Whats A Loan To Value Ratio?

What is the Loan to Value Ratio 

The Loan-to-Value Ratio is one of the most important basics when it comes to applying for a mortgage.

If you are shopping for a new home or are already applying for a mortgage then you will have heard of the loan-to-value ratio before. The acronym LTV is used a lot in the news, as well, and cropped up frequently when people found themselves in negative equity when the housing market crashed over a decade ago.

No matter what the situation in the housing market, it is important that you understand LTV, and that when you apply for a home loan you get the best deal that you can. Having an LTV that is too high can mean that you have to pay a lot more for your mortgage and that your refinance options and loan eligibility become poorer.

The LTV ratio is easy to calculate:

  • Just divide the loan amount you are applying for by the appraised value of the property.
  • That gives you the ‘loan to value’.
  • The hard part is determining the true value of your home.
  • The LTV ratio is the amount of the mortgage loan, divided by the purchase price or the appraised value of the property (whichever is lower).

If you are refinancing a mortgage, then the LTV is the outstanding loan balance divided by the property’s appraised value.

Lower LTV figures are better when it comes to getting a good rate on your mortgage.

Let’s take a look at a few simple calculations

Let’s calculate a typical LTV ratio:

  • Property value: $600,000
  • Loan amount: $450,000
  • Loan-to-value ratio (LTV): 75%

In the above example, we would divide $450,000 by $600,000 which gives us a result of 0.75, or 75%

You can do calculations like that in your head, or using a standard calculator. There is no need to use an online “LTV Calculator”. The arithmetic is not complicated and it’s a one-step process. It’s something that anyone can do, and it will arm you with some useful information for getting ready to apply for a mortgage.

Once you know your loan to value, that gives you an idea of the equity you hold in the property. In this case, your loan is for 75% of the property, so the remaining 25% of the property is the ownership that you hold.

It is important to know your proposed (or current) LTV so that you can show to the lenders that you actually have some money to put into the property. Lenders like to know how much of a risk they are taking when they allow someone to borrow from them.

Lower LVR ratios mean you own more of the property and are likely to get a better mortgage rate.
The more equity you have or the bigger the downpayment you can put in, the better.
Low LTV means less risk and less interest.

If someone has more ownership then they are less likely to end up falling behind on their payments and the mortgage company is less likely to need to foreclose on them because the homeowner has more to lose.

If they do end up struggling with payments, they could sell the property and not be faced with a massive loss.

Mortgages are tiered, with the tiers based on the LTV ratio. Someone who has a lower LTV ratio will be able to get lower interest rates, and those who have a higher LTV will have to pay a bigger mortgage or more closing costs.

Let’s consider a situation where you have a less than perfect credit score, and lenders want to charge you more interest. The adjustment you are faced with will grow even more if you have a higher loan to value ratio because that means even greater risk.

If you have a loan to value ratio of 80 percent and a poor credit score then that could mean you are faced with a .25 percent higher mortgage rate. If your loan to value ratio was 90 percent then the hit could be 0.5 percent. That might not sound like a lot, but over the term of the mortgage, it could see you paying an awful lot more. It makes sense to find ways to make a bigger down payment and to bring your mortgage as low as possible.

If you can, try to repair your credit score over a few years as well so that you have more loan options open to you, regardless of your equity and downpayment.

The 80% LTV Threshold Matters

It is important to keep your LTV below 80%
That will help you to secure a lower interest rate for your mortgage
It will also help you to avoid Private Mortgage Insurance
Most borrowers will elect to put down a deposit of at least 20%l so that they can avoid mortgage insurance and pricing adjustments

You don’t always need to put down 20% to get the benefits of having a lower LTV, though.

Looking at our first example once more, let’s raise the initial mortgage to $480,000 and add an additional mortgage of $60,000. This gives a combined loan-to-value ratio of 90% since the total amount borrowed is $540,000 on a $600,000 property.

The first mortgage is for 80%, and the second mortgage is for 10%.

Breaking up home loans into ‘combo mortgages’ allows you to keep the loan to value below the threshold, reducing the interest rate and also avoiding the need for private mortgage insurance. Many borrowers opt to do this.

Banks and mortgage companies do have limits on the LTV and CLTV that they allow, so you are not going to be able to borrow more than the property is worth. Many lenders set their thresholds at 80, 90 and 100 percent depending on the value of the property and the credit history of the borrower. These limits were introduced when the credit crunch hit, and they are gradually being relaxed, but it still makes sense to be cautious with borrowing.

