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Frequently Asked Questions:
A: Typical qualification for all mortgage programs is broken down into two areas, your Front Ratio and Your Back Ratio. Front Ratio is the maximum housing expense, and Back Ratio which is the maximum allowable debt to income ratio.
Front Ratio, the maximum housing expense for mortgage qualification, is figured as percentage of your Gross Monthly payroll. If are making $30,000 per year your gross monthly payroll is $2500 per month (30,000/12). The percentage used to obtain the maximum housing expense generally is 28%. So you would take 28% of your gross monthly income, which would be a monthly payment of $700.00 (2500 x .28 = 700) for qualification purposes.
The Back Ratio is the one most heavily considered during the mortgage qualification process. It is the maximum allowable debt to income ratio. The percentage used to figure Back Ratio for qualification purposes is 43% of your gross monthly payroll minus your total monthly debt payments (such as credit cards, installment loans, etc. ). With an income of $30,000 per year your back ratio would be $1,075 (30,000 x .43 divided by 12).
So if you had a car payment of $300, and two credit cards totaling $100 per month with income of $30,000 per year, the maximum monthly mortgage payment you would qualify for is $675. The $675 monthly payment would contain the total of Principle and Interest, Insurance, property taxes, and monthly mortgage insurance.
A: A tough question! Most will tell you longest term with smallest payment. If you follow this line of thinking or advice depending on your down-payment it could be many years before you have enough equity to sell your home, remodel or purchase a new home.
However if you are smart the answer is to plan your financial future. Do some investigating, questioning and comparisons. Then go with the shortest term and payment you are comfortable with. Balance your purchase price and payment and the rewards will be great. It may mean a little bit smaller home at the time you purchase or refinance today but it will have a huge effect when you decide in five or six years to remodel, buy up or go into new construction. This strategy combined with today's low rates allows you with even a small down payment to start building equity in your home leaving you many options in the future.
A: A home inspection is a physical examination of a home in a purchase transaction to prevent you from purchasing a home that may need extensive repairs or upgrades. The inspection will typically include an extensive visual inspection of the home's foundation, interior and exterior walls, roof, crawl spaces, basements, drainage, door, windows, with operating inspections of plumbing, heating, and electrical systems. Home inspections are usually done by Certified Home Inspectors but can be made by anyone with extensive knowledge of the residential building trades. A home inspection is a great idea for the peace of mind and knowledge it will provide you about your new purchase.
Appraisals can only be done by a State Licensed appraiser. Some appraisals such as VA, FHA, and USDA RD loans must be done by appraisers who have also passed certain tests and standards and been approved and certified by the VA or FHA. Appraisals for secondary market loans can only be ordered by the lender. To maintain their independent and unbiased nature appraisers are not to be in direct communication with the Originator, Seller, Builder, Purchaser or Realtor in the transaction.
Market value is determined by many variables the biggest being comparables or comps. Comps are homes that are very close in property size, age, physical size, appearance, and location to the home being appraised. These comps are used to validate and help determine the market value given to your home. These homes are generally to be within one mile, and have sold on the open market within the last six months.
Given the above main characteristics of an appraisal that is why sometimes it is very difficult to determine the market value of a home. Variables like new construction custom homes built by Developers or Builders and sold directly to the consumer cannot be used as they were not sold on the open market. Rural or small town areas can be sometimes very difficult as consumers in these markets do not typically sell their homes very often and the comparables are located much further apart than in metro areas. High end homes can also be very difficult to determine market value because of their physical size, location, and lower numbers of sales in reasonably close market area.
There are many factors used in determining the market value of your appraisal. From this very short description you can get a feel for the difficulty and why appraisals are a very large part of your purchase or refinance mortgage.
If you currently own Real Estate:
Glossary There might be unfamiliar terms that you will hear during the mortgage process, but don't worry, we've put together this glossary to help give you a better understanding and make things more clear.
Curious what your mortgage payment might look like? Our mortgage calculator can help you determine your monthly payment and can also show you an amortization schedule.