How Much Mortgage Can I Afford?

Many people equate the purchase of a house with finally finding success. There are new buyers entering the market every day, looking for their dream property. The market is still favorable for them at this time; mortgage rates are down and homes are listed at good prices, which means that new buyers find themselves in a good position.

Approximately 33 percent of home sales are completed by new buyers, people who have never owned a home in the past. These individuals are at an advantage right from the beginning; with a little research, they can pull up facts and figures about the home that they are interested in. That is why 90 percent of buyers go on the Internet to research properties during the time that they are looking for a house.

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While going on the Internet certainly helps the home buying process, it doesn't give you all the information that you need. In particular, many new buyers are at a lost as to "how much house" they can fit into their budget.

However, even that statement is a little misleading. Instead, the buyer should ask themselves what they can pay and what they want to pay. There are a few ways to figure out the answer to that complicated question.

By looking at a few different factors, buyers can feel secure and happy about their purchase. In addition, they will not have to worry that they will struggle to make their payments.

Look At Several Models Of Home Affordability

There is no one method that will help you figure out what you should spend on your house. Instead, you need to examine the issue from several angles to determine what homes fit into your budget.

For example, the lender may tell you that you can spend up to $300,000 on a house. However, a $300,000 home would give you a mortgage that is well in excess of what you are paying for rent. As a result, you may determine that you only want to spend up to $200,000, even though you could technically spend more because you just aren't comfortable with such a high mortgage.

There are a few ways that new buyers work through how much they should spend on a house.

Think About What Your Lender Says

You can quickly figure out how much house you can purchase by getting the information from your lender. The loan officer will look at your credit, how much debt you have, how much money you make and how much money you have for a down payment. He or she when then determine the maximum amount you can spend on a house.

This is nice information to have, but many new buyers do not want to spend as much as they can. For example, the lender may say that you can have payments each month that takes up 40 percent of your gross income. These payments would be for your mortgage, any loans you have, or any other debt you carry.

Therefore, if you make $4000 a month, the lender might say that you could pay $1600 a month in payments. However, after taxes and fees, you don't make $4000 per month. You might also want to save and put money away for retirement.

If you spend the maximum of $1600 per month in payments, you may not have as much as you would like for other living expenses. It all depends on your needs and wants.

Therefore, the number that your lender gives you does not factor in the way that you like to live or what you want for your future. Therefore, think about that number, but take it a step further by determining how much you personally are willing to spend.

Figure Out What Makes You Comfortable

Home ownership does not need to keep you awake at night, filled with anxiety. If you go about the process correctly, your mortgage payment will cause you no more undue stress than your rent does.

First, you need to figure out how much you would like for your mortgage to be. Begin by thinking about how much you pay in rent. Obviously, that amount will be applied to your mortgage instead, so you have a figure to start with.

From there, think about your monthly budget. Are there things that you are spending money on that could be cut out? Track your spending for a period of time to see.

Anything that you don't need to spend money on, you should not spend money on. Take that amount and add it to the number for your rent. When you are done, you will have an amount that you feel good about paying each month.

After that, speak to a mortgage lender. Tell the loan officer what your maximum payment is. He or she will then look at private mortgage insurance, homeowner's insurance, and taxes. They will figure out how much will be applied to your interest and how much will be applied to your principal.

Live The Way you Want

Ideally, you want to purchase a home and keep your lifestyle the way that it is. More and more buyers are opting for this when they purchase a home. In 2015, NAR released a survey that polled people with student debt that also bought a house. Despite the fact that these buyers now had a mortgage to contend with, only 50 percent cut back on entertainment and other non-essentials.

Depending on where you live, you may be able to buy a house and secure a mortgage payment for the same amount that you pay in rent. If you are one of the lucky ones, your lifestyle will not need to change.

However, in general, it is a good idea to set a monthly budget and cut back on your spending before you buy a home. That does not mean, however, that you need to give up on everything that you want; you should still be able to indulge every once in a while.

What Happens If You Think You Can Spend More Than The Lender Does?

The lender has the ultimate authority when it comes to how much mortgage you qualify for. This is true even if you feel that you can pay more than the lender thinks you can.

