Thinking of Buying a Home - How Much Home Can You Afford

If you are thinking of buying a home you really need to understand how much home that you can afford. Not how high a payment that you are comfortable with, but how high a payment that your lender and loan type/underwriter thinks that you can afford. And, you should find this out before you look for a new home. You don't want to waste your time, or your buying agents time, looking at homes that are out of your price range.

So how can you get an idea of how much home that you can afford? It's a two step process. The first step is determining what your ratios are. But, just what are these ratios, you might ask.

The first is called the Front End Ratio. That is merely how much your cost of housing will be compared to your gross income. Note: it is not how much your loan payment will be but the total cost of housing which includes Principle, Interest (both of which are our loan paymet), Taxes and Insurance. These are commonly referred to as PITI. Gross Income is your total monthly income from all sources: wages, alimony, interest, dividends, social security, etc. Your monthly income is figured by looking at your previous 12 months income and dividing by 12.

Front-End Ratio = (Monthly Housing Expense / Gross Monthly Income) x 100

The second is call the Back End Ratio, or your Debt-to-Income Ratio. This is the total of all your monthly debt payments, including PITI, compared to your gross monthly income. This includes all debts: credit cards, student loans, alimony, child support, gym memberships, etc.

Back-End Ratio = (Total Monthly Debt Expense / Gross Monthly Income) x 100

Lenders use these ratios to calculate risk, or the likelihood of the borrower being able to make their payment on time. The higher the ratio, the greater the risk.

As mentioned earlier, various loan types can and do have different ratio requirements. Below is a list of current ratios. Note: These figures have changed recently and are subject to change at any time under current credit conditions.

FHA & VA - 31 Front End /43 Back End Ratio
USDA Rural Development - 29 Front End / 41 Back End
Conventional - 33 Front End / 45 Back End

Using these figures, if you have a monthly income of $3000.00, under FHA and VA, your total monthly housing expense can be as high as $930.00 and your total debt to income can be as high as $1290.00 a month. For Rural Development, this would be a bit lower, for Conventional, a bit higher. Depending upon where you are looking, your PITI will vary based upon tax rate and insurance. In the Athens Area, for a median home sale of $170,000 taxes could run $160. month and insurance $40 month for a total of $200.00. This means you can afford a home with a loan amount of $730/month. (Note: Taxes and insurance will vary. Those figures are only approximate and will be dependant upon assessment and any exemptions you may be eligible for.)

Lenders usually place more emphasis on back end rations than front end.

The second step is to determine how much home your loan payment will cover. Use the chart below to determine your monthly principal and interest payments at various interest rates for either a 15- or 30-year term.

Interest Rate Factors Per $1000

Interest Rate	15 Yr. Term	30 Yr. Term	Interest Rate	15 Yr. Term	30 Yr. Term
4%	$7.40	$4.77	8%	$9.56	$7.34
4.25%	$7.52	$4.92	8.25%	$9.70	$7.51
4.5%	$7.65	$5.07	8.5%	$9.85	$7.69
4.75%	$7.78	$5.22	8.75%	$9.99	$7.87
5%	$7.91	$5.37	9%	$10.14	$8.05
5.25%	$8.04	$5.52	9.25%	$10.29	$8.23
5.5%	$8.17	$5.68	9.5%	$10.44	$8.41
5.75%	$8.30	$5.84	9.75%	$10.59	$8.59
6%	$8.44	$6.00	10%	$10.75	$8.77
6.25%	$8.57	$6.16	10.25%	$10.90	$8.96
6.5%	$8.71	$6.32	10.55%	$11.05	$9.15
6.75%	$8.85	$6.48	10.75%	$11.21	$9.33
7%	$8.99	$6.65	11.25%	$111.36	$9.52
7.25%	$9.13	$6.82	11.5%	$11.52	$9.71
7.5%	$9.27	$6.99	11.75%	$11.68	$9.90
7.75%	$9.41	$7.16	12%	$11.84	$10.09

1. Find the appropriate interest rate from the chart above.
2. Look across the column to the appropriate term to determine your interest rate factor.
3. Multiply the interest rate factor by your loan amount in $1,000s.
4. Compare that to the payment you reached by applying the ratios.

For instance, if you assume a 30 year loan at 5.5% for a $170,000 home, multiply $5.68 x 170 (the number of thousands in 170,000). Your payment would be $965.60, much higher than you can qualify for. To find out the approximate loan amount, divide $730 by $5.68. Your result will be a $128,500 loan at 5.5%. If you want to buy a home higher than that amount you will need to either make a larger down payment or qualify for a lower interest rate.

Note: This is not to be construed as financial advice. It is merely to provide you a means of approximating the price of a home you may be able to afford. Please check with an experienced lender to determine the exact amount of loan and interest rate you qualify for. They will then be able to give you a more exact price of a home you may be able to get a loan for.

