Showing posts from December, 2020

Debt-to-Income Ratio Affects Approval & the Interest Rate

Debt-to-Income ratio is a tool that lenders use to qualify buyers for a mortgage and is an important factor in determining loan approval.   It provides an indication of the amount of debt that a potential borrower is obligated to in relation to how much income they have. Total monthly debts are determined by adding the normal and recurring monthly debt payments such as monthly housing costs, car payments, minimum credit card payments, personal loan payments, student loans, child support, alimony, and other things. By dividing the monthly income into the monthly debt, you arrive at a percentage of the monthly income.   Lenders actually look at two different ratios commonly called the front-end and the back-end. The front-end ratio is the proposed total house payment including principal, interest, taxes, insurance, mortgage insurance if required, and homeowner association fees.   Lenders generally don't want these expenses to be more than 28% of the monthly gross income.   Th

Buyer's Closing Costs

Ideally, each party will pay their own closing costs associated with the purchase and the sale of a home, but they can be negotiable based on lender requirements and market conditions. The fees are usually paid at the settlement and will be itemized on the closing statement.   Buyers should be aware of them before contracting for a home.   If a mortgage is involved, the lender will want to verify that the borrower has ample funds available at closing to pay for them. Buyer's closing costs can range between two to five percent of the sales price.   The real estate agents should be able to give you an estimate of what a buyer can expect.   The most accurate estimate will come from the lender at the time the loan application is made. They may or may not include other fees that will be charged to buyers by the title or escrow company. Buyers are required to be provided a standard Closing Disclosure form at least three business days before the loan closing date.   This document wi

Where Did the Assumptions Go?

Mortgage assumptions have not been a practical matter for the last 30 years because mortgage rates have been on a steady decline.   Even if the seller had a rate lower than the current rate, the new purchaser must qualify to assume the loan.   In the case of conventional loans, the lender has the right to increase the rate to the current rate which neutralizes the reason for assuming the loan.   This change took place in the early 1980's when lenders added due on sale provisions so lower rates could not be assumed. FHA and VA loans can be assumed at the existing rate with the provision that the purchaser qualifies for the loan.   This could be an advantage if the rate on the loan to be assumed was lower than the current mortgage rate for FHA or VA and the buyer is going to owner-occupy.   Unfortunately, investors are prohibited from assuming FHA and VA loans. Besides the obvious advantage of a lower rate which would have a lower payment, the closing costs are lower on an assu

Vacation Home Sales Up 44%

Vacation home sales are up 44% year-over-year according to the National Association of REALTORS® based on sales during the July to September period.   Not only are the number of units up, but they are also selling faster than in previous years. On a national basis, 72% of existing vacation homes closed in October were on the market for less than one month. The increased desirability and affordability of vacation homes, according to the National Association of Realtors, seems to be influenced by the pandemic and low mortgage rates.   The ability to work from home seems to be contributing to this increase.   Freddie Mac reports the average commitment rate for a 30-year, conventional, fixed-rate mortgage decreased to 2.83% in October compared to the aver commitment rate for all of 2019 which was 3.94%.   There may also be a safety factor involved with these decisions to purchase vacation or second homes.   Contagious diseases flourish more in highly populated areas like big cities

Home Inspections

A home inspector is another key professional involved in a real estate transaction.   Many times, the sales contract will have a provision that allows the purchaser to have inspections made to discover issues that are not readily apparent or have not been disclosed by the seller. It is important to have a qualified individual perform the inspection.   Regardless of whether a license is required, buyers should ask about the inspector's experience, training, years in business and if they are familiar with the area and type of property involved. Membership in professional associations can indicate an inspector's commitment to education and training.   References from both customers and agents are helpful and may be more meaningful.   You are encouraged to call the references, especially, if you are concerned about any specific areas. Errors and Omission insurance is intended to cover mistakes made during an inspection.   It would be good to find out if the inspector has this