[Update – The Fed has been compressing mortgage interest rates on Fannie Mae, Freddie Mac, FHA, VA, and USDA mortgages for some time now. Due to those efforts and other market factors, interest rates most 15-30 year fixed government-backed mortgages are still near historic lows. Contact us today to learn more.]
There are several government-backed home purchase programs designed to make it easier for Americans to buy a home, company site including programs from Fannie Mae, Freddie Mac, FHA, USDA, and the VA. The goal of these programs is to allow for low down payments and to make it easier for people with less than perfect credit to qualify for a mortgage. With mortgage interest rates quite low and housing prices increasing across the country again, now is a terrific time to look into buying a home. Fill in the contact form on our home purchase programs page to learn more about the available government-backed purchase programs and perhaps to get pre-qualified for a home purchase loan.
– Lower interest rates and monthly payments. Refinancing to a better interest rate can help families save a lot of money.
– Get rid of mortgage insurance (PMI). If you have at least 5-10% equity, contact us to look at refinancing to remove monthly PMI payments.
People often come to us wondering “how much house” they can afford. This is a somewhat complicated question because there are many variables that contribute to that answer. In this post we’ll try to break those variables down and give some rule-of-thumb ballpark numbers.
Some popular reasons to get a cash out refinance include paying off credit cards and other expensive debts and doing home improvements
Debt-to-income ratios: Normally borrowers should have all of their monthly debt payments be less than 50% of their gross monthly income. So if a family makes $4000/mo gross, all of their monthly debt payments should be less than $2000/mo. Therefore, in this example if the non-housing bills (car payments, credit card minimum payments, student loan payments, etc) add up to $800/mo then the total mortgage payment (including property taxes, homeowners insurance, PMI, and HOA fees) should be under $1200/mo.
Principal and interest payment: This is the easiest and least variable part of the equation. Any calculator that has time value of money (TVM) function can help you figure this out. For instance, a 30 year fixed $150,000 mortgage at 4.5% will always have a monthly principal and interest payment of $/mo.
Escrow payment: Here’s where costs can vary widely between locations. The things that can be included in the escrow payment (and debt-to-income ratio requirements) are:
Property (and other) taxes: In many states this is a single annual tax divided by 12 for the escrow. However in some states and counties property taxes are divided into sections including things like “school taxes” etc. Whatever the annual total is on all taxes on the property is divided by 12 and added to the debt-to-income ratio calculation.
Homeowners (and flood) insurance: Again the cost of homeowners insurance can vary widely by region. For instance, in areas prone to hurricanes or tornadoes, homeowners insurance can be significantly higher than average. Also if the home is in a flood zone expect higher annual premiums. Again, divide the monthly insurance costs by 12 when calculating debt to income ratios.
Mortgage insurance insures the lender against default on the loan
Mortgage insurance (also known as PMI or MI): In most cases when you have less than a 20% down payment you will have to include mortgage insurance in your monthly payment. It is sometimes called “private mortgage insurance”, thus the popular PMI acronym. The amount of MI required depends on the loan type and on the size of the down payment. VA loans require no MI. USDA loans have something similar to MI rolled into the payments that is 0.35% of the loan amount spread out over 12 payments per year. FHA loans have MI that 0.85% of the loan amount spread over 12 payments per year. Conventional Fannie/Freddie loans have varying mortgage insurance amounts based on down payment amount and on credit scores.