For information on buying or selling real estate in Athens and the surrounding counties, call me at 706-207-5290 or click here to email me. If you would like to search for properties available in this same area, please click to follow the link to The Athens Real Estate Page.

Home Financing - The USDA 100% Rural Development Loan

A few weeks ago I wrote an article about the types of financing available in today's market. Today, I would just like to expand on just one of those types, USDA Rural Development loans.

The U.S. Department of Agriculture is also in the home loan guarantee business, just like the V.A.
Under it's Rural Development 502 Guaranteed Housing Loan Program the USDA is offering 100% loans to qualified buyers. Here are the highlights of the loan program:

• There is no down payment required. Similar to the VA, this is a true 100% loan program.
  
• There is NO Mortgage Insurance. Conventional loans require PMI or Private Mortgage Insurance on loans of greater than 80%. This is usually added to the loan payment. FHA requires MIP, or Mortgage Insurance Premium, part of which is paid at closing and the remainder in the monthly payments.
  
• There is no Cash Reserve Requirement. Some loans and/or lenders require you to have cash reserves, money left over after closing, to cover up to six months of payments. The Rural Development 502 program does not have that requirement. While I am not a financial planner, it does make sense to me to have some cash reserves on hand after your purchase.
• There is no Pre-payment Penalty. You can pay your loan off early with no penalties. Although this is common in today's market, there are still some loans and lenders that will impose a pre-payment penalty.
• You Don't Have to Meet First Time Buyer Requirements. You aren't getting a tax credit, but, you can use this type of loan when moving from one home that you own to another.
• Both new construction and existing homes are eligible. You can by new are a previously ownded home.
• There is no Seller Contribution Limit to Closing Cost. Unlike an FHA loan, if your agent, or you, can negotiate it, the seller can pay all of your closing costs.
• There is no Gift Contribution Limit to Closing Costs. You may get all of your closing costs in the form of a gift from relatives or friends. You are not required to use your own "seasoned" funds.
• It is a Fully Amortized 30 Year Loan. Payments are fixed over the time of the loan. There are no adjustable interest rates or payments. There is no balloon payment.
• You Can Receive a loan for up to 102% of the Appraised Value. Providing you qualify, you can cover some of the closing costs and/or repairs with a loan of up to 102% of the appraised value.

This loan is not available in Athens-Clarke County or in Watkinsville. However, large areas of Oconee, Jackson, Madison and Oglethorpe counties are eligible for this loan program.

For more information on USDA loans contact a qualifed lender who is experienced with this program.

If you have questions on properties available under this program, or, if you are interested in buying or selling your home in Athens and the surrounding counties and communities please call me at 706-207-5290. Or, you can click here to email me with your inquiries. To search for home in Athens, Watkinsville, Oconee County, Oglethorpe County, Jackson County or Madison County, please visit my website at http://www.theathensrealestatepage.com

Buyers - There is Still Money Out There for a Loan - Financing Options

With all of the focus on how tight credit is, you may believe that there is no money out there for a home loan. If that is the case, you are believing wrong. There is still a lot of money available and a lot of lenders who will make that loan. There are even some 100% loans available.

Here is a list of the main types of loans that you can get today:

• FHA - the majority of today's mortgages are being written, or underwritten, by FHA. The requirements are a bit stiffer than they used to be, and the you will need to come up with at least 3.5% of the loan amount to qualify.
• FHA Renovation Loan - there are two types, standard and streamlined. They allow the buyer to renovate a home prior to moving into it. This type of loan can make purchasing distressed or foreclosed properties enticing.
• VA - this is a 100% loan available to honorably discharged U.S. veterans. It can be used more than once, the veteran will just have to get a certificate of eligibility each time he/she wants to use it. All previous VA loans have to be paid off.
• USDA- rural development loan for properties in specific designated zones. This is another 100% loan program. Athens-Clarke County is not eligible but much of Jackson, Madison, Oglethorpe, Oconee, Barrow and Walton County are eligible.
• Reverse Purchase Mortgage - this is a program specifically for seniors over age 62 who can purchase a home for a down payment and have no payments for the rest of their lives.
  
• Conventional - available from mortgage brokers, banks, lenders, etc. Different institutions will have different types of loan programs.
• Owner Financing - sometimes the seller will finance all or part of the purchase price. This may be good for someone with special circumstances who cannot qualify for a loan for some reason but is able to make the payments. A person who is self-employed but with less than 2 years of history might be a candidate for this.

For all loan types (except owner financing) speak with knowledge-able lenders. Not all lenders will be knowledge-able about each loan type. They might not even offer all loan types. And, even if they offer the same loan type, such as FHA Renovation, the programs may be very different. You may want to interview and deal with several lenders and make detailed comparisons before selecting one. And don't forget to get a pre-approval, not pre-qualified, letter. It puts you in a better position to get the home that you want.

For more information on loan types, or, about buying or selling a home or land in Athens and the surrounding counties, call me at 706-207-5290.