Please review all readings located in the Lessons area for the week. Then please answer the following questions:
1. What is the importance of Qualifying a Title as part of the loan closing process?
2. What is Title Insurance and its role in real estate finance?
3. What is the Torrens System?
4. Find an internet example of a real-world title problem that impacted real estate finance. Discuss
3 to 5-page analysis. APA format. USE THE ATTACHED REFERENCES AS WELL AS OTHER REFERENCES.
CHAPTER 2 Qualifying for a Mortgage 25
Chapter 2
IN THIS CHAPTER
» Starting off right with preapprovals
» Understanding how lenders size up
borrowers
» Solving typical mortgage problems
Qualifying for a Mortgage
W e love a good thriller
.
If you’re looking for a spine-tingling mystery, however, Mortgage Management For Dummies isn’t it.
Qualifying for a mortgage shouldn’t be the least bit mystifying. And after you
understand how lenders play the game, it won’t be. This chapter removes nearly
every bit of puzzlement from the process. We show you exactly how to get started,
tell you what lenders look for when evaluating your creditworthiness, and help
you solve your mortgage problems — whether you’re looking for a loan as a first-
time homebuyer or trying to refinance or pay off your mortgage faster.
Getting Preapproved for a Loan
Everyone knows that time is money, so we decided to begin this section with a
timesaving tip. If you’re a homeowner who wants to refinance an existing
mortgage, you have our permission to proceed directly to the next section, which
discloses how lenders evaluate your credit. This segment applies only to folks who
haven’t bought a house yet. (Don’t feel slighted. We devote Chapter 11 entirely to
the fine art of refinancing.)
Now, for all you wannabe homeowners, be advised that there’s a right way and a
wrong way to start the home-buying process. The wrong way, astonishingly, is
rushing out helter-skelter to gawk at houses you think you may want to buy.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
26 PART 1 Getting Started with Mortgages
Don’t get us wrong; knowing what’s on the market is important. It’s even more
crucial to educate yourself so you can distinguish between houses that are priced to
sell and ridiculously overpriced turkeys. If you don’t know the difference between
price and value, you could end up paying waaaaaaaaaay too much for the home you
ultimately purchase. (To find out everything you need to know about buying a
home, check out Home Buying For Dummies, by Ray Brown and Eric Tyson [Wiley].)
But . . . first things first: If you can’t pay, you shouldn’t play.
The worst-case scenario
Suppose you’ve been looking at open houses from dawn to dusk every Saturday
and Sunday for the past seven weeks. Just when you begin to think you’ll never
find your dream home, it miraculously appears on the market.
You immediately make an offer to buy casa magnífico, conditioned upon your
approval of the property inspections and obtaining satisfactory financing. When
the sellers accept your generous offer, the bluebird of happiness sings joyously.
Three weeks later, the bird croaks. The loan officer calls to regretfully advise you
that the bank has rejected your loan application. The reason isn’t because you
offered too much for the house. On the contrary, the appraisal confirmed that the
property is worth every penny you’re willing to pay.
The problem, dear reader, could be you. Unfortunately, your present income and
projected expenses may be out of whack. You may not earn enough money to make
the monthly mortgage payments plus pay the property taxes and homeowners
insurance without pauperizing yourself. Adding insult to injury, this depressing
discovery is delivered to you after you’ve blown hundreds of dollars on property
inspections and loan fees and put yourself through an emotional wringer for three
weeks.
Now the good news: It doesn’t have to be this way. After you establish how much
you can prudently spend for your dream home, which we cover in Chapter 1, the
next logical step is to get yourself preapproved for a mortgage. Then you’re prop-
erly prepared to begin your house hunt.
Loan prequalification usually
isn’t good enough
You can use two techniques to get a lender’s opinion of your creditworthiness as
a borrower. One is the better way to go. The other is potentially a waste of your
time and money and may even be grossly misleading.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 27
We start by critiquing the second-rate method. Loan prequalification is nothing
more than a casual conversation with a loan officer. After quickly quizzing you
about obvious financial matters, such as your present income, expenses, and cash
savings for a down payment, the loan officer renders a down-and-dirty guessti-
mate of approximately how much money he might lend you at current mortgage
interest rates assuming that everything you’ve said is accurate. Most lenders
graciously provide a prequalification letter suitable for framing or swatting
mosquitoes.
Prequalification is fast and cheap. It rarely takes more than 15 minutes unless
you’re the type who has trouble parallel parking.
Because the lender doesn’t substantiate anything you say, the lender isn’t bound
by the prequalification process to make a loan when you’re ready to buy. When
your finances are scrutinized during the formal mortgage approval process, the
lender may discover additional financial liabilities or negative credit information
that reduces your borrowing power. In that case, you end up squandering precious
time and money looking at property you aren’t qualified to buy.
Loan preapproval is the way to go
After you read this section, you’ll understand why formally evaluating your cred-
itworthiness is such a protracted process. Loan preapproval is significantly more
involved than mere loan prequalification.
Preapproval involves a thorough investigation of your credit history. In addition,
the lender independently documents and verifies your present income and
expenses, the amount of cash you have on hand, assets and liabilities, and even
your prospects for continued employment. If you’re self-employed, the lender
conducts a diligent analysis of your federal tax returns for the past couple of years.
Obtaining the credit report, verifications of income and employment, bank state-
ments, and other necessary documentation usually takes at least a week or two.
That’s time well spent. Getting preapproved for a mortgage gives you two huge
advantages:
» You know how much you can borrow. Being preapproved for a loan is
almost as good as having a line of credit when you start house hunting. The
only thing the lender can’t preapprove is the house you buy. Because you
haven’t begun looking at property yet, your dream home is still only a twinkle
in your eye.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
28 PART 1 Getting Started with Mortgages
Be sure to stay in touch with your lender during your house hunt. The amount
you’ve been preapproved to borrow is written on paper, not carved in stone.
Lenders won’t give you a firm commitment on your loan’s interest rate until
you actually have a signed contract to buy your dream home. If interest rates
increase (or your employment income declines) after you’re preapproved for
a mortgage, the loan amount decreases accordingly. By the same token, you
can borrow even more if interest rates happen to decline (or you get a
well-deserved pay raise).
» You have an advantage in multiple-offer situations. In a hot real estate
market, you may end up competing with other buyers for the same property.
Being preapproved is proof positive to sellers that you’re a real buyer. Your
offer will be given far more serious consideration than offers from buyers
who haven’t bothered to prove that they’re creditworthy.
Some lenders offer free loan preapprovals to prospective homebuyers as a mar-
keting ploy to endear themselves to borrowers. However, others charge for loan
preapproval. Don’t choose a lender only because you can get a freebie preapproval.
Such a lender may not offer the most competitive rates, which could cost you far
more in the long run. In Chapter 7, we take the mystery out of selecting a lender.
Evaluating Your Creditworthiness:
The Underwriting Process
Suppose your best friend hits you up for a loan. If your pal wants to borrow five or
ten bucks until payday, that’s no big deal. But if your acquaintance needs five or
ten thousand dollars for a decade or so, you’ll probably analyze the odds of getting
repaid six ways to Sunday before parting with a nickel!
Good lending institutions are even more careful with their depositors’ funds. They
employ professional underwriters, who evaluate the degree of risk involved in loans
that the lenders have been asked to make to prospective borrowers. In other words,
underwriters tell the lender how much risk is involved in lending money to you. If
they determine that you’re too risky, chances are you won’t get the loan. Under-
writing standards are quite similar but do vary somewhat from lender to lender.
» Most lenders comply with underwriting guidelines of two institutions, the
Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National
Mortgage Association (Fannie Mae). These lenders sell their loans on the
secondary mortgage market to Freddie Mac or Fannie Mae, who then resell the
loans to investors such as insurance companies and pension funds.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 29
» Portfolio lenders, who keep loans they originate instead of selling them in the
secondary mortgage market, may have more flexible underwriting standards,
but they may have higher rates or only offer adjustable rate mortgages.
Just because one lender turns you down doesn’t mean that all lenders will. If
you’re having trouble getting a loan approved, head for a portfolio lender in your
area. In addition to your own interviewing of lenders, a good mortgage broker can
help you identify more flexible (portfolio) lenders; see Chapter 7. This section
helps you navigate the underwriting process.
Traditional underwriting guidelines
Underwriting standards can vary from lender to lender, because the underwriters
who examine loan applications are flesh-and-blood human beings, not machines.
Two underwriters can evaluate the exact same loan application and reach differ-
ent conclusions (regarding the degree of risk involved in making the loan), because
each interprets the traditional underwriting guidelines differently.
To get a mortgage, you must give a lender the right to take your home away from
you and sell it to pay the balance due on your loan if you:
» Don’t make your loan payments
» Fail to pay your property taxes
» Let your homeowners insurance policy lapse
The legal action taken by a lender to repossess property and sell it to satisfy mort-
gage debt is called a foreclosure. Lenders detest foreclosures. They’re typically
financially detrimental and emotionally debilitating for everyone involved in the
transaction, and they generate awful public relations for the lender. And, if a
lending institution has too many foreclosures, state and federal bank regulators
begin questioning the lender’s judgment.
Lenders constantly fine-tune the way they evaluate mortgage applications in
search of better screening techniques to keep borrowers — and themselves — out
of foreclosure. The sections that follow explain the primary factors that lenders
have traditionally used to assess prospective borrowers’ creditworthiness.
Integrity
Lenders look closely at you when deciding whether to approve your loan request.
They want to know whether you’re a good risk. Will you keep your word? How
great an effort will you make to repay the loan?
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
30 PART 1 Getting Started with Mortgages
One of the first things a loan processor does after you submit a loan application is
order a credit report. Surprisingly, blemishes on your credit record aren’t always
the kiss of death. Contrary to what you may have heard, lenders are human. They
understand that financial difficulties related to one-time situations such as a
divorce, job loss, or serious medical problems can smite even the best of us.
As we discuss in Chapter 10, all loan applications contain a “Declarations” section
that’s chock-full of red-flag questions. For instance, this section asks whether
you’ve ever had a property foreclosed upon.
As a result of the late 2000s housing market slump and mortgage meltdown,
Freddie Mac and Fannie Mae issued extremely stringent underwriting guidelines
for loan applicants who’ve had a foreclosure. In such cases, the application is
manually scrutinized by underwriters probing for all facts related to the fore-
closure. Check out Chapter 13 for more info on foreclosures.
If you answer yes to any of these red-flag questions, lenders want all the details.
