.
Related articles
- Adjustable Rate vs Fixed Rate: Which One Is Best? (greatloanadvice.com)
Adjustable Rate vs Fixed Rate: Which One Is Best?
Adjustable rate vs Fixed rate: Which one is best? This is a very common question that many new home buyers ask. In addition to the various loan options you can choose from, most of these options come in various forms based on interest. The most commonly picked are Fixed and ARM.
What exactly does a Fixed and ARM mean and which one is a better option for you? We break it down for you here:
Fixed-Rate Mortgage
A fixed-rate mortgage is just as it sounds – whichever rate you lock in during your mortgage process is the rate you’ll have for the remainder of your loan’s term.
Advantages: Predictability. Your rates and payments will remain constant throughout your entire loan, making your budgeting easier.
Disadvantages: If rates fall, to take advantage of them, you would have to refinance.
ARM
ARM stands for Adjustable Rate Mortgage, which is a home loan that carries a rate that adjusts after a fixed period of time (typically 5 to 7 years). After this fixed period of time, the rate will change based on the current market and rate.
Advantages: Flexibility. You’re able to take advantage of falling rates without refinancing. You may even be able to buy a larger home, since most lenders tend to use a lower payment to qualify ARM borrowers. It also offers you a cheap way to buy a home if you don’t plan on living in one place for very long.
Disadvantages: ARMs can be difficult to understand and you’re at the mercy of the current housing market. Your rates and payments can rise significantly over the life of the loan.
Which One Is Right For You?
You should consider a wide range of personal factors when deciding between a fixed-rate mortgage and an ARM. Individual finances and interest rates both are prone to rising and falling over the course of time.
An ARM is a great choice if your primary requirement is to have low payments in the near term, or if you don’t plan on living in the property long enough for your rate to rise. An ARM may also be a good idea if current interest rates are high, but expected to fall. If rates are low and beginning to climb, locking in a low rate with a fixed-rate mortgage would be the best way to go.
To discuss all your options, contact your home purchase expert.
Why the Internet Can’t Replace a Real Estate Agent
No one can deny that the internet hasn’t changed the housing market. With websites like Tulia, Zillow, HomeFinder and many others, it’s much easier for potential home buyers to search and find their dream homes. However, many wonder – can it replace a real estate agent?
The answer is no.
During a study by HomeFinder.com, it was discovered that 47% of respondents were in the market for a home, but had not yet sought help from an agent. That number shows that, while the internet is a simple and accessible tool for homebuyers, it still is not enough to replace the skills and expertise of a good real estate agent.
A real estate agent understands not only the market, but the neighborhood that your potential home is in. Their negotiation skills and experience with multiple transactions are reasons enough to want them on your side – whether it’s your first or tenth home purchase.
If you’re one of the home buyers who haven’t yet sought the help of a real estate agent, check out our exclusive database of agents across the country that are ready to help you.
If you already have an agent, but need to be pre-approved for a home mortgage, please contact me today at (925) 364-5210.
Connect With Me!