Welcome!

I am an Atlanta native and made the decision in 2007 to leave my job as an architect/urban planner to get my real estate license. This was a difficult decision but has been great since my very first day in my new career and I am really enjoying it! It is so rewarding helping people find that perfect home, and it allows me to continue to satiate my love of good architecture and great neighborhoods!

I attended Georgia Tech (GO JACKETS!!!!) which is where I met my husband. For almost a decade we lived in one of Atlanta's fabulous in-town neighborhoods in a great 1920's Craftsman bungalow with our two dogs and two cats. Following the birth of our first child, we bought a foreclosure in the west Buckhead area and fully renovated it using an FHA 203k loan, which was a fun and sometimes daunting process. And just prior to the birth of our second child, we purchased and renovated a home in downtown Historic Roswell, completing our personal tour of some of Atlanta's best neighborhoods to live in!

I decided to create this blog in order to share useful information and resources about the real estate market and home buying process, as well as hopefully bring some humor and levity to what is often a complex and intimidating process. Enjoy!!!

Tuesday, May 24, 2011

Understanding the Debt-to-Income Ratio to Qualify for FHA Loans

One of the most important factors in qualifying for an FHA home loan is the debt-to-income ratio. In this post I will explain this so you can be aware of your own debt-to-income ratio and make sure it is where you need to qualify for an FHA loan.

There are 2 different important ratios FHA underwriters look at when approving a FHA loan. The first is your housing ratio or “front ratio”. This is simply taking your TOTAL housing payment (monthly mortgage payment + monthly mortgage insurance + property taxes divided by 12 + homeowners insurance divided by 12 + monthly condo HOA if you have it) as a percentage as your total gross (before tax) monthly income. So if your total housing payment is $2,000 per month and your gross monthly income is $6,0000, $2,000/$6,000=33%. So your housing ratio is 33%.

The more important ratio looked at for qualification for an FHA loan is your “back-end ratio”. This is your total housing payment + all the total of all other monthly payments that show up on your credit as a percentage of your gross income. So if you have a housing payment of $2,000 + a $200 auto loan payment + $100 student loan payment + $50 minimum monthly credit card payment, your total debt for the purposes of the back-end ratio would be $2,350. So take $2,350 and divide it by $6,000 gross income and you have a 39% back-end ratio. Items such as utilities, car insurance, cell phone payment, etc… are NOT counted in this ratio. It is only your total housing payment + items that appear on your credit (most commonly auto loans, student loans and credit cards, personal loans).

So in this case a 33% front ratio and a 39% back ratio would qualify for an FHA home loan as long as the borrower meets all of the other guidelines (job history, credit score). The maximum ratios can be much lower for what is called a “manual underwrite”. A manual underwrite is generally done only if you have below a 580 credit score. In this case you have to start out with a 31% maximum housing ratio and a 43% back ratio. The underwriter does have wiggle room if you have compensating factors.

But if you have average to good credit, the maximum ratios can be much higher than 31/43 above. Generally you can get up to 50% back-end ratio and possibly above if you have other compensating factors (solid credit, cash reserves). But regardless of the maximum ratios, the most important thing for your as a homeowner is only taking on a housing payment that you feel you can comfortably afford.

Some tips to keep in mind if you feel like your debt-to-income ratio for a FHA home loan is too high for the house you want to buy or on the borderline:

  • Try to buy your auto with cash or pay it off early so you remove that payment from your debt-to-income ratio calculation
  • You might be able to refinace your auto loan to lower your payment or auto loan interest rate
  • Try to pay off your credit cards and either carry a small balance or none at all
  • See if you can get your student loan payments deferred for 12 mos or more (then these payments do not have to be included in your DTI). But keep in mind that you will have to make these payments eventually, so only take on a housing payment that will allow you to do this in the future
Written by Rob Chomentowski.
See full article here.
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Wednesday, May 4, 2011

Nearly Half of Home Buyers Surveyed Don’t Understand Essential Information about Mortgages

SEATTLE, May 3, 2011 /PRNewswire/ — As the housing market continues to struggle with high inventory and a lack of demand, home buyers appear ill-prepared to take out a mortgage, answering basic questions about mortgage information wrong nearly half (46 percent) of the time (i) according to a Zillow Mortgage Marketplace survey(ii). In fact, 44 percent admitted they are not confident in their knowledge of mortgages or the mortgage process. Zillow® Mortgage Marketplace, with Ipsos, surveyed prospective home buyers, asking them to gauge their own knowledge of mortgages, and asking basic questions about mortgage facts.

For example, more than half (57 percent) of prospective home buyers who were polled do not understand how adjustable rate mortgages (ARMs) work. When asked if interest rates on 5/1 ARMs always reset higher after five years, the majority of home buyers answered yes. In fact, the interest rate will adjust to the prevailing rate after five years, even if rates have declined(iii). Currently, many borrowers whose ARMs have recently reset have lower interest rates than they did when they took out the loan.

Additionally, one-third (34 percent) of the respondents who are prospective home buyers do not understand that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees.

“Most people wouldn’t jump out of a plane if they didn’t know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages,” said Zillow Mortgage Marketplace Director, Erin Lantz. “By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money.”

Additional Survey Findings

  • Nearly half (45 percent) of polled prospective home buyers believe that they should always buy mortgage discount points when obtaining a mortgage. However, because mortgage discount points are simply prepaid interest, the decision should depend on how long you intend to own the home. In some cases, you may not plan to remain in the house for long enough to break even after buying points.

  • More than half (55 percent) of prospective home buyers in the study do not understand that mortgage rates vary throughout the day. In reality, mortgage rates can change rapidly, similar to how stock prices can change throughout the day. To get the optimum rate, it is important to monitor rates and shop around.

  • More than one-third (37 percent) of prospective home buyers who were polled believe that pre-qualifying for a loan means they have secured financing. In fact, “pre-qualification” is used to describe the earliest step in the process when a lender approximates how much you can afford, but does not run your credit or request any sort of documentation to verify the information you provide. Although there is not a reliable industry standard definition of pre-qualification, it is not until a lender has approved your loan application without conditions that you can rest assured that the lender has committed to financing your loan.

  • More than two in five (42 percent) of the polled prospective home buyers do not understand that Federal Housing Administration (FHA) loans are available to ALL buyers. Instead, they believe only first-time buyers qualify. FHA loans can cost less for many buyers, including repeat buyers with low to average credit scores and with down payments of less than 20 percent.

Interactive Online Quiz and Resources Available

An online version of the Zillow Mortgage Marketplace survey, the “Mortgage IQ Quiz,” is available at www.zillow.com/mortgage/quiz/ and contains the correct answers and detailed explanations to each question. Following the quiz, participants are given a score and resources to learn more about mortgages and the mortgage process.
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