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ARDELL's Seattle Area Real Estate Blog

Dec. 25, 2006 - $400,000 Purchase - Payment/Cash Needed

20% down?  Expect a monthly payment of about $1,950 plus say $50 for Homeowner's Insurance and $270 for real estate taxes.  Total Monthly Payment $2,270.00

10% down? Add $310 to that.

Zero Down?  Double that $310

Just a rough guideline, that you can use to "qualify yourself".  Just take that payment total and see what percentage that is of your GROSS Monthly Income.

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Oct. 5, 2006 - Can I AFFORD that?

 


 

Today we are going to answer the question, Can I afford that?  The price point is approximately $300,000.  Since this is a minimal price for single family home, we need to answer the question, "How high can we go?"  The target is to keep the payment at about $2,000 a month.

We have already ascertained that the house will likely be a 3 bedroom, 1 bath rambler style with a big lot and great schools.  When looking at payment, we first have to subtract the monthly cost for real estate taxes and fire insurance.  Each area may have different taxes.  Today we are looking at Arrowhead Elementary where the annual taxes are expected to be $2,900 to $3,200 a year.  We will set aside $300 a month for taxes and fire insurance, leaving $1,700 for the principal and interest, mortgage payment.

The First Mortgage is for 80% of the sale price.  Let's put the sale price at $330,000 to open up the options a bit.  80% of that is $264,000.  As of yesterday the rate for this situation would be 6.125%.  That would put the payment on the First at $1,604.  Whoops!  Already getting close to the total!  Let's look at the Second at 10% of Sale Price and a rate of 8.25%, that would be $33,000 and a payment of $247.92.

$300 T&I + $1,604 + $247.92 = $2,151.92 Total Payment at $330,000 sale price.

I am still amazed at times at my instincts :-) When I first met Mr. and Mrs. Adrianna, I told them to prepare to be $150 over the $2,000.  I swear I hadn't looked at any property or done any of the numbers yet and LOOK AT THAT!  $151.92 over the bogey!  It scares me how accurate instincts become over 16 years of doing this stuff.

So if we can keep the taxes and insurance costs a little under $300 a month and the price at or under $330,000, we should be just fine.

Tomorrow...how much cash do we need to close.  Stay tuned!

 


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Feb. 8, 2006 - The very BEST lender to use in the home buying process

 There are three separate and distinct functions of a lender in the home buying process. 

1.  Determining the cash needs and monthly payment in advance of house hunting.

     a)  Dollar amount of Closing Costs

     b)  Montly payment including estimated taxes, insurance and codo fees

2.   Providing a Pre-Approval letter to submit with an offer to purchase.

3.  Providing the actual loan to be used in the home purchase.

 

*************************************************************************************************

The BEST lender to use for Step 1. will be the lender that most accurately predicts your eventual closing costs

(and monthly payment) BEFORE you make an offer. 

*************************************************************************************************Inaccurate predictions can be costly, and even cause the escrow to fail.  If you do not have enough money to close escrow, you can lose your Earnest Money, as the Finance Contingency only covers loan approval.  It does not cover not having enough cash to close.  I have not in 15 years personally had the experience where my buyer client has needed to find money at the last minute to close, but I have seen many who have had that experience when working with other agents.

 

If you do not have a lot of cash to play with, or if it is your goal to close escrow spending as little of your own money as possible, you should try to narrow down your choice of lender in Step 1. to the one you will likely be using by Step 3.  Very important if you are planning to fold your closing costs into your offer.  If the  lender you speak with at Step 1. says your closing costs will be $4,000 and by Step 3. you choose a lender with actual closing costs of $8,000, you will need to dig up an extra $4,000 if you only wrote $4,000 toward closing costs into the contract.  Lender costs are sometimes credit score driven, same as rate, so the lower your credit score, the more important this will be for you.  Costs can also change dramatically from one lender to another and from one loan program to another

*************************************************************************************************

The BEST lender you can use in Step 2. is the lender that the SELLER, will value the highest

*************************************************************************************************

To determine who will be the BEST lender to use in Step 2., you need to understand the TRUE purpose of the Pre-Approval letter.  The quality and credibility of the pre-approval letter often plays a major role in the negotiating process.  The seller and the sellers agent read a lot of things into that letter, especially in multiple offer situations.  Even when there is only one offer on the table, the seller will sometimes accept a lower price from a highly qualified buyer who is using a lender that the sellers agent is certain will close on time.

