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18
r/personalfinance
Posted by u/SickWeld
Housing

Formula for how much house I can afford?

Looking to figure out what my partner and I can afford. We've got a good amount saved up, but the houses in (what we think is) our price range all kind of suck. I'm hoping someone with more knowledge could help in figuring this out. This will be our first home and we are both wanting to make as few mistakes as possible.

Tons of factors at play here, but put simply, there are lots of little numbers that add up to the big number you’re looking for. (Things like the type of loan and interest rate you qualify for, location-specific costs like real estate taxes, as well as property-specific costs.)

These are all things that need to be determined by a pro, which is why we’re here. Online tools like Zillow can be deceiving because they assume 20% down and optimal credit scores. Tax info can also be outdated.

There are also specific industry-wide rules about how to calculate income for qualification purposes, so the amount you qualify for may be based on different figures than you’re using.

18
r/personalfinance
Posted by u/cjw_5110
Housing

Putting <20% down on a home purchase

I'm curious about others' opinions on this. I know that conventional wisdom is to always put 20% down, to avoid PMI. However, right now, the cost of money is so absurdly cheap that it seems more sensible to put less down.

My wife and I are looking at buying a second home; we can put down 20% plus closing costs, but when we're looking at an interest rate of 2.75% and a PMI rate of 0.26%, I'm having a hard time justifying locking up that money in equity when we could hold it in cash and use it for upgrades to the home (if we wind up finding and buying one).

Even a modest investment should be able to return better than 3%, so the value of "guaranteed returns" seems lower than in another scenario, when we'd be looking at 5+% mortgage interest an 1% PMI.

Is there something that I am missing in this analysis?

Not to be dramatic, but the 20% myth is one of the biggest misconceptions of all time.


Very few people actually put 20% down, and rightly so. Someone who is well qualified will already have great terms at 3% or 5%, depending on the situation.


Keeping that ~17% in your pocket for investing or emergencies (or new furniture) is typically what we recommend. Plus, years spent waiting to save up 20% is time you could be using to build equity.

Tl;dr: In most cases, put the minimum down, invest the rest.

24
r/personalfinance
Posted by u/eps89
Debt

How is DTI calculated?

Hey all, sorry if this question has been asked before. I tried searching around but didn't see a thread completely dedicated to this question.

So, my fiance' and I are on the verge of going through the house buying process, and roughly make 160K+ combined gross.

I don't have many bills except for a few credit cards with not so high balances, and a car payment / insurance which equals to $575 monthly.

She has no debt whatsoever.

So, how is DTI calculated exactly?

Yep, another acronym. But it’s an important one when it comes to qualifying for a home loan. DTI simply means ‘debt-to-income’.

To find your debt-to-income ratio, just add up your monthly debt payments (like auto, student loans, credit cards) then divide by your monthly gross income, which is everything you earn on a monthly basis, before taxes or expenses are taken out.

While you might get close on your own, it’s a good idea figure out your DTI with a pro. Some payments like car insurance or your phone bill don’t go into DTI. There are also specific industry rules about how to calculate income for qualification purposes, so the amount you qualify for may be based on different figures than you’re using.

12
r/personalfinance
Posted by u/rthbasbfyasf
Housing

What's the best mortgage loan type for a lower credit score (660)?

I'm looking to buy a house with my wife. We've already been preapproved by a lender for a conventional loan. Her credit score is 748, but mine is 661. Because my score is so low, our interest rate will be almost an entire point higher than if we could just use her score. We had the lender run the numbers of just my wife being on the mortgage, but we're in a high cost of living area and her salary alone couldn't quite get us into the houses in our area. We have about 15% as a down payment after closing costs, so we'll be paying some PMI regardless.

I was curious how to best manage my low credit score. Is a conventional loan the right way to go? Is an FHA loan better for a lower credit score? We're new to the housing market and I'm not sure I trust a mortgage broker to give us the right advice.

