Sunday, July 27, 2014

How Much Can I...?

I sometimes get annoyed when I ask a question and the answer I receive is another question, but I am often guilty of that response myself.  So when I am asked “How much can I qualify for?” by someone that wants to be prequalified for a mortgage, I often answer with a couple of questions.  First, “How much do you pay now for housing?” and “How much are you comfortable budgeting each month for housing?”  From there I work to calculate debt to income ratios to see if the homebuyers budgeting expectations are in line with underwriting guidelines.

It is tempting, but dangerous to find a house and then reverse engineer a budget that is dramatically different from one’s current spending habits.  Don’t get me wrong, it’s great to trim unnecessary expenses out of the budget, but people need to be realistic about what changes they are willing to make about their expenses and how it affects their overall happiness.  Instead of just telling the homebuyer the maximum amount they can borrow and still get approved, we have a deeper discussion about what they can truly afford.

Every new homebuyer should create a household budget, especially when the home purchase results in an increase in their monthly housing expenses.  Consider all expenses when creating the budget.  There are a number of expenses that a lender won’t consider when qualifying a buyer such as tuition, medical insurance, prescriptions, as well as discretionary costs.  These can be major expenses and will impact how much is available to pay for a home.  Depending on lifestyle, travel and hobby expenses can greatly impact a household budget.  Pricey hobbies like golf and skiing, or even pets can take a bite out of a monthly budget. 

At least one of the line items on a budget should be savings.  This can be for retirement, college, or any other financial goal.  All of these costs are real and should be considered by a homebuyer when deciding how much they are willing to pay for the roof over their head.

Saturday, July 26, 2014

Bad News in Portugal is Good News on Main Street U.S.A.

Poor Portugal.  First their national soccer team and superstar Cristiano Ronaldo failed to advance past the group stage of the World Cup.  Now concerns over the solvency of the major Portuguese bank, Banco Espirito Santo, is creating waves through the global financial system.  Stock markets are moving downward on the uneasiness.  Coincidently, Cristiano Ronaldo is also a paid spokesperson for Banco Espirito Santo (see BES advertisement).

In this case, and in general, bad news for the stock market and other securities drives investors to the safety of U.S. bonds.  That leads to lower mortgage interest rates for American homebuyers.  So those of you in the market to purchase a home or refinance are in a position to benefit from the struggles of Portugal, Banco Espirito Santo, and Cristiano Ronaldo. 

Condos are Movin' on Up

Condos are “Movin’ on Up”

One of the more dynamic segments of the housing markets is the condo market.  As the overall real estate market recovered from the recession, condos have come back strong.  Many “broken” projects that were victims of poor timing in 2007-2008 have new life and strong sales.  Luxury condo projects in highly desirable locations are in demand.  Likewise, more moderately priced condos allow budget conscious homebuyers entry into neighborhoods where single family homes are priced out of reach.

In order for buyers to obtain conventional financing for condo, the project must be approved by the lender.  In general, here are just a few of the guidelines that lenders must follow when offering mortgages on condos:

·         No more than 50% of the project’s units may be occupied by renters

·         For new projects, as few as 50% of the units must have been conveyed or under contract for purchase

·         No single entity may own more than 10% of the units

·         No more than 15% of the total units can be more than 30 days delinquent on association fee payments

·         Minimum insurance coverage and other requirements apply

Condos may also be financed with FHA and VA home loans with project approval.  Condos are an attractive form of housing for a growing number of people that desire low maintenance living in an urban environment.