Even with the blemish of a bankruptcy or foreclosure in your credit history, how-
ever, you’ll get favorable consideration from lenders if you established a repay-
ment plan for your creditors. That commitment demonstrates integrity.
Conversely, people who’ve skipped out on their financial obligations are treated
like roadkill. Lenders figure that if borrowers have cut and run once, they’ll prob-
ably do it again.
Income and job stability
From 2000 to 2006 during the peak of the residential lending frenzy, no doc or
stated income loans were, regrettably, far too easy to get. No doc loans are loans
made without written documentation for such things as the borrowers’ income,
assets, and liabilities. Some borrowers claimed as much income as they needed to
get their loan approved without having to substantiate their income. Lenders dis-
paragingly referred to these mortgages as liar loans or pulse loans. If you had a
pulse, you got a loan.
Fortunately, those reckless ways are mostly long gone. Now you have to not only
have a job, but you also had better be able to prove it.
Lenders don’t want you to overextend yourself. They know from past experience
that the number-one cause of foreclosures is borrowers spreading themselves too
thin financially. Most lenders ask for your two most recent IRS W-2 forms to
establish your gross annual income plus the last 30 days of pay stubs as proof that
you’re still employed.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 31
If a lender can’t qualify you by using W-2s and pay stubs, the loan processor sends
your employer a verification of employment (VOE) letter to independently confirm
the employment information on your loan application, including your income,
how long you’ve had your present job, and your prospects for continued
employment.
Some lenders are more lenient than others are when they see that a prospective
borrower has a history of job-hopping. All lenders, however, must be certain that
you have a high likelihood of uninterrupted income. If you don’t get paid, how
will they?
Debt-to-income ratio
Lenders aren’t as concerned about short-term loans that you’ll pay off in fewer
than ten months. They will, however, add 5 percent of any unpaid revolving credit
charges to your monthly debt load.
For example, suppose you earn $4,000 per month. If your current monthly long-
term debt plus the projected homeownership expenses total $1,200 a month, your
debt-to-income ratio is 30 percent ($1,200 divided by $4,000).
If your debt-to-income ratio is on the high side, a lender puts your loan applica-
tion under a microscope. Even if all your credit cards are current, the lender may
insist as a condition of making the loan that you pay off and cancel some of your
credit cards to reduce your potential borrowing power. Doing so reduces the risk
of future default on your loan.
If you want to increase the odds of having your loan approved and accomplishing
your financial goals, lower your debt-to-income ratio by paying off small loans
and credit card debt and closing any unused open credit accounts prior to applying
for a mortgage. An excessive number of open accounts reduces your credit
rating.
Property appraisal
Lenders must find out what the house you want to mortgage is currently worth,
because the property is used to secure your loan. They do this by getting an
appraisal, a written report prepared by an appraiser (the person who evaluates
property for lenders) that contains an estimate or opinion of fair market value.
The reliability of an appraisal depends on the competence and integrity of the
appraiser. Equally important is having an appraiser with significant current mar-
ket knowledge of the area and type of property being valued.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
32 PART 1 Getting Started with Mortgages
Loan-to-value ratio
A loan-to-value (LTV) ratio is a quick way for lenders to guesstimate how risky a
mortgage may be. LTV ratio is simply the loan amount divided by the property’s
appraised value. For instance, if you’re borrowing $150,000 to buy a home with an
appraised value of $200,000, the loan-to-value ratio is 75 percent (your $150,000
loan divided by the $200,000 appraised value).
The more cash you put down, the lower your loan-to-value ratio and, from a
lender’s perspective, the lower the odds that you’ll default on your loan. It stands
to reason that you’re less likely to default on a mortgage if you have a lot of money
invested in your property.
Conversely, the higher the LTV ratio, the greater a lender’s risk if problems arise
later with your loan. That’s why most lenders charge higher interest rates and
loan fees or require private mortgage insurance (see Chapter 4) whenever the
amount borrowed pushes the loan-to-value ratio (as determined by appraisal)
above 80 percent.
Underwriting standards for loan-to-value ratios vary from lender to lender. A
portfolio lender, for example, may feel comfortable with a higher debt-to-income
ratio if your LTV ratio is low because you made a big cash down payment.
Cash reserves
As a condition of making your loan, some lenders insist that you have enough cash
or other liquid assets, such as bonds, to provide a two- or three-month reserve to
cover all your living expenses in the event of an emergency. Other lenders reduce
their cash reserve requirements if you have a low debt-to-income ratio or a low
LTV ratio. Some credit unions and savings and loan associations require that you
have another account (checking or savings) with them to apply for a loan.
New underwriting technology
The mortgage finance industry has undergone sweeping technological changes
that profoundly transformed the way lenders make loans. The two big innovations
have been automated underwriting and credit scores.
Automated underwriting
Decades ago, the mortgage origination process used to be a torturously slow, hid-
eously expensive, ridiculously redundant paper shuffle designed by the devil to
drive miserable mortals stark raving mad. Not anymore.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 33
Now automated underwriting programs objectively and accurately evaluate the
multitude of risk factors present in most loan applications. Although these com-
puterized programs will never completely eliminate human judgment, they’ve
reduced the volume of paperwork involved in the traditional underwriting
process.
Reduced paperwork has cut borrower’s loan-origination costs by hundreds of
dollars per mortgage. And that’s not all. Thanks to automated underwriting pro-
grams, mortgages that used to require weeks or, worse, months to process and
approve can be handled from start to finish in, gasp, minutes. Hence, the tremen-
dous increase in the number of options at various mortgage websites.
Increasing use of credit scores
According to information provided by Freddie Mac (the Federal Home Loan
Mortgage Corporation), credit scores developed by analyzing borrowers’ credit
histories served as a bridge between traditional underwriting and automated
underwriting systems. However, studies conducted by Freddie Mac have proven
that credit scores are excellent predictors of mortgage-loan performance. As we
discuss in Chapter 3, most lenders use them.
Credit scores are calculated in a neutral manner and have nothing to do with a
borrower’s age, race, color, gender, sexual orientation, religion, national origin,
citizenship, disability, or marital status. Your credit score is determined by
objectively analyzing your record of paying debts. The following factors are
considered:
» Public records pertaining to credit: A search of public records in the county
recorder’s office shows whether you’ve ever declared bankruptcy. It also
indicates whether legal claims have ever been filed against property you own
to secure payment of money owed for delinquent loans, lawsuits, or
judgments.
» Outstanding balances against available credit limits: What is the balance
due on mortgages and consumer installment debt such as car loans, charge
accounts, and credit cards? Outstanding balances that exceed 80 percent of
your available credit limits put you in the category of a higher-risk borrower.
» The age of delinquent accounts: Another indicator of higher risk is whether
you have been or are currently 60 or more days delinquent on your credit
card or charge account debt or other loan payments.
» Recent inquiries generated by a borrower seeking credit: Having four or
more applicant-generated credit inquiries in the past year indicates that you
may need a slew of new loans or credit cards because you’ve maxed out your
current ones. From a lender’s perspective, that’s an alarming development.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
34 PART 1 Getting Started with Mortgages
The credit scoring methodology most lenders use today was developed by Fair
Isaac Corporation and is called a FICO score. FICO scores range from a low of 300 to
a maximum of 850. If you’re just itching to discover much, much more about
credit scoring, Chapter 3 can scratch that itch.
Freddie Mac analyzed a broad sampling of 25,000 loans made by the Federal
Housing Administration (FHA). It found that borrowers with FICO scores of 680 or
more are highly unlikely to default on their mortgages. These creditworthy
borrowers are rewarded with lower loan-origination fees and mortgage interest
rates. Conversely, a FICO score of 620 or less is a strong indication that a bor-
rower’s credit reputation isn’t acceptable. As a result, borrowers with low FICO
scores are charged higher loan-origination fees and mortgage interest rates to
compensate for their loans’ higher risk of default.
Risk and the lender’s required return are always related. Seek ways to demon-
strate that you’re a better risk and you can likely get lower interest rates and
better terms for your loan.
Eyeing Predicament-Solving Strategies
If you need proof positive that perfection is an admirable but ultimately unattain-
able quality, let a lender investigate your creditworthiness. Your financial flaws
will be exposed to harsh scrutiny like a mess of worms wiggling when a rock is
first turned over.
Mighty few folks have flawless credit and unlimited cash. Run-of-the-mill ordi-
nary mortals have a plethora of extremely human imperfections. Most individuals
need a bit of assistance to surmount their shortcomings. The following sections
are chock-full of suggestions you can use to solve the most common mortgage
problems.
Insufficient cash for a down payment
When subprime lending was at its height, getting 100 percent financing for home
purchases was easy. Not anymore. Now most loan programs insist that you have
“skin in the game.” That’s their catchy way of saying you must put some of your
own money into the transaction. Even if you make only a modest 5 or 10 percent
cash down payment, they figure you’ll be less likely to walk away from the loan
because you also have money at stake. There are a few exceptions though; the
Veterans Affairs and USDA Rural Development loan programs both allow for
$0 down.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 35
Some things, like the exquisite hue of your baby blue eyes, are permanent and
can’t be changed no matter what you do. Fortunately, a shortage of legal tender
(that’s cold, hard cash for the less sophisticated) can be nothing more than
a temporary inconvenience if you’re sufficiently resourceful, motivated, and
disciplined.
Plenty of people have respectable incomes. For one reason or another, many of
them haven’t been able to sock away much money in the form of cash savings or
other readily liquid assets. If you’re income rich and cash poor, here’s a herd of
cash cows mooing to be milked:
» You: Put yourself on a budget by eliminating life’s little excesses. Rent a DVD
for a couple of bucks instead of forking over the better part of $20 to gaze at a
first-run flick while munching on pricey popcorn. Don’t buy so many fancy
designer outfits. Skip that expensive ski vacation, and check out the local
museums instead. Avoid overpriced foofoo coffee, take a lunch to work, and
eat dinner at home. Stifle the urge to be the first one on your block to own the
latest electronic gadget. Stop smoking. Squirrel away all the money you don’t
waste on frivolities. You’ll be astonished to see how quickly your savings grow.
» GI financing: Contrary to what you may think, GI financing isn’t restricted to
veterans. The GI we’re referring to here is known as generous in-laws. Some
parents help their children, married or not, purchase property by giving their
kids cash for a down payment. Assuming that your parents have owned their
home a long time, it’s probably worth considerably more today than it was
when they bought it way back when. If they get a loan on their house to obtain
cash that they give you, their increased indebtedness doesn’t affect your
borrowing power.