Let’s get geeky for a second since this is a case-by-case decision.


With a 15% down payment, a conventional loan could be the right move, despite your score. You may pay more in interest, but the price you pay with mortgage insurance could be very little (this cost decreases with how much you put down for a conventional loan).


The other option to consider would be an FHA loan with 10% down. You may get the best interest rate here, but you’ll pay higher fees and could have a higher mortgage insurance premium than the conventional option.


Check out both! Your loan advisor can help show you which way to go.

7
r/personalfinance
Posted by u/yugiohbandits
Housing

How do closing costs work?

So I’m getting a 5/5 loan from a banks for $65500 with 20% down and I was just given a couple papers with estimates of monthly payments and closing cost and was wanting to know why closing costs were $4900? Isn’t that a really high percentage?

“Closing costs” is an umbrella term used to sum up the fees you pay in addition to the big sticker price on your home—things like homeowners insurance, title insurance, lender fees, taxes, appraisals, and more.


They’re paid to multiple parties and are usually between between 2-5% of your loan amount. This is a good estimate to get you started, then once you apply for a loan, you’ll get more detailed costs, so nothing will be a surprise.

61
r/personalfinance
Posted by u/rjsully22
Housing

Explain Like I am 5: PMI

I have read multiple posts saying I should make a large downpayment on my home to avoid PMI. What exactly is PMI, and how important is it to eliminate it? Please ELI5

If you were 5 (or maybe 10) here’s how we’d put it. PMI stands for Private Mortgage Insurance, and it’s a cost you pay every month as part of your mortgage payment.


There are ways to get around it, and they mostly all require you to have 20% equity in your home. To never pay any PMI, you can either put 20% down on your home or you can pay it off for a one-time cost at closing. Many times, paying PMI can be worth it when you consider the benefits of a lower down payment.


On a conventional loan, your monthly mortgage insurance payment is determined by your credit score and down payment amount.


For a well-qualified borrower, it will be fairly cheap, so you’ll likely choose to keep that extra down payment money for investing or saving. In our experience, 10% down is a sweet spot for monthly payment and keeping cash on hand.

14
r/personalfinance
Posted by u/maheshexp
Housing

Help me understand Mortgage points, its advantages and disadvantages

I'm in housing market and came across the term "Mortgage points" but I could not get a clear picture of why it is useful and what are the pros and cons.

While mortgage rates change on their own every day, mortgage points allow you to pay a one-time fee to manually lower your interest rate. The longer you plan to be in your home, the better the idea it is to buy mortgage points.

Here’s some simple math:

If you pay $4,000 in mortgage points to save $40 per month, it’ll take 100 months (over 8 years) to start benefiting from that up-front expense. That's a long time, so you may decide against buying them.

However, if paying $2,000 up front saves you $50 per month, you’ll start raking in the savings after 40 months (under 4 years). If you plan on being in the home for 10 years, you just saved $4,000. And any additional time you’re in the home is extra savings.

Apply, then buy.

Now that you know a little more, you’re ready to ditch renting. Explore everything Lower has to offer to start your homebuying journey. 

Vi
5 Stars!
LendingTree

Amazing Experience

I initially was only searching for a price range my fiancé and I could afford. Then immediately after filling out the information Emily from Lower contacted me and from the start she was so amazing and professional! Answered all my questions even if I repeated some! Definitely took care of everything we needed. And worked around my work schedule to contact us and let us know new details about things. Very considerate about timing and very helpful with everything! She’s amazing! Definitely would recommend her and Lower to everyone I know!

Dina
5 Stars!
LendingTree

Highly Recommend

Abby Farber, our loan advisor, was amazing! First time homebuyers and everything went smoothly. She was always available to answer any questions we had. Our first home purchase was a great experience because Abby cares and she helped us through the process

Jill
5 Stars!
LendingTree

Easy and Saved Money

We worked with Ben Rosenthal to complete our mortgage contract quickly and with great satisfaction. We were most concerned about getting the best interest rate possible and with Low**.com we did, choosing them out of about five lenders we shopped. Ben also worked to direct us towards other ways to save money on closing. We appreciate needing less burdensome documentation and being able to upload all that electronically at our convenience. Ultimately the process was streamlined and simple.