While that may be frustrating at first, it is important to remember that lending limits were established as the result of a lot of data. If their number is smaller than yours, you will likely be in better shape if you spend what the lender thinks you can afford.

Mortgage rates are very affordable right now, so it is a good idea to start looking at homes if you are interested in buying. Find out how much you are approved for, and then go from there.

Is a Reverse Mortgage Right for You?

What’s a ‘Reverse Mortgage’?

A reverse mortgage is a type of mortgage that allows a homeowner to borrow money against the value of their home. The borrower does not have to repay the mortgage’s principal or interest. The mortgage is repaid when the house is sold or the borrower dies.

After accounting for the mortgage amount, the rate of home appreciation, the loan’s length, and the accrued interest rate, the transaction is structured so that it ensures the amount of the loan will not exceed the home’s value over the loan’s life.

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The lender often requires that there are no liens against your home. All existing liens should be paid off with proceeds from the reverse mortgage.

A reverse mortgage provides people with the income they can tap into. The main advantage of a mortgage is that the borrower’s credit rating is not relevant, and in some cases, may not even be checked since the borrower does not need to make any payments.

With a reverse mortgage, the home serves as collateral. When the borrower dies, the home must be sold to repay the mortgage. In some cases, the borrower’s heirs will have the option of repaying the mortgage and retaining ownership of the home.

The origination costs on a reverse mortgage are much higher than other types of mortgages. These costs accrue interest and become part of the initial mortgage balance. If the borrower is a senior citizen with good credit they should carefully analyze their options to determine if a home equity loan or traditional mortgage is a better choice for their situation.

How Does a Reverse Mortgage Work?

A reverse mortgage is designed to help seniors become financially stable during retirement. This is a type of home equity loan, intended for people who have a fixed income. The money available to a borrower is determined by the borrower’s age, how much the borrower owes on their mortgage and other home loans, and the home’s values.

Older borrowers can draw more money through this loan program. The youngest spouse living in the home is the basis for calculating the loan amount.

A borrower can receive payments from this mortgage as a line of credit, a monthly payment, or a lump sum.

Borrowers won’t have to make payments as long as they – or their spouse – lives in the home. Yet, if both the borrower and their spouse pass away, or move out of the home, then payment is due.

If the borrower, or their heirs, sell the home, the proceeds go towards repaying the loan. If the home is worth less than the amount owed on the loan, all the sales proceeds will go towards repaying the loan and the mortgage will be considered paid.

There have been numerous news reports in the past few years of spouses being evicted after one of them, the one listed on the reverse mortgage, passes away. The new reverse mortgage rules, which took effect in 2014, offer better protection for the nonborrowing spouse, which allows them to stay in their home, after the borrower’s death.

Will I Still Own My Home?

Some people believe that if you have a reverse mortgage, the bank owns your home. That’s not true.

With a reverse mortgage, the bank has a lien on the house, the same as a tradition mortgage or any type of home loan. The mortgage has the first claim on any proceeds from a home sale. But, the home itself is still owned by the borrower.

There are some restrictions that apply to ownership of a home with a reverse mortgage.

This is a type of owner-occupied loan. The home must be occupied as a primary residence by the borrower or their spouse. The house cannot be leased to another resident.

Why Do People Take Out a Reverse Mortgage?

Many borrowers use their reverse mortgage to pay down their debts and cut their monthly paymnts. These debts include consumer debt, home equity loans, and the existing mortgage.s

Others may use this loan in the form of an open line of credit to help cover unexpected expenses.

By having funds in a line of credit, a senior can hold onto other assets like stocks and bonds. They can use the funds from a reverse mortgage to cover unexpected costs, instead of having to sell off their other assets.

The Popularity of Reverse Mortgages

In the 1990 fiscal year, the program’s first year, only 157 reverse mortgages were made, according to the NRMLA. The number of reverse mortgages taken out annual, spiked in the 2000s, peaking at 114,692 loans in the 2009 fiscal year.

During the Great Recession, the number dropped sharply, going down to 79,106 the next year. During the 2015 fiscal year, which dated from Oct. 1, 2014, through Sept. 30, 2015, people took out 53,372 new reverse mortgage loans. This was slightly higher than the 51,642 reverse mortgages taken out in 2014.