Under current tax law, a parent, friend, or mysterious stranger, for that
matter, can give you, your spouse, and each of your kids tax-free gifts of up to
$14,000 per calendar year. For example, suppose that you’re happily married,
have three adorable kids, and have truly generous in-laws. To help you buy
your dream home, your munificent mother-in-law bestows a $70,000 gift
($14,000 per family member) upon the family. Ditto your fabulous father-in-
law, for a total gift of $140,000 from your in-laws. (And if this gifting happens
near the end of the year, they could each give you a gift in December and
another in January, which would increase the total to a truly grand $280,000.
Now aren’t you sorry about all those dreadful things you said about them?)
» Your employer: If you’re relocating at the request of your employer, find out
whether your company will pay some or all of your down payment and other
home purchase costs as an employee benefit. It’s a deductible business
expense for your employer.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
36 PART 1 Getting Started with Mortgages
» Tax refund: Don’t fritter away next year’s federal or state income tax refund
on baubles like a second yacht or that spiffy new Rolls Royce. Apply it to your
down payment.
» Life insurance: If you have a whole-life policy, check to see how much cash
value you’ve built up. Replace the whole-life policy with more modestly priced
term life insurance to maintain your insurance coverage (or go without life
coverage if you have no one dependent upon you financially) and free up the
cash value to use for a down payment.
» Bonus: What better way to invest that huge year-end bonus the boss promised?
» Income tax withholding allowance: If you’re a salaried employee and you’ve
gotten hefty tax refunds in the past, try increasing the number of dependents
on your IRS W-4 form. (Complete the worksheet to see whether it makes
sense.) Doing so will reduce the amount of tax that’s withheld from your check
(so you don’t have to wait to get it back from the government). Put the extra
money toward your down payment.
» Retirement plans: The law now allows you, if you’re a first-time homebuyer,
to withdraw up to $10,000 from your IRAs if you use the money to acquire
your principal residence. (Married couples can each withdraw up to $10,000
from their own IRAs.) To avoid a 10-percent penalty tax for an early with-
drawal (withdrawals before you reach age 59½), you must be a first-time buyer
who hasn’t owned a home for at least two years prior to the acquisition of
your new primary residence. The funds must be used within 120 days of
withdrawal to purchase or build your home. Many 401(k) plans also permit
borrowing for a home down payment. Check with your employer’s benefits
office or your tax advisor.
» Real estate: If you own a vacation home or rental real estate that has
appreciated in value, you can probably pull cash out of the property by
refinancing the existing mortgage.
Loans are a two-edged sword. Any loan that increases your overall indebted-
ness reduces your borrowing power accordingly. This is true whether the loan
in question is an unsecured personal loan from a friend or your credit union,
is secured by a mortgage on real estate, or is secured by personal property
such as a car, boat, or jewelry.
» Equity sharing: This technique allows two or more people to buy a house
that one or more of them occupies as a primary residence. For example, a
nonoccupant investor pays the down payment and closing costs in return for
a 25 percent interest in the property. You, as the occupant/co-owner, get a
75 percent ownership stake for making the monthly mortgage payments as
well as paying the property tax, the homeowners insurance premium, and all
other maintenance expenses. Any increase in value is split according to the
terms of the equity-sharing agreement either after a specified period of time,
such as five years, or when the property is sold.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 37
Although unrelated people can use equity sharing, it works best between
parents and their children. Given a well-crafted written agreement, equity
sharing is an ideal win-win situation. Your parents get tax benefits and share
in the house’s appreciation while helping you buy a home. You get a home of
your own with little or no cash down, you enjoy tax deductions for your
specified percentage of the mortgage interest and property tax payments,
and you also share in the home’s appreciation. For more detailed information
about drawing up a legally binding equity sharing agreement, consult a
qualified real estate lawyer.
» State or federal programs for first-time buyers: Freddie Mac, Fannie Mae,
the FHA, and many states have financial aid programs designed to assist
low- or moderate-income buyers in purchasing their first home with little
money down (see Chapter 4). Again, you may find that these programs define
“first-time buyer” as someone who has not owned a home for just the past
few years.
» Seller (owner-carry) financing: This technique may make it possible to
purchase real estate with relatively little cash, because the seller takes some
of the sale price in the form of a loan. For instance, you put 10 percent of the
cash down, the owner carries back a 10 percent second mortgage, and you
get an 80 percent first mortgage from a conventional lending institution (see
Chapter 6 for more about seller financing used with 80-10-10 financing).
The number of owners willing to carry financing ebbs and flows like the tide.
When conventional mortgage interest rates are high, many sellers offer
lower-interest-rate second mortgages to help sell their houses. However, even
when conventional mortgage rates are cheap, a few sellers do owner-carry
financing for tax purposes (by spreading their taxable gain over multiple
years) or because owner-carry financing has an attractive interest rate
compared to returns they could get on other investments.
» Private mortgage insurance (PMI): Thanks to the availability of PMI,
conventional lenders offer special loan programs for cash-poor buyers with
strong incomes. If your down payment is less than 20 percent of the purchase
price, you’ll have to buy private mortgage insurance to protect the lender in
case you go belly up and the lender has to foreclose. Getting PMI may
increase your loan origination fee and will increase your monthly loan
payment. However, without PMI, you couldn’t buy with such a low down
payment.
» Stock or stock options: Selling stock or stock options is a quick way to get
your down payment. Before you do so, be sure you understand the tax
consequences and make provisions to cover the state and federal capital
gains taxes generated by the sale.
» Sale of other assets: What better time to convert your collection of rare
stamps, gold coins, vintage baseball cards, agglomeration of Beanie Babies,
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
38 PART 1 Getting Started with Mortgages
first-edition comic books, or whatever else is collecting dust into cold, hard,
down-payment cash?
» Lottery tickets: Hey. Somebody always wins the lottery sooner or later. It
may as well be you. Stranger things have happened. Your luck is bound to
change eventually. You have our permission to squander up to a buck a week.
If, however, you crave a slightly more certain way to obtain cash for a down
payment, we urge you to review our previous 15 suggestions.
Excessive indebtedness
Death is nature’s Draconian way of telling us to slow down. Having your mortgage
application rejected because you’re in hock up to your hip-huggers is the lender’s
gentle suggestion that you’d be wise to put your financial house in order.
Even if you’re only moderately overextended, the lender has done you a tremen-
dous favor by turning you down. If your debt-to-income ratio is too high before
buying a house, piling on additional debt in the form of mortgage payments and
homeownership expenses will probably turn your dream home into a fiscal
nightmare.
Face it. Even though you’re perfectly willing to shoulder the additional financial
burden of homeownership, the lender is telling you that too much debt will ravage
your ability to live within your means. You won’t own the house; the house will
own you.
Here are four ways to handle this problem:
» Reduce long-term indebtedness. If you’re close to being able to qualify for a
mortgage, paying off a chunk of installment-type debt such as a student loan
or car loan will most likely bring your debt-to-income ratio within acceptable
limits. Discuss this game plan with your lender. (Car loans and other long-term
installment debt with ten or fewer payments remaining are typically not
considered long-term debt.)
Fannie Mae and Freddie Mac don’t like total monthly payments on long-term
indebtedness (including your mortgage) to exceed about 40 to 45 percent or
so of your gross monthly income.
» Expand income or restrict living expenses. If you’re living way beyond your
means, you have two choices: Increase your income or, more realistically, put
yourself on a stringent financial diet to reduce your blimpish budget. For help
with this, read Chapter 1 (if you haven’t already). It helps you identify areas
where you can make budget cuts.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 39
» Get real. If you have champagne tastes and an unalterable beer budget,
something’s gotta give. Ask your lender to define the outer limits of your
realistic purchasing power. The easiest way to cut your payments for a
mortgage, property taxes, homeowners insurance, and other ownership
expenses is to buy a less expensive home.
» Reach out and touch someone. If you’re lucky enough to have fiscally
powerful parents or relatives to whom you can turn for financial assistance,
you have a huge advantage. Consider using it. Don’t let false pride about
asking them for a loan or having them cosign a mortgage prevent you from
owning a home. After all, in many areas of the country, property is much more
expensive today than it was back in the Stone Age when your mom and dad
bought their first home.
Cosigning a mortgage is inherently risky for the co-borrowers. If you make pay-
ments late or, worse, default on your loan, you sully your cosigners’ credit record
every bit as much as your own. Even if you mail in your monthly loan payments
long before they’re due, however, the cosigners’ borrowing power is reduced,
because they have a contingent liability to repay your loan if you default. In fair-
ness, you should discuss these financial ramifications with your co-borrowers
before they cosign your loan papers.
Insufficient income
Even if you have plenty of cash for a down payment and no debt whatsoever, you
may still experience the despair of rejection. Lenders frequently turn down loan
applicants if they believe the financial burdens of homeownership will be too
great. As is the case with excessive indebtedness, the lenders are trying to protect
you from yourself as well as protect their own interests.
Before you throw a stink bomb in the lender’s lobby, please read the section in
Chapter 1 about determining how much home you can realistically afford. For
example, suppose you currently aren’t earning much, because the business you
started last year is gushing buckets of red ink. Under the circumstances, it would
probably be prudent to wait another year or two to prove conclusively to the
lender — and yourself — that your business is capable of producing profits.
If (after reviewing Chapter 1) you still believe that the lender is being too pater-
nalistic, take a look at these two suggestions that may help get your loan approved:
» Increase your down payment. If you’re cash rich and income poor, make an
even larger down payment. The more money you have in the property, the
lower the lender’s risk that you’ll default on your mortgage.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
40 PART 1 Getting Started with Mortgages
» Get a borrower. Excessive indebtedness isn’t the only problem a borrower
can cure. This may be the perfect time to ask your parents, your rich uncle
Dennis, or your buddy who just won the Publisher’s Clearinghouse
Sweepstakes to help you.
Credit blemishes
“You can run, but you can’t hide” aptly describes the futility of trying to duck
creditors. If you have pecuniary problems with the butcher, the baker, or the can-
dlestick maker, woe be it to you if you’re ever slow and sloppy when paying your
bills. Creditors have a nasty way of getting even with you. They report your delin-
quencies and defaults to credit bureaus. These fiscal zits deface your record for
years to come whenever anyone obtains a copy of your credit report.