If you are looking for a mortgage at the moment, then you are likely to have heard a lot about loan to value ratios. Hopefully, those figures will have cleared things up for you, and you will have some idea of what you should be aiming for. If you want to minimize the interest that you pay and improve your prospects of getting accepted by a good lender for the property of your dreams then you would do well to try to reduce your loan to value as much as you possibly can.

Out of all of the elements of working out mortgage eligibility and how much interest you might pay, figuring out the loan to value ratio is perhaps the easiest. Just divide the amount of the loan by the appraised value to get the LTV.

The hard part is often working out the value of the property.

The loan to value ratio, or LTV, is the value of the being applied for divided by the worth of the property (defined as the lower out of the appraised value and the purchase price).

In the case of an existing mortgage, this is the outstanding loan balance, divided by the most recent appraised value.

The lower the number that you get when you calculate the LTV, the better.

If you are lucky enough to be dealing in fairly round numbers, you should be able to calculate the LTV in your head, for example:

  • Property value: $1,000,000
  • Loan amount: $700,000
  • Loan-to-value ratio (LTV): 70%

All you have to do is divide the loan amount ($700,000) by the value of the property ($1,000,000). This gives us 0.7, or 70%.

You can do this on a calculator, or in your head. There is no need to use a specialist LTV calculator, although if you’re already on a mortgage website then you might want to try it just to use their other tools as well.

The result, 70% is good, because it means that the hypothetical borrower has 30% ownership of the property. This means that lenders will view them as fairly low risk and that they might get a good rate for their mortgage.

To summarize:

  • Lower LTV ratios mean that you own more of the property
  • Lenders see this as a good thing and offer better rates
  • A low LTV means more equity in the property or a bigger down payment
  • More equity means less risk for the lender
  • There are ‘breakpoints’ where if you get the LTV below that level you will be offered more favorable mortgage rates from the mainstream lenders

The lenders know that if someone has more ownership they are less likely to fall behind on their loan repayments and that in the event that they do fall on hard times they are more likely to be able to just sell the property without ending up facing a loss. This means that it is safer to lend to those people and that they will get better prices. In many cases, those with very low LTV ratios will not just see lower interest rates, but also lower closing costs. Keeping the LTV below 80% is valuable too because it helps to avoid private mortgage insurance.

Someone who has a poor credit score should look to avoid a high LTV because they will already be getting charged more for their mortgage. By reducing their overall risk they can reduce the negative impact that their poor credit score is having on them, although improving the score as well will go a long way.

Someone who has a poor credit rating and pays 0.25% more than average for an LTV or 80% would likely end up paying 0.5% more for an LTV that is above 90%. It makes sense, then, for those who have poor credit histories to look for ways to reduce their LTV to below the 80% threshold. The lower the loan to value ratio is, the better, for any borrower but especially for those who have a poor credit rating.

In the long term, building a good credit history is the best option for anyone, whatever their situation. Those who are planning to apply for a mortgage should definitely investigate their credit history.

The Crucial 80% LTV Threshold

  • You should always aim to have an LTV of below 80%
  • This will save you a lot of money
  • Lower LTV ratios mean lower interest rates
  • An LTV below 80% will allow you to avoid private mortgage insurance (PMI) too
  • The traditional way of avoiding higher LTVs is to put down a deposit of 20% when you buy a home so that you can reduce the total amount you pay over the term of the mortgage

You don’t have to do that though, there are other ways to save money on your mortgage and reduce the LTV.

One option is to take out a first and a second mortgage. The total (or ‘combined loan to value ratio’) of the two mortgages may be above 80%, but each mortgage will have a lower loan to value.

For example, you could borrow $800,000 on one mortgage and $100,000 on another, for a combined loan to value of 90% on a $1,000,000 property. The bigger of the two mortgages, however, would still be just 80%. The CLTV would be 90% because the other mortgage has an LTV of 10%.

Combo mortgages can help to keep the LTV on each mortgage below key thresholds, and this will help you to avoid higher interest rates and the misuse of private mortgage insurance. There are limits on the size of the total loan that you can take out and you will not usually be able to borrow more than the total value of the property. Many lenders prefer people to not borrow more than 90 percent of the property value, depending on your credit history.

There are different limits depending on the type of home that you want to buy.

