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HOW MUCH HOME CAN I REALLY AFFORD?

Deana M. Devereaux • August 20, 2020

That is the magic question….and we won’t be like this. We promise!

I will make this SIMPLE. You will love me for it, later. 
Here we go:
1) Figure out what your annual gross income and your MONTHLY gross income, is. These numbers are EVERYTHING.
a. If you are a wage earner, that ought to be easy. You know what your annual salary is. You know what your monthly GROSS income is. It’s that delightful bigger amount that dwindles FAST to a smaller one once the government gets their cutouts.
b. If you are self-employed, add up your total sales revenue, then subtract any refunds and the cost of goods sold. Add in any extra income such as interest on loans, and you have your gross income for the business year. Divide that by 12 for the monthly.

2) Go to www.creditchecktotal.com or other similar service where you can get your true Tri-Merge Credit Report. This means the report shows all three credit scores from Equifax, Transunion and Experian and all tradelines. Omg…do NOT use the reports from Credit Karma or other similar services. They use Algorithms. We’ve had Borrowers report 700 scores on Credit Karma. When we pulled their real reports, they were closer to 600! Just….no, please.
Obviously, the better your credit is, the better your interest rate and the better the terms will be that are available to you. We take credit down to a 620 for most low rate loans. COVID-19 has changed a LOT of guidelines, though. Every file can be quite unique. Just sayin’.

3) What debts do you have? FIGURE OUT YOUR DEBTS YESTERDAY.
You need to know two super-important terms RIGHT NOW:
Front-End Debt Ratio = The front-end ratio, indicates what portion of your income is allocated to mortgage payments. It is calculated by dividing your anticipated monthly mortgage payment by your monthly gross income.
Back-End Debt Ratio = The back-end ratio, indicates what portion of your income is allocated to mortgage payments AND all other monthly debts. This is the whole kit and caboodle. It is calculated by dividing your anticipated monthly mortgage payment and all other debts by your monthly gross income.
These debts can include student loan payments, credit card payments, non-mortgage loan payments, union dues, alimony, child support and more. Once people have car notes, child support, union dues, credit cards, etc., debt ratio creeps upwards and can disqualify a Borrower for a particular dollar amount.
And YES, deferred student loans CAN STILL count against your debt ratios. If you have student loan balances and it says you pay $0 per month because of deferment, a percentage of that balance will be counted against you as if you WERE INDEED PAYING. It sucks, I know…but this is real.


*****Let me give you an example of home affordability.
EXAMPLE: Say you have a 680 credit score. Your monthly gross income is $8,500. You have ONE car note for $350 and no other debts.
You want to buy a new single-family home to live in for $350K (purchase price). We quote you a rate for 2.875% under a Conventional loan (97% loan to value) and an estimated PITI (Principal, interest, taxes and insurance) monthly payment of $ 2,132.00. Your Conventional loan amount would be 97% of $350K = $339,500.

Here are your ratios, based on $339,500:
Front-End - $2,071/8,500 = 24.36%
Back-End - $2,071 + 350 (car note) = $2,421/ 8,500 = 28.48%
Wooo-hooo! With these ratios, it is clear you could afford a $350K home just based off of your credit score, income and debts. 

Of course, you would have to put down only 3% of the $350K purchase price ($10,500) plus the cost of a property appraisal (usually runs between $300-750, depending on the home’s square footage and location) and cover any closing costs and 3rd party fees (title, escrow, etc).
An IDEAL front-end debt ratio is 28% and less. An ideal back-end ratio is 36% or less. However, we can go up to 50% debt ratio in some instances. 

Everyone is different. Everyone’s debts are different. There is not a one-size fits all formula that can magically and easily be applied. Each Borrower has their own, unique situation. What you receive all depends on what TYPE of mortgage you ultimately choose, dollar amount of the loan you need and the area you are buying in. $350K in Tombstone, Arizona may buy you your dream home with a pool! $350K in CA…well, now…$350K is probably going to be just a down payment on a 1.35 Bedroom that still needs work.

You are by now thinking, WTH? Lol.

Don’t fret. It is not as hard as it seems. WE CAN HELP YOU. We even have certain grant programs where you can even pay less down. We have LOW RATES. We have special programs. We are experts in creative funding and getting the impossible done.

With the RIGHT loan professional, these things can always be figured out quite easily. We can easily and quickly pre-approve you and even get you an approval letter so you can go look for homes, with just a few, simple things:

1)    Fully-completed 1003 Loan Application

2)    Income docs (If wage earner, pay stubs for the most recent 30 days, most recent 2 years of W’2’s. If self-employed, most recent 2 years of tax returns)

3)    Valid ID matching the name on the application

4)    Current Tri-Merge Credit Report



Contact us TODAY to see what you qualify for. You just may be surprised!



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DO YOU REALLY NEED A REAL ESTATE AGENT?

By Deana M. Devereaux • June 14, 2022
 The real estate agent that you’re working with to buy your home should be your advocate. You want to ensure that they are aware of all risks and benefits associated with the property you’re looking to buy. There is a major benefit in having a good real estate agent because they can ultimately help you make money on the purchase of your home in the long run. If your agent shows you homes where you could add an additional bedroom or bathroom or they show a property where you could finish the basement, they’re helping you gain equity in the property. On the flip side of that, if they don't understand your search area and they show you a home that is overpriced and they suggest that you go in over the true value of that home, you’re losing money on the transaction. It’s important to work with someone that you trust to guide you through the process and help you make decisions that will help your bottom line, not hurt it.

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By DEANA M. DEVEREAUX • May 23, 2022
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