If your credit history is a smidgen less than sparkling, one key element to getting
your loan approved is immediate, detailed disclosure of any unfavorable informa-
tion. Don’t play games. Give the lender a complete, written explanation of all prior
credit problems when you submit the loan application. Financial dings tied to
one-time predicaments such as serious illness or job loss that you’ve satisfacto-
rily surmounted are usually relatively easy to handle. Also, some credit card
lenders, particularly ones that are part of a retail establishment (for example,
department stores), may change what they report to the bureaus as a matter of
“customer convenience.” Macy’s does not want you mad at them, so ask their
credit department if it will modify what it reports for your account.
It pays to take the initiative if you have trouble obtaining a mortgage. Ask your
loan officer to list all the derogatory items you must rectify to get loan approval.
Instead of wasting your valuable time trying to guess what’s wrong, you’ll have a
nice, neat (hopefully short) checklist of everything you must correct.
Here are four ways to conquer crummy credit:
» Seek sympathetic lenders. Lenders start with mostly the same underwriting
guidelines for conventional loans. But many lenders add additional restric-
tions called lender overlays that make qualifying more stringent. For instance,
at the time of this writing, FHA allows credit scores down to 580, but many
lenders will not make FHA loans below 600–620. You may have to figure out if
you are running up against the actual underwriting guidelines or a lender
overlay. The only way to find out is to ask a few different lenders. When you
interview lenders, don’t be coy. Ask them whether your credit blemishes
present a problem.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 41
Depending on the magnitude of your mess, you may want to secure the
services of a mortgage broker. Because they often assist people with credit
problems, mortgage brokers already know which lenders will be most
understanding about this kind of fiscal frailty. Mortgage brokers are typically
approved with a number of lenders — and thus have more options in placing
a mortgage.
» Seek seller financing. As we note in Chapter 5, tax advantages and high
rates of return induce some sellers to offer financing for the buyers of their
properties. Sellers can be more flexible when dealing with credit blemishes
than conventional lenders, because they aren’t hampered by so many rules
and regulations. If you’re financially strong today, a seller may be willing to
overlook your past credit problems.
» Seek a co-borrower. Once again, we suggest trying to obtain the cooperation
of the ever-popular co-borrower.
» Seek savings and spruce up your credit. If the lenders you’ve talked to
either summarily reject your loan application or offer you outrageous loans
with stratospherically high interest rates and fees, why rush to buy a home?
Instead, continue renting. Concentrate on two goals — saving money for your
down payment and keeping your credit record spotless. After a couple of
years, lenders will be knocking at your door day and night beseeching you to
honor them with your business.
Don’t waste your time working with a company that says it can quickly repair your
credit. You may be told that, for a fee, your legitimate credit problems will be
removed from your credit report. Sound too good to be true? It is. See Chapter 3 for
honest ways that you can improve your credit reputation.
Low appraisals
Did you hear the joke about the conscientious fellow who dutifully visited his
friendly neighborhood dentist for a semi-annual checkup and teeth cleaning?
After completing her usual meticulous, 15-minute inspection, the dentist advised
our hero that his teeth passed the exam with flying colors. Then she solemnly
announced that the poor guy’s gums had to go. Ta da boom!
Believe it or not, this hilarious digression (all right, mildly hilarious) does have a
point. Suppose you’re a lender’s dream borrower, the embodiment of perfection —
plenty of cash for a down payment, no indebtedness whatsoever, incredible
income, exceptional job security, and nary a spot of derogatory information
anywhere in your credit history. How could you, a Champion of Creditworthiness,
ever be turned down for a mortgage?
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
42 PART 1 Getting Started with Mortgages
THE BEST DEFENSE IS A GREAT OFFENSE
In the American legal system, you’re innocent until proven guilty. In the Alice in
Wonderland financial realm, conversely, you’re guilty until credit reporting agencies
say that you’re innocent.
Credit agencies and the creditors who report information to them sometimes make
mistakes. Most folks don’t discover these errors until they’re turned down for a loan.
If that hideous fate befalls you, begin the correction process by finding the inaccuracy.
For instance, if the error pertains to a charge account that’s not yours, tell the credit
bureau to remove the derogatory data and put it on the correct person’s credit report.
Now suppose that it’s your account. A creditor of yours told the credit agency that you
never paid a bill when, in fact, you actually paid it in full long ago. In that case, you must
go back to the source of the erroneous information and have the creditor instruct the
credit bureau to correct the misinformation.
Fixing this type of error requires persistence and patience. Credit bureaus, by law, must
respond to your inquiry within 30 days. If you get the brush-off from frontline customer
service representatives, demand to speak to their manager. If that doesn’t work, file a
complaint with local government regulatory agencies.
Your best strategy is to have the blemish removed from your credit record. If the quar-
relsome creditor refuses to rectify the inaccuracy, you’re allowed to enter a statement of
contention in your file so future creditors who obtain your credit report can read your
side of the story.
Obtain a copy of your credit report to ensure that the information is accurate. If you’re
applying for a mortgage, ask for a copy of your credit report. After all, you’re paying
for it.
Once per year, you can obtain a free copy of your credit report directly from each of the
credit bureaus that publish them. Equifax (800-685-1111, www.equifax.com), Experian
(888-397-3742, www.experian.com), and TransUnion (800-916-8800, www.transunion.
com) provide credit reports. So, if you want to keep a close watch on your credit reports,
you can rotate, every four months, which credit bureau from which you obtain a free
copy. Also know that Section 615(a) of the Fair Credit Reporting Act is a federal law that
gives you the right to receive a free copy of your credit report from the credit bureau if
you ask within 60 days of being turned down for a loan.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
http://www.equifax.com
http://www.experian.com
http://www.transunion.com
http://www.transunion.com
CHAPTER 2 Qualifying for a Mortgage 43
Simple. Blame the lender’s appraiser, who is of the firmly held opinion that the
house you’re so madly infatuated with isn’t worth what you so foolishly agreed to
pay for it. Don’t take it personally. The rejection has nothing to do with you as a
fine, upstanding individual.
Low appraisals aren’t restricted to transactions involving home purchases; they’ve
sabotaged their fair share of refinances, too.
Maybe the appraiser is absolutely correct — maybe not. What you do next depends
on which of the following six factors provoked the low appraisal:
» You overpaid. Hey, it happens. Appraisals rarely come in under the purchase
price. You and your real estate agent may be suffering from a case of
excessive enthusiasm regarding your dream home’s fair market value. For
example, just because you’re willing to pay $250,000 for it doesn’t mean that
anyone else in the whole wide world would pay a penny over $235,000. Or the
appraised value may be low because the house needs a new foundation, a
new roof, and other expensive repairs that you didn’t factor into your offering
price. In either case, be grateful the appraiser warned you before you made a
costly mistake.
You obviously like the house or you wouldn’t have offered to buy it. If, despite
the low appraisal, you still want the property, don’t give up. Get your real
estate agent to use the appraisal as a negotiating device to reduce the
purchase price or to get an offsetting credit for the necessary corrective work.
Your home inspection report can be very helpful in identifying repairs that the
seller should correct at his expense. Be sure to ask that the appraiser
reconsider the valuation if it was reduced due to deferred maintenance or
needed repairs that have subsequently been completed properly.
The seller is stuck with the property. You aren’t. If the seller won’t listen to
reason, don’t waste more of your valuable time. Instead, move on to find your
true dream home. Speaking of moving on, getting another real estate agent
may also be wise if you suspect that your present agent is inept or wants you
to pay more than the house is worth to fatten his own commission check. A
good agent’s negotiating skills and knowledge of property values can save you
thousands of dollars. An incompetent or unethical agent can cost you just as
many thousands of dollars.
» The home you want to buy is located in a declining market. For several
years starting in the late 2000s, lenders imposed loan restrictions on markets
they consider risky because home prices in those areas were dropping.
Although no longer the case in most areas of the country, a high-risk area could
be as small as a specific zip code or as large as giant chunks of California and
Florida. If your dream house is located in a declining market area, you’ll have to
put more cash down and pay higher interest rates and loan fees to offset the
lender’s increased risk due to actual or perceived falling property values.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
44 PART 1 Getting Started with Mortgages
Stigmatizing every single property in a zip code or, worse yet, a major
metropolitan area as risky is a sledgehammer solution to the problem. Local
neighborhood conditions can and do vary widely within a zip code or city.
Lenders may make an exception to the dreaded declining market designation
if your appraisal demonstrates conclusively that property values aren’t falling
within the specific geographic area where your dream house is located.
» Prices dropped since you bought your home. This predicament periodically
clobbers folks trying to refinance a loan. Real estate is an excellent long-term
investment. However, like the stock market, the real estate market has
short-term boom-and-bust cycles. For instance, suppose you paid a record
high price several years ago when you acquired your home at the pinnacle of
a strong (seller’s) market. In our hypothetical situation, assume that the
country is now mired in a deep recession, and houses like yours are selling for
far less money. If that actually happens to you, don’t kill the messenger for
accurately reporting current property values. (Take this as an opportunity to
buy an investment property or at least ask your local tax assessor to lower
your assessed value and save money on your property taxes.)
Property prices aren’t fixed. They slither all over the place. A house’s fair
market value (FMV) is based on what buyers offer and sellers accept. It’s not a
specific number — it’s a price range. To push your appraisal toward the high
end of FMV, have your real estate agent give the appraiser a list of houses
comparable to yours in location, condition, size, and age that sold within the
past six months. Unlike good real estate agents, appraisers generally don’t
inspect every property on the market. If your agent toured all these houses
and the appraiser didn’t have time to see some of them, your agent should
review the properties with the appraiser to help the appraiser understand
why the highest sales are the best comparables.
» The appraiser doesn’t know property values in your area. Suppose that,
while looking for your dream home, you and your agent saw five comparable
houses (near the home you want to buy) that completely justify the price you
agreed to pay. If the appraisal comes in low under these circumstances, the
appraiser may not know neighborhood property values.
When you suspect that the appraiser is geographically clueless, get a copy of
the appraisal from the lender. Check the houses the appraiser selected to
establish fair market value to see whether they’re actually valid comparables
for the home you want to buy. If they aren’t, discuss your concerns with the
lender. Find out how many appraisals the appraiser has done recently in the
neighborhood. If the appraiser doesn’t work in the immediate vicinity, the
appraiser’s opinions of value are suspect. In this situation, some lenders will
have the property reappraised without charging you.
