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Mortgage Corner – Down Payment Options

February 4, 2011 by admin

The first thing you want to do when saving for a down payment is to establish how much money you will need. If you talk to your parents or grandparents, they will tell you that you need to have 20% of the purchase price as a down payment on a home. That is because when they bought their house, you needed 20% down. It’s a fine goal to put 20% down, but also a very unrealistic one for most people. A first time buyer in Delaware County buying a home averaging $180,000, faces a down payment of 20% or $36,000. Most people just don’t have that kind of money.

My typical first time buyer puts between 3% and 5% down. A good loan officer should present you with several loan options with low down payment requirements. VA loans still allow for100% financing. FHA allows for a 3.5% down payment. So now that you are aware of a few low down payment options, how do you come up with that money?

Save – open a separate savings account and identify it for one purpose only – house fund. This might involve foregoing a vacation or sacrificing in other areas of your life. However, watching the balance grow will motivate you to keep at it. If you can systematically put in a pre-determined amount (ie. $100 per paycheck) you will likely not miss the money at all.

Work Overtime – a few extra hours a month can add up fast.

Sell Something – I once had a customer sell his motorcycle to raise some cash for a home purchase. He wasn’t really riding it much and he sold it for $5000.

Gifts – approximately 20% of my first time buyers get a cash gift from a relative. Often, your relatives don’t want to see you renting forever. They know that investing in a home is a good thing for your financial future.

Grant Programs– talk to your realtor, check out government websites, etc. Just be careful to do your research. There are many legitimate grant programs, but there are a few scams out there as well .

Employer Programs – check with your HR department. Some large employers offer financial assistance for housing. Read program details as there are often restrictions regarding where you can buy.

Income Tax Refund – don’t blow that money on a cruise, buy a house instead.

Talk to your realtor and loan officer about your housing goals and dreams. Together you can come up with a plan. It’s a great time to buy a home !

Next Topic – Loan options.

Steve Madonna

Weichert Financial Services

(610)- 566-2045

NMLS # 140438

PHFA Offering Below Market Mortgage Rates

January 17, 2011 by admin

PHFA – Pennsylvania Housing FinanceAgency is continuing to offer first time home buyers below market mortgage rates. The current rate is 4.75% with 0 points. Income limits for a 1 or 2 member household have increased to $93,900 and for a 3 or more member household the income limit has been increased to $109,600 For Delaware County the maximum purchase price limit is capped at $378,000.

First time home buyers have the opportunity to take advantage of below market rates and plentiful inventory!

Mortgage Corner – Debt to Income Ratio

January 11, 2011 by admin

Debt To Income Ratio – This ratio (abbreviated DTI ) is the percentage of a consumer’s gross monthly income that goes toward debt service. It’s is one of the main factors that a lender takes into consideration when approving a loan.

There are actually 2 debt ratio categories – front end and back end. The front end ratio is the percentage of gross monthly income (before taxes) that is used to pay your housing costs. Housing costs include: principal, interest, taxes, insurance, mortgage insurance (if applicable), and homeowners association fees (if applicable). The back end ratio is comprised of the same elements, but also includes your monthly consumer debt. Consumer debt includes, car payments, credit card debt, installment loans and similar debt. Auto insurance, cell phone bills, and debts with less than 10 remaining payments are not counted.

A common guideline for DTI ratios is 33/38 (front end/back end). Lenders typically do not want to see your housing expense consume more than 33% of your monthly income. If you add your monthly consumer debt, the back end ratio should not exceed 38%.

There is some flexibility in the guidelines. For example, if your back end ratio is 45%, but if your FICO credit scores and your job stability are excellent, many lenders will make an exception and approve the loan. If you make a larger down payment, the guidelines are less rigid as well.

Guidelines also vary according to loan program. A back end debt ratio on a VA loan can goes as high as 41%. It makes a lot of sense to have a reputable lender analyze your debt to income ratio on a theoretical purchase before you start shopping for a home. From a practical standpoint, it also will help you set up a budget. In the past few years, many loans were issued to people without considering the debt ratios of the borrower. As we know now this was not a good practice!

In next week’s Mortgage Corner, we take a look at down payment options.

Steve Madonna

Weichert Financial Services

610-566-2045

Average Interest Rates Top 5%

January 3, 2011 by admin

: Rate Trend – 9/29/10 To 12/29/10

The average national rate for 30 year mortgages has risen to 5.02%, according to www.bankrate.com, who conducts weekly national surveys of the top 10 markets. The average 30 year loan also carries on average, 0.44% discount and origination points.

Rates have risen steadily for several months, as demonstrated by the accompanying chart. Check out additional mortgage information and discussion in the Mortgage Corner.

Basics of Private Mortgage Insurance – PMI

December 21, 2010 by admin

This week I would like to discuss mortgage insurance basics. Mortgage insurance is an insurance policy which compensates lenders for losses due to the default of a mortgage loan. A borrower is required to have mortgage insurance on a home purchase when they put less than 20% down. Mortgage insurance can be either public or private depending on the type of loan. There is also (LPMI) Lender paid private mortgage insurance, where the insurance premium is paid by the lender, who in turn charges the customer a slightly higher interest rate.

Mortgage insurance allows people to buy houses with down payments as low as 3%, and the monthly payment is tax deductible. The US Homeowners Protection Act of 1998 requires PMI to be cancelled when the amount owed reaches a certain level, particularly when the loan balance is 78 percent of the home’s purchase price.

For further information contact:

Steve Madonna

Weichert Financial Services

610-566-2045

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S. Clark Kendus