What You Can Afford - Q & A
Q: Is there a way to determine the value of a troubled property?
A: Those who are interested in buying a foreclosure property should consider obtaining as much as information from the lender as possible regarding the range of bids being sought.
Examining the property itself is of utmost importance. If, by chance, you are not able to get into the foreclosure property, ask the surrounding neighbors about the condition of the property.
For those considering doing your own cost comparison, it is possible. Simply go to your local county recorder's and assessor's office and thoroughly research comparable properties that have been recorded. Another option is searching Internet sites that specialize in property records.
Q: What are the reasons for buying a house?
A: Here are some frequently cited reasons for buying a house:
* You need a tax break. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in home values.
Q: How do I know what I can afford?
A: Your income and how much debt you have determines what you can afford., and knowing what you can afford is the first rule of home buying. Generally speaking, lenders do not want borrowers spending more than 28 percent of their gross income per month on their mortgage payment. Borrowers should pay no more than 36 percent on any debts they may have.
Before you start the search for a home it pays to check with several lenders. Most lenders will be more than happy to pre-qualify you for a loan and roughly calculate what you are capable of affording.
The amount you can afford to pay for a house solely depends on six factors:
1.Your gross income
2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. Any outstanding debts
4. Your credit history
5. The type of mortgage you select
6. Current interest rates
Lenders also use the housing expense-to-income ratio, which is another number to evaluate the amount you can afford. By calculating your projected monthly housing expense, consisting of the principal and interest payment of your new home loan, hazard insurance (known as PITI) and property taxes, lenders are able to determine this.
Added to your PITI will be any monthly homeowners association dues and/or private mortgage insurance that you have to pay.
Some lenders will go higher under certain circumstances, but this ratio should fall between 28 to 33 percent. Your total debt-to-income ratio should be in the 34 to 38 percent range.
Q: How much does it cost for maintenance expenses?
A: When it comes to maintenance expenses, experts agree that you can plan on annually spending 1 percent of the purchase price of your home. Expenses such as; repairing gutters, caulking windows, sealing your driveway and the myriad as well as many other maintenance chores come with privilege of homeownership. Maintaining older homes will cost more than newer homes. It also depends on how well the house has been maintained over the years.
Q: Where can I obtain more information about housing market stats?
A: The best source for finding the status of the local housing market is from a real estate agent. The statewide association of REALTORS® is another source to consider for they are continuously compiling such statistics from local real estate boards.
Quarterly reports on home building and home buying are published regularly by U.S. Housing Markets, which consist of overall housing statistics. If your local builders association doesn't get this quarterly report contact the housing research firm which is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. You may also want to check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Q: Can you tell me what the standard debt-to-income ratio is?
A: Lenders use the standard ratio as a tool to limit the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment in combination with all other debts, to 36 percent of the total.
Lenders have broadened their acceptable mortgage payment amount when considered as a percentage of the applicant's income, due to the fact that some loan applicants have become accustomed to spending 40 percent of their gross income on rent. Still promptly making their payments each time.
Borrowers facing rejection, are told by real estate experts to compensate for negative factors by saving up a larger down payment. Mortgage loans that require little or no outside documentation can often be obtained with down payments of 25 percent or more of the purchase price.
Q: What is the lifespan of bankruptcies and foreclosures on a credit report?
A: Seven to 10 years is the lifespan of bankruptcies and foreclosures on a credit report. If a borrower has established good credit, some lenders will consider them early on. The lender's decision can be influenced by circumstances surrounding the bankruptcy. If you went through a bankruptcy, for example, because your employer was having financial difficulties, some lenders may be more sympathetic. However, if bankruptcy was caused because you lived beyond your means by overextending your personal credit line, lenders will be less inclined to be flexible.
Q: Can you tell me what the Fannie Mae's low-down program is?
A: In order to assist more people nationwide to qualify for a mortgage, Fannie Mae is expanding the availability of low-down payment loans. Potential buyers will be given assistance in overcoming two of the most common obstacles regarding homeownership, low savings and a modest income thanks to two new programs being developed.
Fannie Mae has developed Fannie 97 to address many first-time buyers' struggles in order to save their down payment. Fannie 97, through Fannie Mae's Community Home Buyers Program, will provide 97 percent financing on a fixed-rate mortgage with either a 25 or 30 year loan term.
Buyers, at any income level, will be assisted with a 5 percent down payment through Fannie Mae's new Start-Up Mortgage. Unlike traditional mortgages, applicants do not need as much income and less cash for closing in order to qualify.
Borrowers will receive a fixed-rate mortgage on a 30 year loan term with a first-year monthly payment that is lower than the standard fixed-rate loan.
Fannie Mae's counterpart, Freddie Mac, also offers low-down-payment loan programs.