» The appraiser did not properly value your specific property. Maybe some-
thing unique about the property you’re buying justifies the higher valuation.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 2 Qualifying for a Mortgage 45
Although an appraiser should take into account all the differences between the
comparable properties and your dream home, the dollar value of the adjust-
ments to the valuation are subjective. If your property has a killer view and most
of the comparable properties overlook a nearby power plant, the appraiser may
not have properly accounted for this superior feature of your future home.
The appraiser may not always acknowledge the size of the parcel as well as
other unique features, so look at the appraisal report narrative and see
whether he considered these positive benefits when reaching his final opinion
of value. Yes, it’s just his professional “opinion” of value and you may be able
to point out inconsistencies, or some lenders may even allow you to get a
second opinion in the form of another appraisal.
» The lender is redlining. Redlining is the discriminatory act of refusing to make
loans in specific neighborhoods that a lender considers undesirable. Because
this practice is illegal, it’s the least likely explanation for a low appraisal from a
reputable lender.
Request a copy of your appraisal if you suspect redlining. After carefully
reviewing the comparable sales data to establish that the appraisal is
unrealistically low based on your firsthand knowledge of comps, ask the
lender to explain why. If you’re not satisfied with the explanation or if you get
the runaround, ask for a full refund of your loan application and appraisal
fees; then take your business to another lender. You may also consider filing a
complaint with the appropriate agency in your state that regulates mortgage
lenders.
Problem properties
Two types of residential property — cooperative apartments and fixer-uppers —
are difficult to get mortgages on. The intricacies of these properties are discussed
in great detail in Home Buying For Dummies (Wiley). This section simply highlights
the financing problems associated with these types of properties.
Cooperative apartments
When you buy a house or a condominium apartment, you get a deed that proves
you have legal title to the property. Nice and simple, isn’t it?
When you buy a cooperative apartment, usually called a co-op, you get a stock cer-
tificate, which proves that you own a certain number of shares of stock in the
cooperative corporation. You also get a proprietary lease, which entitles you to
occupy the apartment you bought. The cooperative corporation that owns the
building has the deed in its name. Confusing, isn’t it?
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
46 PART 1 Getting Started with Mortgages
In places such as New York City and San Francisco, where co-ops are common,
mortgage financing on this type of property is readily available. In many other
parts of this great land, however, lenders find co-ops legally daunting. They don’t
make co-op loans, because they refuse to accept shares of stock in a cooperative
corporation as security for a mortgage. Compounding the problem, some co-ops
won’t permit any individual financing over and above the mortgage that the coop-
erative corporation has on the building as a whole.
If only one or two lenders in your area make co-op loans, don’t buy a cooperative
apartment unless you’re independently wealthy. You’ll likely end up paying a
higher mortgage interest rate due to limited competition and the lenders’ con-
cerns about the risks involved with co-op financing. Worse, what happens to you
if these lenders stop making co-op mortgages and no other lenders take their
place? You won’t be able to sell your unit unless you find an all-cash buyer (rare
birds, indeed) or you decide to carry the loan for the next buyer.
Fixer-uppers
Fixer-uppers are properties that need work to put them in pristine condition. If the
house you want to buy needs only cosmetic renovations (painting, carpeting,
landscaping, and the like), you probably won’t have a big problem obtaining a
mortgage.
However, suppose the apple of your eye is a house that needs serious structural
repairs, such as a new foundation, a new roof, and the installation of new electri-
cal and plumbing systems. We have to question the wisdom of buying such
a needy property. Don’t say we didn’t warn you. If your dream house is a
corrective-work nightmare, getting financing may be tough unless you use spe-
cific renovation loans such as the FHA 203K, Fannie Mae HomeStyles, or Freddie
Mac Renovation Program. These loan programs finance both the acquisition and
needed repairs.
Of particular concern is the reliability of the roof. If the appraiser sees evidence of
water damage, like water stains on the ceiling, he will mention it, and you will
probably have to provide a roof certification after examination by a roofing com-
pany. The lender may not allow closing until the roof is repaired.
A good real estate agent should know which lenders in your area specialize in
renovation loans.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:49.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 7
Chapter 1
IN THIS CHAPTER
» Understanding how much mortgage
debt you can truly afford
» Estimating your likely
homeownership expenses
» Considering your other financial
goals
Determining Your
Borrowing Power
If you’re like most folks, the single biggest purchase you’ll make during your lifetime will be when you buy a home
.
And, to make that purchase, you’ll likely have to borrow money by using a loan called a mortgage. The cumulative pay-
ments on that mortgage will far exceed the sticker price on your home due to the
interest you’ll pay.
Most people thinking of purchasing a home focus solely on the price of the home.
If you’re in the enviable position of being able to pay all cash, then the price is
really all you need to consider in determining whether you can afford a given
home. But the vast majority of people purchase real estate with financing. So
although the purchase price is important, the reality is that the mortgage terms
that you’re able to secure and negotiate will determine the monthly payment that
you can afford and will dictate the maximum price you can pay for your new home.
In this chapter, we help you tackle this first vital subject to consider when the time
comes to take out a mortgage — how much mortgage can you really afford? Note:
We intend this chapter primarily to help people who are buying a home (first or
not) determine what size mortgage fits their financial situation. If you’re in the
mortgage market for purposes of refinancing, please also see Chapter 11.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
8 PART 1 Getting Started with Mortgages
Only You Can Determine the Mortgage
Debt You Can Afford
Sit down and talk in person or by phone, or use a website to gather information
and then meet face to face with a reputable mortgage lender, and you’ll be asked
about your income and debts. Assuming that you have a good credit history and an
adequate cash down payment, the lender can quickly estimate the amount of
mortgage debt you can obtain.
Suppose a mortgage lender says that you qualify to borrow, for example, $200,000.
In this case, the lender is basically telling you that, based on the assessment of
your financial situation, $200,000 is the maximum amount that this lender thinks
you can borrow on a mortgage before putting yourself at significantly increased
risk of default. Don’t assume that the lender is saying that you can afford to carry
that much mortgage debt given your other financial goals.
Your overall personal financial situation — most of which lenders, mortgage bro-
kers, and real estate agents won’t inquire into or care about — should help you
decide how much you borrow. For example, have you considered and planned for
your retirement goals? Do you know how much you’re spending per month now
and how much slack, if any, you have for additional housing expenses, including
a larger mortgage? How much of a reserve or rainy day savings fund do you have?
How are you going to pay for college expenses for your kids? Are you or will you
soon be helping to care for elderly relatives?
In the following sections, we start you on the path to answering these questions.
Acknowledge your need to save
Unless you have generous parents, grandparents, or in-laws, if you want to buy a
home, you need to save money. The same may be true if you desire to trade up to
a more costly property. In either case, you can find yourself taking on more mort-
gage debt than you ever dreamed possible.
After you trade up or buy your first home, your total monthly housing expendi-
tures and housing-related spending (such as furnishings, insurance, and utilities)
will surely increase. So be forewarned that if you had trouble saving before the
purchase, your finances are truly going to be squeezed after the purchase. This
pinch will further handicap your ability to accomplish other important financial
goals, such as saving for retirement, starting your own business, or helping to pay
for your own or your children’s college education.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 9
Because you can’t manage the unknown, the first step in assessing your ability to
afford a given mortgage amount is to collect data about your monthly spending
(see the following section). If you already track such data — whether by pencil
and paper or on your computer — you have a head start. But don’t think you’re
finished. Having your spending data is only half the battle. You also need to know
how to analyze your spending data (which we explain how to do in this chapter)
to help decide how much you can afford to borrow comfortably.
Collect your spending data
What could be more dreadful than sitting at home on a beautiful sunny day — or
staying in at night while your friends and family are out on the town — and cozy-
ing up to your calculator, banking and credit card transactions, pay stubs, and
most recent tax return?
Examining where and how much you spend on various items is almost no one’s
definition of a good time (except, perhaps, for some accountants, IRS agents,
actuaries, and other bean counters who crunch numbers for a living). However, if
you don’t endure some pain and agony now, you could end up suffering long-term
pain and agony when you get in over your head with a mortgage you can’t afford.
Now some good news: You don’t need to detail to the penny where your money
goes. That simply isn’t realistic. What you’re interested in here is capturing the
bulk of your expenditures and allowing for some margin for unanticipated
expenses, plus savings for an emergency fund. Ideally, you should collect spend-
ing data for a three- to six-month period to determine how much you spend in a
typical month on taxes, clothing, transportation, entertainment, meals out, and
so forth. If your expenditures fluctuate greatly throughout the year, you may need
to examine a full 12 months of your spending to get an accurate monthly average.
You also want to include any known changes in upcoming expenses. Maybe your
child will be starting preschool next year at a private institution or your car is get-
ting old and you know you’ll soon want to get a new vehicle.
Later in this chapter, we provide a handy table that you can use to categorize and
add up all your spending. First, however, we need to talk you through the specific
and often large expenses of owning a home so you can intelligently plug those
numbers into your current budget.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
10 PART 1 Getting Started with Mortgages
Determine Your Potential
Homeownership Expenses
If you’re in the market to buy your first home, you probably don’t have a clear
sense about the costs of homeownership. Even people who presently own a home
and are considering trading up often don’t have a great grasp on their current or
likely future homeownership expenses. So we include this section to help you
assess your likely homeownership costs.
Making your mortgage payments
A mortgage is a loan you take out to finance the purchase of a home. Mortgage
loans are generally paid in monthly installments typically over either a 15- or
30-year time span. Chapter 4 provides greater detail about how mortgages work.
In the early years of repaying your mortgage, nearly all your mortgage payment
goes toward paying interest on the money that you borrowed. Not until the later
years of your mortgage term do you rapidly begin to pay down your loan balance
(the principal).
As we say earlier in this chapter, all that mortgage lenders can do is tell you their
own criteria for approving and denying mortgage applications and calculating the
maximum that you’re eligible to borrow. A mortgage lender tallies up your
monthly housing expense, the components of which the lender considers to be the
mortgage payment, property taxes, and homeowners insurance.
Understanding lenders’ ratios
For a given property that you’re considering buying, a mortgage lender calculates
the housing expense and normally requires that it not exceed 40 percent or so of
your monthly before-tax (gross) income. So, for example, if your monthly gross
income is $5,000, your lender may not allow your expected monthly housing
expense to exceed $2,000. If you’re self-employed and complete IRS Form 1040,
Schedule C, mortgage lenders use your after-expenses (net) income, from the bot-
tom line of Schedule C (and, in fact, add back noncash expenses for items such as
real estate and equipment depreciation, which increases a self-employed person’s
net income for qualification purposes).