 

 Often the Buyer Agent sells the lender and the buyers credentials when presenting the offer. 

 And many, many times I have seen a seller switch to a lower offer with a better letter and sales pitch by the Buyers Agent,

regarding the buyers ability to close and to close on time.

 

Consequently, if you use a lender that the listing agent does not believe in or has had a previous bad experience with, it could cost you the house, or at the very least, raise the price the seller is willing to take from you, using that lender.   I have seen one too many pre-approval letters faxed crookedly on the paper, written with poor English and grammar, with many mis-spellings and two paragraphs of disclaimers.  The phrase I commonly use for that type of letter is it might as well be written on toilet paper.  Sorry if that offends someone, its that Philly.NY in your face honesty, I refuse to shed :-)

 

*************************************************************************************************

The BEST lender to use for Step 3. is the one who has

the very best rate and program for you

 within the first five days after you are signed around

and can LOCK you there with a float down.

 *************************************************************************************************

None of the rate quotes or program evaluations that you acquired prior to house hunting, is a true indicator of what exists in the marketplace the day you are ready to apply for your loan.  Generally, you do not truly apply for your loan, until after you have a Contract to Purchase a home.  Most lenders will not permit you to lock in the rate, until you have a contract in play. You can with some lenders apply for a loan with a locked in rate subject to house, a tool used when interest rates are expected to rise during the house hunting process. 

One might say that the moral of the story is that you can use any lender you want to process your loan, without regard to whom you used in Step 1. or Step 2.   But, hopefully, by seeing in advance the three separate and distinct functions of the lender in the home buying process, you will be better able to choose the BEST lender from the beginning.  A lender that will excel at meeting all three of your lender needs in the home buying process.

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Jan. 14, 2006 - Predatory Lending

Q: Is the 33% an absolute limit? What if I am over that limit? Are there programs that I can still use to qualify? Will I pay a higher interest rate?


Ardell's response:



Sure. You can get a mortgage for 300 times your gross income, if that is what you want to do. That is why this subject is under "Predatory Lending". Predatory Lending is not just about a higher interest rate. Often when people do not know that 28% to 33% of their gross income is "normal" for a housing payment, they do not realize that 50% may be too much to spend on a housing payment.

 

Qualifying ratios are not carved in stone, they are a guideline based on sound principles.

 

My caution is this. If you are getting a mortgage that puts your payment in excess of 33% of your gross income, make sure you know beforehand that you are passing the "norm". If you go over 40% don't be surprised later if you have to live on hot dogs or you have to go to your Mom's for dinner every night.

If you have a family and children, staying toward 28% will allow you and you family to have other things in their life besides a house. Like vacations and soccer camp. If you are single, 33% might be more appropriate and still leave you some money to go on vacations, buy clothes and see a movie once in a while.

Often lenders will go up to 40%, without increasing the rate, if you have no other debt. But chances are you will eventually have a car payment or credit card after you buy your house. So the basis of their allowing 40% (no debt) is likely to change and make it hard to pay those mortgage payments sometime in the future.

There are programs that will go to 50% or more of your gross income on your housing payment, but that will likely throw you into a sub-prime loan. Still OK if say you are an intern and expect to be making a lot more money in the next year or two. Or if you didn't include your Significant Other on the loan, and their income is "household income" which was not considered by the lender. In that case you would likely apply for the loan using "stated" income rather than "documented" income.

It has never been easier to get a loan.
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ARDELL DellaLoggia of Sound Realty on Seattle Real Estate process and market including Kirkland, Bellevue, Redmond, Green Lake and most areas around the top of Lake Washington North of Downtown Seattle. Phone: 206-910-1000 - Mailto:ARDELLd@gmail.com

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