A Guide for Consumer Choice in Your Next Mortgage

Tony Gregory

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How Much House Can I Afford? - A Guide to Financing

Posted by Tony Gregory on Wed, Sep 25, 2013 @ 03:19 PM

However, once we get an idea of what your maximum house amount would be, let’s talk about what can be approved. The following information is assuming you are trying to get a conventional loan. There are other types of loans available such as FHA, VA and Rural Housing that might be more appropriate for your situation, so I would encourage you to get in contact with me so we can discuss specifics.

One of the things a lender will look at in approving your loan is what is called DTI or Debt to Income ratios. A good rule of thumb is that your monthly income vs. your total monthly debts (after buying your new home) needs to be at a ratio of 45% or less. Other debts besides your new house payment that are included in your ratios would be things like auto loans, credit cards, student loans and alimony/child support if continued for the next 12 months or longer. (A common misconception is that utility bills are included in this calculation. For our purposes, they are not. You still have to pay them, but in order to qualify for a new home purchase, utliities are left out of the equation).

To start to calculate your ratios, let’s begin with the house payment. Your new mortgage payment will be made up of the following 4 components:

  1. Principle and interest - you can go to any principle and interest calculator online such as http://www.ajdesigner.com/fl_loan/loan.php

  2. Homeowners Insurance – roughly ½% -3/4% of loan amount / 12

  3. Property Taxes – roughly 1% of value / 12

  4. PMI (Mortgage Insurance) - PMI is avoided if 20% down. If 5% down estimated amount is .78 x loan amount /12, 10% down is .52 x loan amount /12 and 15% down is .38 x loan amount /12. (Mortgage insurance can be avoided altogether if you do what is called piggybacking - or obtaining a second mortgage for the remainder of the amount you need to put 20% down - and closing the second at the same time as your new first. This is a common practice in avoiding mortage insurance with tax benefits).

You would add this payment to other monthly debts that you have and this will give you a rough idea of your debt to income ratio. If you were to obtain a second mortgage along with your first, that payment would also factor into your new debt to income ratio. Very important to not forget that!

So let’s look an example to pull all of this together. If you are buying a $240,000 house with 5% down then the loan amount is $228,000. Let’s use 5% interest rate for 30 years and it has a principal and interest payment of $1223. Insurance would be around 240000 x .005 = 1200 /12 = $100/mo, taxes would be about $240,000 x .01 = 2400/12 = $200/mo. PMI would be $228,000 x .0078 /12 = $148/mo.

So you have a total payment of $1671.

Now let’s assume that this person has a car payment of 300/mo and student loan payments of $100/mo and minimum credit card payments of 50/mo. and also pays child support of $100/mo. So the debts used in calculating the DTI are $1671 + $300+ $100+ $50+ $100 which total $2221.

Our annual income is $80000/12 = $6666 / mo.

So our debt ratio is 2221/6666 = 33%. We can have debt ratios of a maximum of 45% as a general rule so this person should be financeable as long as they have their down payment money and decent credit history.

Now, I know numbers don't appeal to everyone. But savings per month do! If you are at all interested in finding out more information, please do not hesitate to contact me or any of our representatives. Follow the link below to my personal page and let's get started today!

Tony's Personal Page

Topics: mortgage tips, Home Buying Tips

Ben Bernanke to Step Down As Fed Chairman

Posted by Tony Gregory on Fri, Aug 09, 2013 @ 01:29 PM

Ben Bernanke, Federal Reserve Chair

Ben Bernanke is currently chairman of the Federal Reserve.  His second term ends at the end of January 2014, and he is expected to retire.

The point of the Federal Reserve is to implement monetary policy to create stability in financial markets and the President  nominates  his successor while the Senate confirms his nomination.

The Federal Reserve is made up of twelve regional banks - Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco with the central "main branch," if you will, in Washington, DC. These cities were strategically chosen for their population size when the Federal Reserve Act was passed and for their financial influence of their specific regions they occupy. Each Bank President sits on the Board of Directors for the Federal Reserve, making decisions on fiscal and monetary policy as the Central Bank of the United States.

The two leading candidates to replace Bernanke are Larry Summers and Janet Yellen.

Summers served as Treasury Secretary under Bill Clinton and helped push legislation that deregulated the banks and took away many safeguards with the Glass-Steagall Act. This limited commercial bank activities by allowing the banks to have more freedom, effectively gambling more with depositors money and other assets. This eventually played a role in the financial collapse of 2008.

Janet Yellen is the Vice Chairwoman of the Board of Governors of the Federal Reserve System form the San Francisco branch, and is considered the front runner among many for the position.

She is an American economist and professor, who previously was Chair of the White House Council of Economic Advisers under President Bill Clinton, and Professor Emerita at the University of California, Berkeley's Haas School of Business.

Yellen's experience in the system means she will be able to cope with the changes much quicker than Summers since she is already familiar with the decisions Bernanke made. After all, she had to approve them. There is a letter currently floating in the US Senate supporting Yellen as the next candidate. President Obama just needs to appoint her, and she should get the job.

What does all of this mean to the mortgage industry? Simple - monetary policy drives interest rates. When interest rates are low, the Federal Reserve has invested tax dollars in the bond markets to buy them down. Because of the Mid-June 2013 announcement by the Federal Reserve stating that QE3 (or the latest Fed stimulus) will be graduallly pulled from the economy, the 10 year Treasury Bond Yield that mortgage interest rates are derived from has inched up to levels we haven't seen in quite a long time.

Bernanke is taking this opportunity in history to not seek a third term as Chairman. Perhaps this is a move to avoid any future pressures of his decision to pull QE3? Maybe the removal of the stimulus money means Bernanke thinks the economy is improving? The only question we have to ask ourselves is this: Are we ready for the repercussions of higher interest rates?

Let me know what you think. Follow the link here to send me your thoughts or share them below in our comments section. As always, I want to know what you think.

Topics: Mortgage News, Monetary Policy, Economics, Federal Reserve

About Our Authors

tony.jpg

Tony Gregory regularly contributes to this blog. He is an experienced loan officer in both residential and commercial lending from a commercial banking background. He participates daily in the economic and political activities that continue to shape this industry. You can email him directly at:

tonylends1960@gmail.com

Joel Asbury is Sr. Vice President of Compliance Operations for Winterwood Mortgage Group, LLC as well as a licensed Loan Officer. He regularly consults potential clients for the Sales Team while maintaining relationships with former ones via multiple marketing channels as well as developing new business through new lending channels. You can contact him directly:

jasbury@winterwood.net

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Linda Begley regularly contributes to this blog as a Reverse Mortgage Commentator. She has been a teacher in the Public School and Private School sectors, but then after retirement decided she could no longer take not being able to teach! It is her life passion to educate, which she carries on with her Reverse Mortgage seminars for not only the Public Sector, but the Financial Planning and Accounting business sectors as well. Linda has recently rejoined Approved Mortgage A Winterwood Mortgage Group as a Reverse Mortgage Consultant. Email her today at:

lbegley@approvedmortgage.com

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