This housing expense ratio completely ignores almost all your other financial
goals, needs, and obligations. It also ignores property maintenance and remodel-
ing expenses, which can suck up a lot of a homeowner’s dough. Never assume that
the amount a lender is willing to lend you is the amount you can truly afford.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 11
In addition to your income, the only other financial considerations a lender takes
into account are your debts or ongoing monthly obligations. Specifically, mort-
gage lenders examine the required monthly payments for other debts you may
have, such as student loans, auto loans, and credit card bills. They also deduct for
alimony, child support, or any other required payments. In addition to the per-
centage of your income that lenders allow for housing expenses, they typically
allow an additional 5 percent of your monthly income to go toward other debt
repayments.
Calculating your mortgage payment amount
After you know the amount you want to borrow, calculating the size of your mort-
gage payment is straightforward. The challenge is figuring out how much you can
comfortably afford to borrow given your other financial goals. This chapter should
assist you in this regard, especially the previous section on analyzing your spend-
ing and goals.
SO YOU THINK YOU CAN HANDLE
EXCESS BORROWING?
Some people we know believe they can handle more mortgage debt than lenders
allow using their handy-dandy ratios. Such borrowers may seek to borrow additional
money from family, or they may fib about their income when filling out their mortgage
applications.
Although some homeowners who stretch themselves financially do just fine, others end
up in financial and emotional trouble. You should also know that because lenders usu-
ally cross-check the information on your mortgage application with IRS Form 4506T (the
lender receives your actual tax return you filed, which certainly didn’t overstate your
income), borrowers who fib on their mortgage applications are caught and their appli-
cations denied.
So although we say that the lender’s word isn’t the gospel as to how much home you
can truly afford, telling the truth on your mortgage application is the only way to go. It
may be painful to learn that you don’t qualify for the loan you need to purchase that
home of your dreams, but you’re likely better off in the long run not overextending
yourself with mortgage debt.
We should also note that telling the truth prevents you from committing perjury
and fraud, troubles that catch even officials elected to high office. Bankers don’t want
you to get in over your head financially and default on your loan, and we don’t want you
to either.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
12 PART 1 Getting Started with Mortgages
Suppose you work through your budget and determine that you can afford to
spend $2,000 per month on housing. Determining the exact size of a mortgage
that allows you to stay within this boundary may seem daunting, because your
overall housing cost is comprised of several components: mortgage payments,
property taxes, insurance, and maintenance (and association dues if the property
is a condominium or has community assets like a swimming pool).
Using Appendix A, you can calculate the size of your mortgage payments based on
the amount you want to borrow, the loan’s interest rate, and whether you want a
15- or 30-year mortgage. Alternatively, you can do the same calculations by using
many of the best financial calculators available for less than $50 from companies
like HP and Texas Instruments. (In Chapter 8, we discuss the ubiquitous online
mortgage calculators, which are often highly simplistic.)
Paying property taxes
As you’re already painfully aware if you’re a homeowner now, you must pay prop-
erty taxes to your local government. The taxes are generally paid to a division
typically called the County or Town Tax Collector.
Property taxes are typically based on the value of a property. Because property
taxes vary from one locality to another, call the relevant local tax collector’s office
to determine the exact rate in your area. (Check the government section of your
local phone directory to find the phone number or search for the name of the
municipality and “property tax” online.) In addition to inquiring about the prop-
erty tax rate in the town where you’re contemplating buying a home, also ask
what additional fees and assessments may apply. In California, many recently
developed areas have special assessments (such as Mello-Roos districts), which
are additional property taxes to pay for enhanced infrastructure and amenities,
such as parks, police/fire stations, golf courses, and landscaped medians.
If you make a smaller down payment — less than 20 percent of the home’s pur-
chase price — your lender is likely to require you to have an impound account (also
called an escrow account or reserve account). Such an account requires you to pay a
monthly pro-rata portion of your annual property taxes, and often your home-
owners insurance, to the lender each month along with your mortgage payment.
The lender is responsible for making the necessary property tax and insurance
payments to the appropriate agencies on your behalf. An impound account keeps
the homeowner from getting hit with a large annual property tax bill.
As you shop for a home, be aware that real estate listings frequently contain
information regarding the amount the current property owner is currently paying
in taxes. These taxes are often based on an outdated, much lower property val-
uation. If you purchase the home, your property taxes may be significantly higher
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 13
based on the price that you pay for the property. Conversely, if you happen to buy
a home that has decreased in value since it was purchased, you could find that
your property taxes are actually lower.
Tracking your tax write-offs
Now is a good point to pause, recognize, and give thanks for the tax benefits of
homeownership. The federal tax authorities at the Internal Revenue Service (IRS)
and most state governments allow you to deduct, within certain limits, mortgage
interest and property taxes when you file your annual income tax return.
You may deduct the interest on the first $1 million of mortgage debt as well as all
the property taxes. (This mortgage interest deductibility covers debt on both your
primary residence and a second residence.) The IRS also allows you to deduct the
interest costs on additional borrowing known as home equity loans or home equity
lines of credit (HELOCs, see Chapter 6) to a maximum of $100,000 borrowed.
To keep things simple and get a reliable estimate of the tax savings from your
mortgage interest and property tax write-off, multiply your mortgage payment
and property taxes by your federal income tax rate in Table 1-1. This approxima-
tion method works fine as long as you’re in the earlier years of paying off your
mortgage, because the small portion of your mortgage payment that isn’t deduct-
ible (because it’s for the repayment of the principal amount of your loan) approxi-
mately offsets the overlooked state tax savings.
TABLE 1-1 2017 Federal Income Tax Brackets and Rates
Singles Taxable Income Married-Filing-Jointly Taxable Income Federal Tax Rate (Bracket)
Less than $9,325 Less than $18,650 10%
$9,325 to $37,950 $18,650 to $75,900 15%
$37,950 to $91,900 $75,900 to $153,100 25%
$91,900 to $191,650 $153,100 to $233,350 28%
$191,650 to $416,700 $233,350 to $416,700 33%
$416,700 to $418,400 $416,700 to $470,700 35%
More than $418,400 More than $470,700 39.6%
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
14 PART 1 Getting Started with Mortgages
Investing in insurance
When you own a home with a mortgage, your mortgage lender will insist as a
condition of funding your loan that you have adequate homeowners insurance,
which includes both casualty and liability coverage. The cost of your insurance
policy is largely derived from the estimated cost of rebuilding your home. Although
land has value, it doesn’t need to be insured, because it wouldn’t be destroyed in
a fire. Buy the most comprehensive homeowners insurance coverage you can and
take the highest deductible you can afford, to help minimize the cost.
As a homeowner, you’d also be wise to obtain insurance coverage against possible
damage, destruction, or theft of personal property, such as clothing, furniture,
kitchen appliances, audiovisual equipment, and your collection of vintage fire
hydrants. Personal property goodies can cost big bucks to replace. Some prized
possessions like jewelry, antiques, and collectibles are often excluded from your
base policy and can require a special added coverage policy with limits that need
to be set based on the replacement value of the items.
In years past, various lenders learned the hard way that some homeowners with
little financial stake in the property and insufficient insurance coverage simply
walked away from homes that were total losses and left the lender with the loss.
Thus, in addition to sufficient casualty and liability insurance, lenders require you
to purchase private mortgage insurance if you put down less than 20 percent of the
purchase price when you buy. This is risk insurance that protects the lender by
making the mortgage payments to the lender if you’re unable to. This could be
because you have a loss of income whether from a job loss or an injury/illness.
Private mortgage insurance is an extra cost that will factor into the calculation for
the amount of your loan and reduce your ability to borrow. You may be able to
avoid paying private mortgage insurance by using 80-10-10 financing. We cover
this technique in Chapter 6.
Budgeting for closing costs
As you budget for a given home purchase, don’t forget to budget for the inevitable
laundry list of one-time closing costs. In a typical home purchase, closing costs
amount to about 2 to 5 percent of the purchase price of the property. Thus, you
shouldn’t ignore them when you figure the amount of money you need to close the
deal. Having enough to pay the down payment on your loan just isn’t sufficient.
Some sellers may be willing to assist buyers by paying a portion of the closing
costs. This is particularly true with new home subdivisions by major builders but
is always negotiable with any seller. However, expect to pay a higher interest rate
for a mortgage with few or no upfront fees.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 15
Here are the major closing costs and our guidance as to how much to budget for
each:
» Loan-origination fees and charges: Lenders generally levy fees for apprais-
ing the property, obtaining a copy of your credit report, preparing your loan
documents, and processing your loan. They’ll also whack you 1 to 2 percent of
the loan amount for a loan-origination fee. Another term for this prepaid
interest charge, as we explain in Chapter 9, is points. If you’re strapped for
cash, you can get a loan that has few or no fees; however, such loans have
higher interest rates over their lifetimes. You may be able to negotiate having
the seller pay these loan-closing costs. The total loan-origination fees and
other charges may add up to as much as 3 percent of the mortgage amount.
» Escrow fees: These costs cover the preparation and transmission of all
home-purchase-related documents and funds. Escrow fees range from
several hundred to over a thousand dollars, based on the purchase price of
your home.
» Homeowners insurance: Lenders generally require that you pay the first
year’s premium on your homeowners insurance policy at the time of closing.
Such insurance typically costs from several hundred to several thousand
dollars, depending on the value of your home and the extent of coverage
you desire.
» Title insurance: Title insurance protects you and the lender against the risk
that the person selling you the home doesn’t legally own it. This insurance
typically costs from several hundred to a few thousand dollars, depending on
your home’s purchase price. Happily, the premium you pay at close of escrow
is the only title insurance premium you’ll ever have to pay unless you subse-
quently decide to refinance your mortgage. Oddly, there are places like Northern
California where the seller (not the buyer) pays for the “main” title policy. This
is purely a matter of “local custom.” Ask your agent what the custom is where
you are buying.
» Property taxes: At the closing of your home purchase, you may have to
reimburse the sellers for property taxes that they paid in advance. Here’s how
it works. Suppose you close on your home purchase on October 15, and the
sellers have already paid their property taxes through December 31. You have
to reimburse the sellers for property taxes they paid from October 15 through
the end of the year. The prorated property taxes you end up paying in your
actual transaction are based on the home’s taxes and the date that escrow
actually closes and cost from several hundred to a couple of thousand dollars.
