Financing Your Home


How Much House Can You Afford?

Determining how much home you can afford, or what payment you feel comfortable with, can be confusing.  In addition to the interested rate, there are several types of loans available that require varying down payment amounts and varying debt to income ratios.  The best way to obtain a clear picture of how much home you can afford is to speak with a reputable local lender and let them analyze your situation. The lender can calculate your debt to income ratio, do a quick credit score, and review with you with the available loan programs that fit within your budget.  I strongly recommend that you speak with a lender and obtain a loan pre-qualification letter prior to starting the home buying process.  This will make you more comfortable and confident while viewing homes, allowing you to save time and focus on a specific price range. Additionally, in today’s market, most sellers are requiring that a buyer pre-qualification letter accompany the buyer’s offer.  I work with a number of loan officers and would be happy to introduce you.  Call me today at (805) 490-8008.

Here are some examples of the most popular loan programs offered today:

Fixed Rate Loans
A fixed-rate mortgage is the most popular mortgage program in use today.  Fixed-rate loans offer the borrower a fixed interest rate for the life of the loan, typically 15 to 30 years. Borrowers have peace of mind knowing that their monthly payment will not change over time. Conventional fixed-rate mortgages have underwriting requirements that require certain down-payment amounts and debt to income ratios to qualify. Fixed-rate loans are especially attractive to buyers who plan to stay in their home for more than a few years.
 
Adjustable Rate Loans
In an Adjustable Rate Mortgage (ARM), your interest rate is tied to an index that reflects the cost of money at a given point in time.  This means that your rate will fluctuate periodically, and your payments will go up or down accordingly.  Generally speaking, lenders charge a lower initial interest rate for the ARM than for a fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today knowing your income will rise in the future, then this loan may be right for you. Adjustable rate loans are also attractive for buyers who expect to be in the home for a short period of time.  As with fixed rate loans, ARMs have underwriting requirements that require certain down-payment amounts and debt to income ratios to qualify.


FHA and VA Loans
The Federal Housing Administration (FHA), offers loans that have lower down payment requirements, and more lenient credit and income underwriting requirements.  Past bankruptcy does not necessarily disqualify borrowers from using this program.  The FHA sets limits on the maximum amount of the loan by geographical area.  The Department of Veterans Affairs (VA) offers a zero-down mortgage program. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military. One of the biggest benefits of the VA program is that it eliminates the need for private mortgage insurance.  FHA and VA loans can take longer to process and require the home to be purchased meet certain criteria.  This may result in longer escrow times.  Thus, in a hot market FHA/VA buyers with their lower down payments and longer escrow times aren’t as attractable to sellers.  



 


 



 
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