About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs

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People often come to us wondering “how much house” they can afford. This is a somewhat complicated question because there are many variables that contribute to that answer. In this post we’ll try to break those variables down and give some rule-of-thumb ballpark numbers.

Variables that go into equation:

Debt-to-income ratios: Normally borrowers want to have all of their monthly debt payments be less than 50% of their gross monthly income. So if a family makes $4000/mo gross, all of their monthly debt payments should be less than $2000/mo. So in this example if the non-housing bills (car payments, credit card minimum payments, student loan payments, etc) add up to $800/mo then the total mortgage payment (including property taxes, homeowners insurance, PMI, and HOA fees) should be under $1200/mo.

Principal and interest payment: This is the easiest and least variable part of the equation. Any calculator that has time value of money (TVM) function can help you figure this out. For instance, a 30 year fixed $150,000 mortgage at 4.5% will always have a monthly principal and interest payment of $760.03/mo.

Escrow payment: Here’s where costs can vary widely between locations. The things that can be included in the escrow payment (and debt-to-income ratio requirements) are as follows.

    Property (and other) taxes: In many states this is a single annual tax divided by 12 for the escrow. However in some states and counties property taxes are divided into sections including things like “school taxes” etc. Whatever the annual total is on all taxes on the property is divided by 12 and added to the debt-to-income ratio calculation.

    Homeowners (and flood) insurance: Again the cost of homeowners insurance can vary widely by region. For instance in areas prone to hurricanes or tornadoes, homeowners insurance can be significantly higher than average. Also if the home is in a flood zone expect higher annual premiums. Again, divide the monthly insurance costs by 12 when calculating debt to income ratios.

    Mortgage insurance (also known as PMI or MI): In most cases when you have less than a 20% down payment you will have to include mortgage insurance in your monthly payment. Mortgage insurance insures the lender against default on the loan. It is sometimes called “private mortgage insurance”, thus the popular PMI acronym. The amount of MI required depends on the loan type and on the size of the down payment. VA loans require no MI. USDA loans have something similar to MI rolled into the payments that is 0.35% of the loan amount spread out over 12 payments per year. FHA loans have MI that 0.85% of the loan amount spread over 12 payments per year. Conventional Fannie/Freddie loans have varying mortgage insurance amounts based on down payment amount and on credit scores.

    Homeowners association (HOA) fees: These are not usually included in the actual mortgage payment but they are included in the debt-to-income ratio calculation. Most condos and townhouses will have HOA fees and some single family homes have them too, depending on the neighborhood.

 
Rough ballpark numbers to expect

Because there is so much variability in the escrow items it is impossible to nail down costs nationwide. But here are some rule-of-thumb ballparks that can help triangulate a number to expect up front:

Total monthly payment Approx loan amount
~$1000 $120k-140k
~$1300 $165k-180k
~$1600 $205k-230k
~$2000 $260k-$290k
~$2500 $380k-410k

Again, it is very important to look at all of the variables when determining how much you can qualify for when it comes to a house payment. The other thing to consider is how much you can comfortably afford to pay every month — just because you can make the ratios work on a larger loan on paper doesn’t mean you are comfortable with the higher monthly payments in practice.

 
Contact us for detailed analysis of your situation

Contact us today at our home purchase page and we can connect you with a lender that is authorized to administer government-backed mortgages. They can run all your numbers for you and help you figure out how much you can qualify for and what your best bet is in terms of available programs.
 
 

Comments (0) Posted by G.R.A. Admin on Sunday, February 4th, 2018