In some parts of the country, if you paid more than the prior owner for the
property, you may also receive a supplemental property tax bill from your tax
collector, after you close escrow, seeking payment for the incremental
increase in the property taxes for your prorated period of ownership.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
16 PART 1 Getting Started with Mortgages
» Attorney fees: In some eastern states, lawyers are involved (unfortunately
from some participants’ perspectives) in real estate purchases. In most states,
however, lawyers aren’t needed for home purchases as long as the real estate
agents use standard, fill-in-the-blank contracts. If you do hire an attorney,
expect to pay at least several hundred dollars.
» Property inspections: As advocated in Home Buying For Dummies (Wiley), you
should always have a home professionally inspected before you buy it.
Inspection fees usually cost at least several hundred dollars (larger homes
cost more to inspect of course). Be sure to carefully review this report and ask
for additional information or hire a specialized contractor to conduct further
investigation for any noted item of concern. If you are able, accompany the
inspector when he inspects the property.
» Private mortgage insurance (PMI): If you make a down payment of less than
20 percent of the purchase price of the home, mortgage lenders generally
require that you take out private mortgage insurance that protects the lender
in case you default on your mortgage. You may need to pay up to a year’s
worth of premium for this coverage at closing, which can amount to as much
as several hundred dollars. One terrific way to avoid this extra cost is to make
a 20 percent down payment.
» Prepaid loan interest: At closing, the lender charges interest on your
mortgage to cover the interest that accrues from the date your loan is
funded — generally one business day before the closing — up to the day of
your first scheduled loan payment. How much interest you actually have to
pay depends on the timing of your first loan payment.
If you’re strapped for cash at closing, try the following tricks to minimize the
prepaid loan interest you owe at closing:
• First, ask your lender which day of the month your payment will be due
and schedule to close on the loan as few days in advance of that day as
possible. (Payments are usually due on the first of the month, so closing on
the last day of the month or a few days before is generally best.)
• Or ask whether your lender is willing to adjust your monthly due date
closer to the date you desire to close on your loan.
• Also, never schedule a closing to occur on a Monday because the lender
will generally have to put your mortgage funds into escrow the preceding
Friday, causing you to pay interest for Friday, Saturday, and Sunday. (Some
lenders may be able to accommodate a Monday closing by same-day
wiring the funds for an afternoon closing.)
» Other fees: Recording fees (to record the deed and mortgage), courier and
express mailing fees, notary fees — you name it. These extra expenses usually
total about $200 to $300. Note: Ask your mortgage lender for a complete
listing of all fees and charges.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 17
Managing maintenance costs
In addition to costing you a monthly mortgage payment, homes also need floor-
ing, window treatments, painting, plumbing, electrical and roof repairs, and other
types of maintenance over time. Of course, some homeowners defer maintenance
and even put their houses on the market for sale with lots of deferred mainte-
nance (which, of course, will be reflected in a reduced sales price that is often
much greater than the cost to have made those simple repairs).
For budgeting purposes, we suggest that you allocate about 1 percent of the pur-
chase price of your home each year for normal maintenance expenses. So, for
example, if you spend $240,000 on a home, you should budget about $2,400 per
year (or about $200 per month) for maintenance.
With some types of housing, such as condominiums or planned unit developments
(PUD), you pay monthly dues into a common interest development (often referred
to as a homeowners association), which takes care of the maintenance for the
community. In that case, you’re responsible for maintaining only the interior of
your unit. Check with the association to see how much the dues are currently run-
ning, anticipated future monthly or quarterly dues increases or special assess-
ments, what services are included, and how they’ve changed over the years.
Financing home improvements and such
In addition to necessary maintenance and furnishings, also be aware of how much
you may spend on nonessential home improvements, such as adding a deck,
remodeling your kitchen, and so on. Budget for these nonessentials unless you’re
the rare person who is a super saver, can easily accomplish your savings goals,
and have lots of slack in your budget.
The amount you expect to spend on improvements is just an estimate. It depends
on how finished a home you buy and your personal tastes and desires. Consider
your previous spending behavior and the types of projects you expect to do as you
examine potential homes for purchase.
Consider the Impact of a New House
on Your Financial Future
As you collect your spending data, think about how your proposed home purchase
will affect and change your spending habits and ability to save. For example, as a
homeowner, if you live farther away from your job than you did when you rented,
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
18 PART 1 Getting Started with Mortgages
how much will your transportation expenses increase? If you currently don’t live
in a common interest development (that is, a community with a homeowners
association), you’ll quickly learn about dues and sometimes special assessments,
which are rarely anticipated and included in your budget.
Table 1-2 can help you total all your current expenses and estimate future expected
spending.
TABLE 1-2 Your Spending, Now and After Your Home Purchase
Item
Current Monthly
Income Average ($)
Expected Monthly Income
Average with Home Purchase ($)
Income
Gross salary __________ __________
Bonuses/overtime __________ __________
Interest/dividend __________ __________
Miscellaneous __________ __________
Total Income __________ __________
Taxes
Social Security __________ __________
Federal __________ __________
State and local __________ __________
Housing Expenses
Rent __________ __________
Mortgage __________ __________
Property taxes __________ __________
Homeowners association dues __________ __________
Gas/electric/oil __________ __________
Homeowners/renter insurance __________ __________
Water/sewer/garbage __________ __________
Phone (landline and/or cellphone) __________ __________
Cable TV/Internet __________ __________
Furnishings/appliances __________ __________
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 19
Item
Current Monthly
Income Average ($)
Expected Monthly Income
Average with Home Purchase ($)
Improvements __________ __________
Maintenance/repairs __________ __________
Food and Eating
Groceries __________ __________
Restaurants and takeout __________ __________
Transportation
Fuel/gasoline __________ __________
Maintenance/repairs __________ __________
State registration fees __________ __________
Tolls and parking __________ __________
Bus/train/ subway fares __________ __________
Appearance
Clothing __________ __________
Footwear __________ __________
Jewelry (watches, earrings) __________ __________
Laundry/dry cleaning __________ __________
Hair __________ __________
Makeup __________ __________
Other __________ __________
Debt Repayments
Credit/charge cards __________ __________
Home equity/installment loans __________ __________
Vehicle loans __________ __________
Educational loans __________ __________
Other __________ __________
Fun Stuff
Entertainment (movies, concerts) __________ __________
Vacation and travel __________ __________
(continued)
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
20 PART 1 Getting Started with Mortgages
Item
Current Monthly
Income Average ($)
Expected Monthly Income
Average with Home Purchase ($)
Gifts __________ __________
Hobbies __________ __________
Pets __________ __________
Health club or gym __________ __________
Youth sports __________ __________
Other __________ __________
Advisors
Accountant __________ __________
Attorney __________ __________
Financial advisor __________ __________
Healthcare
Physicians and hospitals __________ __________
Prescriptions __________ __________
Dental and vision care __________ __________
Therapy/counseling __________ __________
Insurance
Vehicle __________ __________
Health __________ __________
Life __________ __________
Disability/long-term care __________ __________
Educational Expenses
Courses __________ __________
Books __________ __________
Supplies __________ __________
Kids
Child care __________ __________
Diapers/formula __________ __________
TABLE 1-2 (continued)
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 21
Item
Current Monthly
Income Average ($)
Expected Monthly Income
Average with Home Purchase ($)
Toys __________ __________
Child support __________ __________
Other
Charitable donations __________ __________
Alimony __________ __________
_____________________ __________ __________
_____________________ __________ __________
_____________________ __________ __________
_____________________ __________ __________
_____________________ __________ __________
Total Spending __________ __________
Amount Saved __________ __________
(subtract from Total Income)
Acting upon your spending analysis
Tabulating your spending is only half the battle on the path to fiscal fitness and a
financially successful home purchase. After all, many government entities know
where they spend our tax dollars, but they still run up massive levels of debt! You
must do something with the personal spending information you collect.
When most Americans examine their spending, especially if it’s the first time,
they may be surprised and dismayed at the amount of their overall spending and
how little they’re saving. How much is enough to save? The answer depends on
your goals and how good your investing skills are. For most people to reach their
financial goals, they must annually save at least 10 percent of their gross (pretax)
income.
From Eric’s experience as a personal financial counselor and lecturer, he knows
that most people don’t know how much they’re currently saving, and even more
people don’t know how much they should be saving. You should know these
amounts before you buy your first home or trade up to a more costly property.
If you’re like most people planning to buy a first home, you need to reduce your
spending to accumulate enough money to pay for the down payment and closing
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
22 PART 1 Getting Started with Mortgages
costs and create enough slack in your budget to afford the extra costs of home-
ownership. Trade-up buyers may have some of the same issues as well. Where you
decide to make cuts in your budget is a matter of personal preference. Here are
some proven ways to cut your spending now and in the future:
» Purge consumer debt. Debt on credit cards, vehicle loans, and the like is
detrimental to your long-term financial health. Borrowing through consumer
loans encourages you to live beyond your means, and the interest rates on
consumer debt are high and not tax deductible. If you have accessible savings
to pay down your consumer debts, do so as long as you have access to
sufficient emergency money from family or other avenues.
» Trim nonessential spending. Although everyone needs food, shelter,
clothing, and healthcare, most Americans spend a great deal of additional
money on luxuries and nonessentials. Even some of what people spend on
the “necessity” categories is partly for luxury.
» Purchase products and services that offer value. High quality doesn’t have
to cost more. In fact, higher priced products and services are sometimes
inferior to lower cost alternatives. With so many products available online
these days, and local bricks-and-mortar stores willing to price match, a little
research can go a long way to finding real savings.
» Buy in bulk. Most items are cheaper per unit when you buy them in larger
sizes or volumes. Superstores such as Costco, BJ’s Wholesale Club, Sam’s Club,
Target, and Walmart offer family sizes and competitive pricing.
Establishing financial goals
Most people find it enlightening to see how much they need to save to accomplish
particular goals. For example, wanting to retire while you still have good health is
a common goal. And the good news is that you can take advantage of tax incen-
tives while you save toward retirement.
Money that you contribute to an employer-based retirement plan — for example,
a 401(k) — or to a self-employed plan — for example, a SEP-IRA — is typically
tax deductible at both the federal and state levels. Also, after you contribute money
into a retirement account, the gains on that money compound over time without
taxation.
If you’re accumulating down-payment money for the purchase of a home, putting
that money into a retirement account is generally a bad idea. When you withdraw
money prematurely from a retirement account, you owe not only current income
taxes but also hefty penalties — 10 percent of the amount withdrawn for the IRS
plus whatever penalty your state collects.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
CHAPTER 1 Determining Your Borrowing Power 23
If you’re trying to save for a real estate purchase and save toward retirement and
reduce your taxes, you have a dilemma — assuming that, like most people, you
have limited funds with which to work. The dilemma is that you can save outside
of retirement accounts and have access to your down-payment money but pay
much more in taxes. Or you can fund your retirement accounts and gain tax ben-
efits, but lack access to the money for your home purchase.