Since this program began, a total of 911,314 reverse mortgages has been taken out, according to the NRMLA. That number is expected to reach 1 million during the first half of 2016.

Take the Interest and Fees into Account

If you take out a tradition mortgage, the interest is included in your monthly payments. You pay a little bit of interest at a time. Since a borrower doesn’t make payments, during the life of the loan, the interest on a reverse mortgage builds up. The interest rate for a reverse mortgage is like other types of mortgages.

That means over the life of the loan, the amount of debt will increase. The interest can “eat up” any equity remaining in  your home.

You also need to remember that although a reverse mortgage borrower doesn’t have a mortgage payment to make each month, the homeowner will still be responsible for paying taxes, homeowners association fees, homeowners insurance and other costs associated with homeownership. If a homeowner fails to make these payments, it may result in a default, which means the immediate repayment of the reverse mortgage.

Do Your Research

There are many resources available online to help people understand reverse mortgages.

The National Council on Aging and AARP have online resources to help explain reverse mortgages to potential borrowers.

The Federal Housing Authority, the Consumer Financial Protection Bureau, and other government agencies also offer information and online guides with information about reverse mortgages.

Talk to a Professional

Before getting a reverse mortgage, a potential borrower must attend a counseling session with a certified reverse mortgage counselor. This must be done before completing the application.

Lenders must provide a potential borrower with a list of several reverse mortgage counselors or agencies. It’s up to the client to choose a counselor and schedule a session. If the lender says you don’t have to attend a meeting or tries to steer you towards a specific counselor, that should be a red flag.

If you look on the HUD website, you’ll find a complete roster of certified HECM counselors.

Bring Your Family into the Conversation

Most lenders will say that the decision of whether or not, to take out a reverse mortgage should be made between the borrower and their reverse mortgage sales person. But, since this decision will affect the entire family, you may consider this to be a family decision.

A potential borrower should consider discussing their decision and how it may affect their heir’s inheritances and their estate. This should be done early in the reverse mortgage process.

Watch Out For – and Report – Scams

Reverse mortgage counselors and lenders try to watch out for clients who may be told to get a reverse mortgage as part of a scam. However, they are not able to catch all the fraudsters.

One scam involves people who offer seniors in a low-income community a “free” house. They move them into recently renovated fixer-uppers. Then they have them take out a reverse mortgage, and the scammer takes all the loan proceeds.

Other borrowers have been scammed when their house went into foreclosure. They were approached by an unscrupulous lawyer who promises to fix their problem for a fee. The lawyer disappears after the fee is paid.

If you suspect a scam, or if someone involved in your transaction is not following the law, tell your lender, loan office and reverse mortgage counselor. Also, file a complaint with your state Attorney General’s office, Federal Trade Commission, or the state’s banking regulatory agency.

Explore Other Options

Reverse mortgages are not perfect for everyone, so you should look for other options before you take this step.

First, look at refinancing the mortgage while interest rates are low in order to trim your payments.

If you have trouble making mortgage payments, you should research government programs in your area.

There are many different government programs that reduce your loan balance and make it affordable to stay in your home. These programs have various names depending on the state, like Florida’s Hardest-Hit Fund and Keep Your Home California. There are mortgage assistance programs available from some local governments.

And there’s a regular home equity loan which can help you get immediate cash, as long as you can handle another monthly payment.

Choosing The Best Mortgage Lender For Your Needs

Finding a mortgage lender isn't a difficult task: complete a few online forms for mortgage companies and you know all about the eager brokers who overload your voicemail with their pleas to make contact. Yet, going down this route is not your best bet. You are about to embark on the exciting journey to being a homeowner, pressure is the last thing you need right now.

Rather than get pushed into a corner, take your time and do your homework, make sure you understand how the rates and terms vary with different lenders, so that  when you do make a decision, it will be an educated one. The guide below will make sure that you feel just as good about your mortgage lender, as you do about your perfect new pad.

Understand Your Borrowing Needs

To rid yourself of a whole lot of hassle with mortgage lenders, get your side straight from the start. Have a clear statement of how much cash you can use for your new home and how much you need to borrow.

At the very minimum you are going to need savings equal to the down payment on the house (expect 20% of the house value, although at times it can be less). Then there is the closing costs, property tax for the first year and house insurance. Mortgage lenders typically like to see that you have a little extra in the piggy bank, in case you lose your job or run into some other financial crisis.

