Dennis' Mortgage Blog

Question of the week:  How much can I borrow?

Answer:  This is perhaps the most common question I am asked, people want to know how much of a mortgage they can get to purchase a new home.  How this question is answered is what separates a mortgage professional who cares about their clients wellbeing and ensuring their home purchase fits their short and long term plans and abilities, and someone who is just concerned about closing a deal.

The simple answer to this question is to take the client’s income multiply it by forty or forty five percent, subtract monthly credit obligations, take seventy percent to arrive at principal and interest and punch into the calculator to solve for mortgage balance. 

This will provide you with how much you can borrow, but is that the amount you should be borrowing?

When getting prequalified and preapproved for a mortgage to purchase a home, especially your first home, there are many factors to consider.  Too often the focus is on the current financial situation of the borrower, but what should also be considered is the future financial and family situation of the borrower.

Questions that need to be answered:

What are your plans for children?  While this question cannot be asked in a job interview, when contemplating buying a home it is important. Will the wife leave work after having a child or children?  Are they buying a two bedroom home and plan on having two or three children?  If you are using two incomes to qualify for the maximum loan amount possible and your plan is for the wife to stay home after having children, or perhaps the husband but I’m a bit old fashioned, how will you afford your mortgage payment?

What type of employment and job do you have?  Are you in a job that has flat income future?  Are you in a job that relies on commissions that can fluctuate?  Does your employer have a clear career and compensation track you are on?  Your decision for your current mortgage payment should strongly consider your future income probability—not potential but probability.  How long until you retire and what will your retirement income be?

What future expenses do you anticipate?  Do you have an older car that will only last a few more years?  Will you have cash to buy a new one or will you have to take out a loan and a new monthly payment?  If you are having children and both husband and wife will be working are you taking into account the costs for childcare?  Do you have children that will be entering college in the near future?

Determining how much you can borrow is just simple math. 

Much more important that what you can borrow is how much you should borrow.  Look beyond today, this month and even this year when considering your mortgage and monthly housing payment, consider your future and what plans you have for your family.

Have a question for me?  Ask me!

This week’s blog posts:

Proposed Refinance Program Will Help Housing Markets  The Obama Administration is considering revamping the Making Home Affordable refinance programs, I think it is a good idea that will help home owners, investors and housing markets. 

Stagflation? Economic news points to one of the most difficult economic conditions from which to recover.

Greece is the word again on Wall Street.  As Europe scrambles to prevent Greece’s almost guaranteed default, or rather prevent Greece’s collapse from crashing the entire European banking system investors behaved as if there is an economic revival occurring.  Since Monday the Dow Jones has climbed about 600 points on the news.  Ignoring the economic news at home, investors have eschewed Mortgage Backed Securities for a sense of security that Greece will somehow be okay—and therefore Spain, Portugal, Italy, Ireland and the rest of the Eurozone.

Mortgage rates rebounding some today but most of the week have been floating higher solely on the move to stocks by investors, certainly not because of economic and technical data that should have seen a move lower in rates through the week.

I can’t figure it out, rates should be lower than they are from a technical standpoint of the price of Mortgage Backed Securities but are not.  Rates should be going lower based on the weak economic data but are not.  When rates are like this I am not one to advise floating and hoping for a lower rate.  Take your savings and lock in, if rates drop significantly before closing we can float you down.

Rates for Friday September 16, 2011: Conforming rate floats up a teeny bit from last Friday and the high-balance (over $417,000 to $625,500 new maximum conforming limit as of October 1, 2011) have popped up this week.  FHA rates are still sitting on the floor of the coupons offered and at the rates listed below credit for closing costs are available.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               3.875%             Up 0.075%

30 year high-balance conforming           4.125%             Up 0.169%

30 year FHA                                         3.75%**           Flat

30 year FHA jumbo                              3.75%**           Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

** Call for pricing quote as FHA mortgages are at their lowest coupon rate and credits available to cover closing costs at these rates. Updated 9/9/11

We have a big weekend with the girls and Mom headed to Knott’s Berry farm with friends to celebrate our oldest daughter’s twelfth birthday while Dad plays in a two day golf tournament on Saturday and Sunday mornings.  Then Dad gets to watch the Sooners of Oklahoma hopefully repeating last year’s beating of Florida State. Sunday afternoon we will be travelling down to Orange County to celebrate Leslie’s sister, and our daughter’s birthday buddy, a milestone birthday, it’s not nice to reveal a lady’s age but if it were currency you would be looking at Grant!

Happy birthday Blaire as you stand on the edge of teenagerdom, and to Kelly as you stand on the edge of…well on the edge!

Have a great weekend everyone!

Dennis