They do say that buying a house is one of the most daunting life experiences. Usually, the prospect of borrowing huge sums of money initially seems out of reach. However with some basic knowledge it is possible to navigate the US system and start hunting for ways to borrow the money for your dream home. The starting point for a mortgage is to ‘shop’! Just like any other commercial item it is really important that you hunt around for the best deal and the one that suits your financial situation. Don’t accept the deal offered by your realtor – it’s crucial that you open up the field and explore your options. You wouldn’t buy a car that you haven’t tested – so don’t get a mortgage until you really understand the commitment you are undertaking and whether you can match it.
There are two basic types of mortgages in the United States: fixed-rate mortgages, and variable-rate mortgages. Fixed-rate mortgages offer an interest rate that stays the same throughout the tenure of the mortgage. Variable-rate mortgages, which are also known as adjustable-rate mortgages, or floating-rate mortgages, offer rates that can be changed, adjusted or that fluctuate. Interest rates change from state to state so check out Florida or Miami specific Brokers.
Normally, fixed-rate mortgages have terms of either 15 or 30 years, which is the length of time the mortgage borrower has to pay off the mortgage. In the case of floating-rate mortgages, terms are normally only one year in duration. It is important to note is that interest rates for fixed-rate mortgages with 30-year terms are higher than those with 15-year terms.
As you think about applying for a home loan, you need to consider your personal finances. How much you earn versus how much you owe will likely determine how much a lender will allow you to borrow.
First, determine your gross monthly income. This will include any regular and recurring income that you can document. Unfortunately, if you can’t document the income or it doesn’t show up on your tax return, then you can’t use it to qualify for a loan. However, you can use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation. If you have questions about your specific situation, any good loan officer can review the rules.
Next, calculate your monthly debt load. This includes all monthly debt obligations like credit cards, instalment loans, car loans, personal debts or any other on-going monthly obligation like alimony or child support. If it is revolving debt like a credit card, use the minimum monthly payment for this calculation. If it is instalment debt, use the current monthly payment to calculate your debt load. And you don’t have to consider a debt at all if it is scheduled to be paid off in less than six months. Add all this up and it is a figure we’ll call your monthly debt service.
In a nutshell, most lenders don’t want you to take out a loan that will overload your ability to repay everybody you owe. Although every lender has slightly different formulas, here is a rough idea of how they look at the numbers.
Typically, your monthly housing expense, including monthly payments for taxes and insurance, should not exceed about 28 per cent of your gross monthly income. If you don’t know what your tax and insurance expense will be, you can estimate that about 15 per cent of your payment will go toward this expense. The remainder can be used for principal and interest repayment.
In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36 per cent of your gross monthly income. If it does, your application may exceed the lender’s underwriting guidelines and your loan may not be approved.
Depending on your individual situation, there may be more or less flexibility in the 28 per cent and 36 per cent guidelines. For example, if you are able to buy the home while borrowing less than 80 per cent of the home’s value by making a large cash down payment, the qualifying ratios become less critical. Remember that there are hundreds of loan programs available in today’s lending market and every one of them has different guidelines. So don’t be discouraged if your dream home seems out of reach.
In addition, there are a number of factors within your control that affect your monthly payment. For example, you might choose to apply for an adjustable rate loan that has a lower initial payment than a fixed rate program. Likewise, a larger down payment has the effect of lowering your projected monthly payment.
In the US, people can get mortgages from government sponsored entities or GSEs, including Fannie Mae, Ginni Mae and Freddie Mac. These organizations operate under federal charter and are overseen by the federal American government.
In Miami there are many lenders helping you to buy the house of your dreams! If you’re a first time buyer though it might be wise looking into getting a Miami Condo Loan – there are plenty of quiet, cosy condos out there for couples with lenders offering fantastic rates – so get looking!