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The next step is to work out how much money you need to borrow - this step should be completed before you make contact with any mortgage lenders. To get things moving towards the goal you have in mind, you want to start any meetings with potential mortgage lenders in a confident and informed way.

It's Time To Ask Around

Has one of your friends or someone you work with just become a homeowner? Did they have a good experience with their chosen mortgage lender? If they did, it's time to ask for the contact details of the mortgage lender. (On the flip side, if they had a terrible experience you still want to write down the details, so that you can steer well clear!)

Another good source for information is your real estate agent or financial adviser. They are generally a good option for a reliable and trustworthy recommendation.

Do Your Homework, Cleverly

In the event that you haven't been able to get any recommendations, it's time to take a look at local and national lenders online. But, there is a problem with online mortgage quote generators; In one way they are handy, on the other side they are a bit of a pain. You enter all of your details to see whether you qualify and how much you can borrow and may think you're all done.

The problem is that once you've entered all of your personal details, you've put them in the hands of lenders. This means you can expect a whole lot of contact, granted that may be a good thing, but then again it may not.

Lenders buying and selling lists of potential mortgage borrowers is something the Federal Trade Commission has mentioned. It is a legal matter, but you can certainly get around it. You are able to request that your personal details are not given to lenders (known as opting out) by either calling 1-888-5-OPTOUT or online at www.optoutprescreen.com. Another option is to ask to go on a do-not-call list, this can be done via www.donotcall.gov and lasts for five years.

After completing both, or one, of the above steps, you can have peace of mind to do a few online searches for mortgages without worrying about an email, voicemail or call overload.

Another great idea is to use a mortgage rate comparison, like the one here, to give you a good base figure of how rates are looking in your area with the loan you require and your presumed credit score.

Calling banks or checking the bank or credit union's rate online is another excellent way to cleverly do your homework. Expect to be asked about the house value and how much you need to borrow. Once you've given these details they should be able to give you their interest rate.

In the event that the conversation starts to heat up with personal information being requested, all you need to do is state that this is simply a preliminary call, then politely round up the conversation. If the agent starts to pressure you, telling you the rate could change at any moment, they may not be the right lenders for you.  You want a combination of good terms, a great rate, and an exceptional attitude.

Whilst loan officers in banks, credit unions, and other such lending institutions are not slick sales people, they do want to coax you into applying for a loan with them.  Since it's clear that lenders want your business, you need to make them work for it. Say you would like a cost and fee breakdown - that should include commissions, appraisal fees, application fee and so forth. You'll soon see that there is a lot more involved than simply the interest rate.

Can any of these fees be included in the mortgage instead? Is your attractive interest rate dependent on paying points? (this is often 1% of the loan amount upfront, for each point).

How much is the down payment, if you do not have the entire 20% will you need to pay PMI (private mortgage insurance)? Once you build up the appropriate amount of equity will the PMI go away?

Also, your lender should be someone who makes you feel comfortable. Your preliminary meeting should not have even a hint of pressure whether by phone or in person. You should expect the lender to be approachable, as well as very informed. If you are talking with someone who you are happy to share your personal and confidential information with and they are offering you a great rate, it looks like you are with the potentially right lender.

Get It Down To A Shortlist

Don't feel pressure to run with the first lender you speak with, regardless of how well the meeting went. Zillow, a real estate website, gives the recommendation to find a minimum of three lenders who you think could be great. Then do more homework. Read reviews, look at forums and talk to your real estate agent.

At the end of the day, it is you that will be signing the bottom line, so your thoughts are the crucial ones. Zillow puts forward the suggestion of making a note on the following points following a one-on-one conversation with a potential lender:

- Was the lender quick about returning contact?

- Was the lender rushing through the conversation and trying to get you on board, or were they patient and pleasant?

- Was the lender knowledgeable as they answered your questions?

- Were you given details such as estimated costs, closing date, timeline and so forth?

- Did you find the lender was trustworthy when discussing rates and their potential to change?

It is clear that the right lender is friendly, efficient and capable. Finding these qualities in a lender may at first seem like a mission impossible, however, once you know the right steps to take, it's more than possible to make a great decision.