Jill
5 Stars!
LendingTree

Easy and Saved Money

We worked with Ben Rosenthal to complete our mortgage contract quickly and with great satisfaction. We were most concerned about getting the best interest rate possible and with Low**.com we did, choosing them out of about five lenders we shopped. Ben also worked to direct us towards other ways to save money on closing. We appreciate needing less burdensome documentation and being able to upload all that electronically at our convenience. Ultimately the process was streamlined and simple.

Jo
5 Stars!
Zillow

Excellent Customer Service!

The process was so easy. It was also easy to upload all the required documents to the portal. Jake was available and answered all my questions promptly. I was approved in just a few days.

Shane
5 Stars!
LendingTree

Very Responsive

I reached out to about half a dozen banks when looking for a Home Mortgage. Lower came back with the best rates and the agent was extremely responsive and helpful.

Aj
5 Stars!
Zillow

EXCEPTIONAL EXPERIENCE

Quick and Simple. These are qualities we all need when trying to accomplish a new home purchase amidst our daily obligations. Austin and his team at Lower went far beyond my expectations in assisting me with moving into my new home. I am in a customer experience line of work myself and I’m convinced Austin COULD NOT have made this any easier for me. I’ll be back for my next one!

Jill
5 Stars!
LendingTree

Easy and Saved Money

We worked with Ben Rosenthal to complete our mortgage contract quickly and with great satisfaction. We were most concerned about getting the best interest rate possible and with Low**.com we did, choosing them out of about five lenders we shopped. Ben also worked to direct us towards other ways to save money on closing. We appreciate needing less burdensome documentation and being able to upload all that electronically at our convenience. Ultimately the process was streamlined and simple.

Vi
5 Stars!
LendingTree

Amazing Experience

I initially was only searching for a price range my fiancé and I could afford. Then immediately after filling out the information Emily from Lower contacted me and from the start she was so amazing and professional! Answered all my questions even if I repeated some! Definitely took care of everything we needed. And worked around my work schedule to contact us and let us know new details about things. Very considerate about timing and very helpful with everything! She’s amazing! Definitely would recommend her and Lower to everyone I know!

Stephanie W.
5 Stars!
Zillow

Easiest Process and Closing Ever!!

This was our 8th mortgage closing and it was by far the easiest!! We had never done a virtual closing and it was smooth as silk from the comfort of our couch at the time of our choosing! The whole process was very easy to follow and understand.

Jo
5 Stars!
Zillow

Excellent Customer Service!

The process was so easy. It was also easy to upload all the required documents to the portal. Jake was available and answered all my questions promptly. I was approved in just a few days.

Shane
5 Stars!
LendingTree

Very Responsive

I reached out to about half a dozen banks when looking for a Home Mortgage. Lower came back with the best rates and the agent was extremely responsive and helpful.

Adrian R.
5 Stars!
Zillow

Outstanding Customer Service

Jake and his team provided outstanding customer service we were able to close our deal in record time (19 days). Excellent feedback was also received from the title company regarding the lender.

Aj
5 Stars!
Zillow

EXCEPTIONAL EXPERIENCE

Quick and Simple. These are qualities we all need when trying to accomplish a new home purchase amidst our daily obligations. Austin and his team at Lower went far beyond my expectations in assisting me with moving into my new home. I am in a customer experience line of work myself and I’m convinced Austin COULD NOT have made this any easier for me. I’ll be back for my next one!

Dina
5 Stars!
LendingTree

Highly Recommend

Abby Farber, our loan advisor, was amazing! First time homebuyers and everything went smoothly. She was always available to answer any questions we had. Our first home purchase was a great experience because Abby cares and she helped us through the process