How Large of a Mortgage Will You Qualify For?

You can usually qualify for a mortgage loan of two to two and one-half times your household's income. For example, if your family has an income of $40,000 per year, you can usually qualify for a mortgage of $80,000 to $100,000. 

Some lenders use other factors to determine the size of a mortgage you are eligible for. In general, lenders prefer that your housing expenses (mortgage, tax payments, insurance and special assessments) do not exceed 25% of your gross monthly income. Other financial obligations (monthly payments extending more than 10 months) should not exceed more than 36% of your gross monthly income. 

Lenders need to research your credit history to see how well you have repaid loans in the past. Also, the lender will inquire about your employment history. 

Basic Loan Qualifying Ratios

Generally speaking, to qualify for a conventional loan, 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%. 

Conventional Loan - Maximum allowable monthly housing expense
26% - 28% of gross monthly income.
FHA Loan - 29% of gross monthly income.

Conventional Loan - Maximum allowable monthly housing expense and long-term debt 33% - 36% of gross monthly income.
FHA Loan - 41% of gross monthly income.

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, "How Much Can I Afford" to determine how much money you can spend on housing. Be sure to only include income you can definitely count on.

Finding A Loan

Now that you have found the perfect home and negotiated the price and terms with the sellers, you come to the most difficult part of the transaction--finding the perfect loan.
You should do some comparison shopping among lenders. Your Realtor can refer you to several reputable lending institutions which should be able to complete the loan process before your proposed financial approval date. The loan officer will take your application and have you sign all the necessary papers to authorize credit and employment verifications. You and the Realtor should get periodic progress reports to make sure that all of the details are taken care of. Such reports will help to ensure that any potential problems are discovered and addressed before they can threaten the transaction.

Down Payment Help

Perhaps the most common deterrent to first-time home buyers is the lack of a down payment. The home loan industry has practically re-created itself in the last ten years, making it easier than ever to obtain a mortgage, and new mortgage programs are always cropping up.
Some states have a state-sponsored loan program which allows buyers to purchase a home without putting any money down. A parent or other relative can guarantee repayment of ten percent of the loan if the buyer defaults. The only cash needed is for the closing costs, which typically run about three percent of the loan.
Parents can also give their children down payment help through a personal note or second trust deed. The terms could be set up for monthly payments or annual payments amortized over a period of time. You could pay the interest only, and have the payoff due when the property is sold.
With so many alternatives, doesn't it make sense to call your Realtor for a free consultation? You may be closer to the end of the rent trap than you think.

Self-Employed

There is no doubt about it--it could be more difficult for you to get a mortgage loan if you are a free lance viola player than if you are a government accountant. Traditionally lenders have been more cautious when evaluating loan applications of buyers who are self-employed than from those who work for a regular salary.
If you are self-employed, there is no reason for you to shy away from applying for a home mortgage loan, especially if your earnings have been in the same field for at least two years. Before you begin your search for a house, it is a good idea to meet with an agent of your choice who will be happy to accompany you as you meet with one or more loan officers. They will probably want to analyze your tax returns for the past 2 or 3 years. Because people who are self-employed can write-off many expenses that salaried individuals cannot, it is possible that self-employed individuals may look impoverished on paper. 

Try to get pre-approval from the lender, and ask for a letter to that effect which the Realtor can attach to any offer you submit on a home. This will make you look more attractive to the sellers.

What's the Difference Between a Fixed Rate and an Adjustable Rate?

Fixed Rate - With a fixed rate mortgage your monthly payment will always be the same for the life of the loan. The benefit is that you always know what your principal and interest costs are. 

Adjustable Rate Mortgage- In comparison, an adjustable rate mortgage (ARM) is a loan that will fluctuate your payment and interest rate during the life of the loan. Most ARMs start off with a set interest rate and principal payment for the first year and then adjust annually. The interest rate on your loan is set to reflect changes in the index interest rate. As the index interest rate changes, your payment will be adjusted annually to reflect those changes. 

