Debt Ratios for Residential Financing

Lenders use a ratio called "debt to income" to decide the most you can pay monthly after your other recurring debts are paid.  How can you figure the qualifying ratio?  In general, most conventional mortgages have a qualifying ratio of 28/36.  FHA loans are a slightly less restrictive requiring a 29/41 ratio.  The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can go to housing ( this includes mortgage principal and interest, private mortgage insurance, hazard insurance, property tax, and homeowner's association dues).  The second number in the ratio is the maximum percentage of your gross montly income which can be applied to housing expenses and recurring debt together.  Recurring debt includes payments on credit cards, auto/boat loans, child support and the like.  To give you an example for a conventional loan using the 28/36 ratio, Gross Monthly Income of $6500 x .28=$1,820 can be applied to housing.
Gross Monthly Income of $6500 x .36 = $2,340 can be applied to recurring debt plus housing expenses.  An example for an FHA loan with a 29/41 qualifying ratio, Gross Monthly Income $6,500 x .29=$1,885 can be applied to housing. Gross Monthly Income $6,500 x .41=$2,665 can be applied to recurring debt plus housing expenses. Remember; however, that these are just guidelines. Joe Costa would be happy to help you pre-qualify to help you determine how much you can afford. At San Diego's Park Place Financial Group we answer questions about qualifying all of the time. Call us at (858) 764-2583 to answer any of  your questions or check out our website at www.parkplacefg.com and apply for a loan online.

Loan Programs With Little or No Down Payment

Often borrowers don't have 20 percent to use as a down payment on a home purchase.  There are several different options instead of the traditional loan program with PMI(Private Mortgage Insurance).

• Federal Housing Administration (FHA) mortgage loans
  The Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays an important part in helping low to moderate-income buyers get mortgages. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA provides mortgage insurance to private lenders, enabling homebuyers who might not qualify for a typical loan, to obtain a mortgage. Interest rates for an FHA loan are typically the market interest rate, but the down payment amounts with an FHA loan will be lower than those of conventional loans. Closing costs can be included in the mortgage, and the down payment may be as low as 3 percent of the total.
• VA mortgage loans
  With a guarantee from the Department of Veterans Affairs, a VA loan is offered to veterans and service people. This special loan does not require a down payment, has limited closing costs, and provides a competitive interest rate. Even though the VA does not provide the loans, it does issue a certificate of eligibility to qualify for a VA loan.
• Piggy-back loans
  You may finance a down payment with a second mortgage that closes with the first. Generally the first mortgage covers 80% of the cost of the home and the "piggyback" is for 10%. Instead of the usual 20 percent down payment, the homebuyer will just have to cover the remaining 10 percent.
• Carry-Back loans
  In the option of the seller "carrying back a second mortgage," the you borrow a portion of the seller's home equity.. In this scenario, you would borrow the largest portion of the purchase price from a traditional mortgage lender and borrow the remaining amount from the seller. Typically, this kind of second mortgage will have a higher rate of interest.

Call Joe Costa at San Diego's Park Place Financial Group today to find out about all of your options.

FICO vs Credit Score

Did you know that your FICO score, not your credit score, is extremely important when trying to obtain the best possible home loan interest rate?  90% of lenders use the FICO score stystem; however, borrowers are often confused between the difference in a credit score and a FICO score. Call mortgage professional Joe Costa from San Diego's Park Place Financial Group to help you understand the differences.