You have two ways to skirt this dilemma:
» Borrow against your employer’s retirement plan. Some employers’
retirement plans, especially those in larger companies, allow borrowing
against retirement savings plan balances. Some companies offer first-time
homebuyers a little financial assistance, so make sure you ask. Because you
are borrowing your own money, the monthly payment (including interest) all
goes back to your account. Also, monthly payments back to your retirement
account do not count against your debt ratios.
» Implement a first-time home-buyer IRA withdrawal. If you have an
Individual Retirement Account (either a standard IRA or a newer Roth IRA),
you’re allowed to withdraw up to $10,000 (lifetime maximum) per individual
IRA account (so a married couple can access $20,000) toward a home
purchase as long as you haven’t owned a home for the past two years.
Tapping into a Roth IRA is a better deal because the withdrawal is free from
income tax as long as the Roth account is at least five years old. Although a
standard IRA has no such time restriction, withdrawals are taxed as income,
so you’ll net only the after-tax amount of the withdrawal toward your down
payment.
Because most people have limited discretionary dollars, you must decide what
your priorities are. Saving for retirement and reducing your taxes are important
goals; but when you’re trying to save to purchase a home, some or most of your
savings needs to be outside a tax-sheltered retirement account. Putting your
retirement savings on the back burner for a short time to build up your down-
payment cushion is fine. However, be sure to purchase a home that offers enough
slack in your budget to fund your retirement accounts after the purchase.
Making down-payment decisions
Most people borrow money for a simple reason: They want to buy something they
can’t afford to pay for in a lump sum. How many 18-year-olds and their parents
have the extra cash to pay for the full cost of a college education? Or prospective
homebuyers to pay for the full purchase price of a home? So people borrow.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
24 PART 1 Getting Started with Mortgages
When used properly, debt can help you accomplish your financial goals and make
you more money in the long run. But if your financial situation allows you to make
a larger than necessary down payment, consider how much debt you need or want.
With most lenders, as we discuss in Chapter 5, you’ll get access to the best rates
on mortgage loans by making a down payment of at least 20 percent. Whether or
not making a larger down payment makes sense for you depends on a number of
factors, such as your other options and goals.
The potential rate of return that you expect or hope to earn on investments is a
critical factor when you decide whether to make a larger down payment or make
other investments. Psychologically, however, some people feel uncomfortable
making a larger down payment because it diminishes their savings and
investments.
You probably don’t want to make a larger down payment if it depletes your emer-
gency financial cushion. But don’t be tripped up by the misconception that some-
how you’ll be harmed more by a real estate market crash if you pay down your
mortgage. Your home is worth what it’s worth — its value has nothing to do with
the size of your mortgage.
Financially, what matters in deciding to make a larger down payment is the rate
of interest you’re paying on your mortgage versus the rate of return your invest-
ments are generating. Suppose that you get a fixed-rate mortgage at 6 percent. To
come out financially ahead making investments instead of making a larger down
payment, your investments need to produce an average annual rate of return,
before taxes, of about 6 percent.
Although it’s true that mortgage interest is usually tax deductible, don’t forget
that you must also pay taxes on investments held outside of retirement accounts.
You could purchase tax-free investments, such as municipal bonds, but over the
long haul, you probably won’t be able to earn a high enough rate of return on such
bonds versus the cost of the mortgage. Other types of fixed-income investments,
such as bank savings accounts, CDs, and other bonds, are also highly unlikely to
pay a high enough return.
To have a reasonable chance of earning more on your investments than it’s cost-
ing you to borrow on a mortgage, you must be willing to invest in more growth-
oriented, volatile investments such as stocks and rental/investment real estate.
Over the past two centuries, stocks and real estate have produced annual average
rates of return of about 9 percent. On the other hand, there are no guarantees that
you’ll earn these returns in the future. Growth-type investments can easily drop
20 percent or more in value over short time periods (such as one to three years).
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:57:29.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Griswold, R
.
S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Mortgage Management For Dummies
by Eric Tyson and Robert Griswold
Eric and Robert’s Top Tips for Borrowers
» Before you get a mortgage, be sure you understand your personal financial
situation. The amount of money a banker is willing to lend you isn’t necessar-
ily the amount you can “afford” to borrow given your financial goals and
current situation. See Chapter 1.
» Maximize your chances for getting the mortgage you want the first time you
apply by understanding how lenders evaluate your creditworthiness. Don’t
waste time and money on loans that end up rejected. Most obstacles to
mortgage qualification can and should be overcome prior to submitting a loan
application. See Chapters 2 and 3.
» Because the ocean of mortgage programs is bordered with reefs of jargon,
learn loan lingo before you begin your mortgage-shopping voyage. This will
enable you to hook the best loan and avoid being taken in by loan sharks. See
Chapter 4 and Appendix C, the Glossary.
» To select the best type of fixed-rate or adjustable-rate mortgage for your
situation, clarify two important issues. How long do you expect to keep the
loan? How much financial risk are you able to accept? See Chapter 5.
» Special situation loans — such as a home equity loan or 80-10-10 financing —
could be just what you need. However, some “special” loans, such as
100 percent loans and balloon loans, can be toxic. See Chapter 6.
» Whether you do it yourself or hire a mortgage broker to shop for you, canvas
a variety of lenders when seeking the best mortgage. Be sure to shop not only
for a low-cost loan but also for lenders that provide a high level of service. See
Chapter 7.
» Investigate when shopping for a mortgage on the Internet. Be cautious. You
may save time and money. Or you could end up with aggravation and a worse
loan. See Chapter 8.
» Compare various lenders’ mortgage programs and understand the myriad
costs and features associated with each loan. To help you keep score and do a
fair comparison, we provide helpful worksheets. See Chapter 9.
» Just as you must prepare a compelling résumé as the first step to securing a
job you want, craft a positive, truthful mortgage application as a key to getting
the loan you want. See Chapter 10.
» After you get a mortgage to purchase a home, stay informed about interest
rates, because a drop in rates could provide a money-saving opportunity.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Refinancing — that is, obtaining a new mortgage to replace an existing
one — can save you big money. Assess how long it will take you to recoup
your out-of-pocket refinance costs. See Chapter 11.
» You may benefit from paying off your mortgage faster than is required. But
before you do, examine what else you could do with that extra cash and what
may be best for your situation. See Chapter 12.
» If you’re among the increasing number of homeowners who reach retirement
with insufficient assets for their golden years, carefully consider a reverse
mortgage, which enables older homeowners to tap their home’s equity.
Reverse mortgages are more complicated to understand than traditional
mortgages. See Chapter 13.
» If you fall on tough economic times and get behind on your housing pay-
ments, don’t resign yourself to foreclosure. Take stock of the situation. Review
your spending and debts and begin a dialogue with your lender to find a
solution. Make use of low-cost counseling approved by the U.S. Department
of Housing and Urban Development. See Chapter 14.
» Use the Loan Amortization Tables in Appendix A to determine your monthly
payment after you know a loan’s interest rate and term (number of years until
final payoff).
» After you’ve had a loan awhile, see the Remaining Balance Tables in Appendix
B to know how much of your original loan balance remains to be paid.
Mortgage Payment Calculator*
To calculate your monthly mortgage payment, simply multiply the relevant num-
ber from the following table by the size of your mortgage expressed in (divided by)
thousands of dollars. For example, on a 30-year mortgage of $125,000 at 7.5 per-
cent, you multiply 125 by 7.00 (from the table) to come up with an $875 monthly
payment.
Interest Rate (%) Term of Mortgage
15 years 30 years
4 7.40 4.77
41⁄8 7.46 4.85
4¼ 7.52 4.92
43⁄8 7.59 4.99
4½ 7.65 5.07
45⁄8 7.71 5.14
4¾ 7.78 5.22
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Interest Rate (%) Term of Mortgage
15 years 30 years
47⁄8 7.84 5.29
5 7.91 5.37
51⁄8 7.98 5.45
5¼ 8.04 5.53
53⁄8 8.11 5.60
5½ 8.18 5.68
55⁄8 8.24 5.76
5¾ 8.31 5.84
57⁄8 8.38 5.92
6 8.44 6.00
61⁄8 8.51 6.08
6¼ 8.58 6.16
63⁄8 8.65 6.24
6½ 8.72 6.33
65⁄8 8.78 6.41
6¾ 8.85 6.49
67⁄8 8.92 6.57
7 8.99 6.66
71⁄8 9.06 6.74
7¼ 9.13 6.83
73⁄8 9.20 6.91
7½ 9.28 7.00
75⁄8 9.35 7.08
7¾ 9.42 7.17
77⁄8 9.49 7.26
8 9.56 7.34
81⁄8 9.63 7.43
8¼ 9.71 7.52
83⁄8 9.78 7.61
8½ 9.85 7.69
85⁄8 9.93 7.78
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Interest Rate (%) Term of Mortgage
15 years 30 years
8¾ 10.00 7.87
87⁄8 10.07 7.96
9 10.15 8.05
91⁄8 10.22 8.14
9¼ 10.30 8.23
93⁄8 10.37 8.32
9½ 10.45 8.41
95⁄8 10.52 8.50
9¾ 10.60 8.60
97⁄8 10.67 8.69
10 10.75 8.78
101⁄8 10.83 8.87
10¼ 10.90 8.97
103⁄8 10.98 9.06
10½ 11.06 9.15
105⁄8 11.14 9.25
10¾ 11.21 9.34
107⁄8 11.29 9.43
11 11.37 9.53
11¼ 11.53 9.72
11½ 11.69 9.91
11¾ 11.85 10.10
12 12.01 10.29
12¼ 12.17 10.48
12½ 12.17 10.48
*Warning: Mortgage payments are only a portion of the costs of owning a home.
See Chapter 1 for figuring out your total costs and fitting them into your personal
finances.
Copyright © 2017 Eric Tyson and Robert Griswold
All rights reserved.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Mor tgage
Management
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Created from apus on 2020-05-21 07:56:19.
C
op
yr
ig
ht
©
2
01
7.
J
oh
n
W
ile
y
&
S
on
s,
In
co
rp
or
at
ed
. A
ll
rig
ht
s
re
se
rv
ed
.