Both types of loans have their pros and cons. For example, a fixed rate mortgage is appealing because you always know what your payment will be. On the other hand, when interest rates are high, choosing the adjustable rate mortgage is favored because it is probable that the interest rate will drop in the future, resulting in smaller monthly payments. However, with an adjustable rate mortgage you run the risk of ending up with a higher payment should the interest rate soar during the life of the loan. 

Adjustable rate mortgages can be advantageous because they generally offer a lower initial interest rate than a fixed rate loan, but an increase in the interest rate will result in a higher monthly payment, unlike the fixed rate loan. 

What are Some of the Different Types of Mortgage Programs?

There are several types of adjustable rate and fixed rate mortgage loans. Here are some of the more common loans: 

30-Year Fixed Rate Mortgage
This is a conventional mortgage which provides for a fixed interest rate and level payments for the 30-year life of the loan. 

15-Year Fixed Rate Mortgage
The 15-year loan is a conventional mortgage in which the borrower will pay fixed monthly payments for the life of the loan. With a 15-year loan, payments are higher than a 30-year loan, but the loan is paid off much faster.

1, 3, 5, 7, 10 Adjustable Rate Mortgages
These types of mortgage programs allow you to carry a fixed interest rate for a specified amount of time. Once that time is up, you will assume an adjustable rate for remaining life of the loan. For example, if you choose a 3 year adjustable rate mortgage, you would have a fixed interest rate for the first three years of the loan and an adjustable rate for the remaining years. 

10/1, 7/1, 5/1, 3/1 Treasury ARMs
These loans provide for a fixed interest rate for a specified amount of time. After that you pay a variable interest rate with annual adjustments. For example, if you selected a 10/1 Treasury ARM loan, you would have a fixed interest rate and fixed monthly payments for the first 10 years of the loan. The remaining life of the loan would assume a variable rate annually. 

3-Year, 1-Year, 6-Month Treasury ARMs
This type of loan applies adjustments to the interest rate payments in various ways. For example, if you selected the 6-month option, your interest rate would adjust every six months. In comparison, if you selected the 3-year option, your interest rate would adjust every 36 months. 

Jumbo Loan Programs
These mortgages allow you to borrow more than an amount set by the Federal National Mortgage Association. As of January 1, 1999 any loan over $240,000 is considered a Jumbo Loan. 

Conventional Loan Programs
Any loan that allows you to borrow within the amount set by the Federal National Mortgage Association. Currently, loans under $240,000. 

Which Mortgage is Best?

There are several types of mortgage plans available that are appropriate for different needs. If you are more comfortable with a steady payment, then you will want to choose a fixed rate loan. You may select the common 30 year fixed rate mortgage. This type of loan is beneficial if you plan on living in your home for several years. 

On the other hand, if you expect to keep the house for only a short period of time or prefer an adjustable rate mortgage, you will want to investigate other loan options. There are many mortgage programs available to fit your needs. Consult your real estate professional for more information. 

IMPORTANT... Lenders Want to Say "Yes"

If you consider yourself incapable of getting credit, you may be living in the past in terms of assessing your financial situation. Lenders are now bending over backwards to give money to borrowers. A recent survey of mortgage lenders found some interesting trends. Ninety-six percent of those surveyed had cut their standard down payment requirements for moderate-income buyers. Ninety-three percent said they are more lenient in their income-ratios (the ratio of your debts to income), and 94% of those surveyed said they now have more flexible approaches to credit histories, and look at rent and utility payments more than credit cards.
Seventy-nine percent of lenders say they have relaxed employment criteria. They now look more at your capacity to generate a stable flow of income rather than requiring a long history at one job.
There are more lenders today, and they are in fierce competition with each other. The home loan industry has created entire markets that cater to those with less-than-perfect credit.  

For Assistance with Pre-Approval, or a Special Financial Situation? Contact me today at (979) 764-2100 ext 131

---

Home Mortgage Lenders
	Janelle Carver (979) 260-1448 jcarver@houseloan.com
	Home loans easy- 7 Days each week Call my TOLL FREE number 1-888-572-8179
	Debbie Davis (979) 220-3018 debbiedvs@aol.com