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.

Does Your Interest Rate Determine the Actual Cost of Your Mortgage?

There are often misconceptions by homeowners and prospective homebuyers when it comes to the mortgage process.   Joe Costa  a mortgage professional with San Diego's Park Place Financial Group can help you understand how the process works.  A very common misunderstanding is that the interest rate reflects the true cost of the mortgage amount.  The interest rate alone is only a part of your mortgage payment.  The APR or annual percentage rate actually reflects the true cost of your home mortgage payment.  The APR includes not only your interest rate but also other factors such as points, private mortgage insurance(PMI) if applicable, and other fees for underwriting and loan origination.  When a potential borrowere or homeowner is looking to shop around and compare rates for a new loan or a refinance,  it is extremely important to remember that the APR is the more inclusive rate and will give you a better idea of what you will truly pay for your mortgage.

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.

Make Private Mortgage Insurance A Thing Of The Past

Beginning in 1999, lending institutions have been required to cancel a borrower's Private Mortgage Insurance (PMI) when his/her loan balance (for loans closed after July of that year) reaches less than seventy-eight percent of the price of purchase, but not at the time the borrower's equity gets to more than twenty-two percent. (There are some loans that are not covered by this law -like some loans considered 'high risk'.) But you have the right to cancel PMI yourself (for mortgages made past July 1999) when your equity gets to 20 percent, no matter the original purchase price.

Do your homework

Keep a running total of money going toward the principal. You'll want to stay aware of the the purchase prices of the houses that sell in your neighborhood. Unfortunately, if yours is a recent mortgage - five years or fewer, you probably haven't begun to pay very much of the principal: you are paying mostly interest.

Proof of Equity

You can begin the process of PMI cancellation as soon as you you think that your equity has reached 20%. First you will let your lending institution know that you are requesting to cancel your PMI. Next, you will be asked to submit documentation that you have at least 20 percent equity. Usually lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to verify your home's equity and eligibility for PMI cancellation.

At  San Diego's Park Place Financial Group, we answer questions about PMI every day. Give Joe Costa a call: 646-245-7856.