  • FHA loans can often be as much as 96.5%
  • Conforming loans may reach 87%
  • VA and USDA loans are often allowed to be zero deposit/100% LTV

If you are buying an investment property, jumbo or cash-out refi then you are likely to see more restrictions on the total amount that you can borrow. Non-government loans are likely to be more restrictive than a government one as well. Refinances can sometimes be less flexible than loans to purchase a house in the first place.

Loan amounts are increasing. It wasn’t all that long ago that the limit for an FHA loan was 95%, but now Fannie Mae and Freddie Mac are in competition against the FHA which is driving loan amounts up.

Veterans and those who live in rural areas may be able to borrow more than those who are in bigger cities. It is a good idea to shop around, wherever you are buying a property because there are a number of options to buy properties from private lenders that may be willing to offer more flexible financing. There is no need to head straight to the lenders that are advertising on TV. A little legwork could save you a lot of money.

If you have a higher LTV than you would prefer, the good news is that there are a number of ways that you could potentially reduce it.

Borrowers Have Options to Lower Their LTV

For a home purchase loan, use a larger downpayment.
Ask for gift funds as a way of making your downpayment greater.
Break your mortgage up into a combo loan.
Make additional payments or put in a lump sum payment and refinance so that the LTV is lower when you apply.
Wait for amortization and appreciation of the home to reduce your LTV over time.

If you’re purchasing a new property, then the main option is to save and have a bigger downpayment. Yes, that’s not always easy, but it is often possible.

Ask if someone is willing to act as a co-borrower for you or to gift you the money.

Alternatively, look into ways of breaking up the financing into separate loans, and having a first and second mortgage.

With refinancing, you have the option of paying the balance down more aggressively before you apply. Make extra mortgage payments, or wait a bit longer before refinancing.

This could help you if you are close to the LTV threshold, or you need to get below a conforming loan limit.

It’s important to pay close attention to the LTV, because if it is above 80% then you may be paying more than you need to. There are other thresholds, too, where if you can reduce the LTV you may pay less interest.

If you aren’t under urgent need to refinance, then why not take the zero effort approach to reduce your LTV. Just sit back and watch as your house value increases over time. This will lower the LTV in the process. Of course, that isn’t guaranteed to happen. Home values can fall as well as rise.

In general, real estate prices rise over the long term, so your best bet is to be willing to ride out the changes, and to refinance at a time when it is financially suitable for you.

With people who are looking for a cash-out refinance, a jumbo loan, or to acquire some investment property, there are far more restrictions. The Loan to Value is likely to be limited to 70 or 80% at most.

Be aware that if you borrow a lot of money you are taking a big risk. There are borrowers who are now in negative equity because they owe more on their current mortgage than the value of the property today. This can happen for many reasons, and since the housing market is cyclical, you can never be sure that your ‘expensive’ house today will still be in demand in ten year’s time.

Having negative equity (an LTV ratio that is over 100%) is not a problem if you can meet the repayments on your mortgage and you are not planning on moving. It is a problem if you need to move home or if you need to refinance your mortgage. It’s also a problem if you are on a mortgage that is not fixed rate, and the lender charges you more because your LTV is so high.

The Home Affordable Refinance Program has helped a lot of ‘underwater’ homeowners to get back into the black by refinancing on a lower rate without a limit to their LTV. You will need to have a loan that is under Fannie Mae or Freddie Mac if you want to take advantage of that refinance option. There are similar options such as FHA streamline refinance for FHA loans or the VA IRRRL for VA mortgages.

Underwater borrowers can recover. It may take them some time to get back to the same financial standing as someone who bought when the property market was low, but it is possible for them to build equity if they are patient and think long term.

Home buying should not be a hasty decision. It is something that you should work on steadily.

Remember the following:

  • Lower LTV ratios mean bigger savings
  • You will usually get lower interest rates with bigger deposits
  • Long term, you will pay less to repay the mortgage
  • Put more of your money towards paying off the principle by having a low LTV
  • Keep your LTV under 80% to avoid PMI
  • You will have access to more lenders if you have a lower LTV
  • Even people who have a poor credit rating can save money by using a bigger deposit
  • You are more likely to get approved for a mortgage if the lender sees you as being lower risk.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802

How Do You Build Home Equity?

11 Ways To Effective Build Home Equity

Home equity is really booming these days.

At a final glance, that total equity on mortgaged properties was approximately $10 trillion with approximately $6 trillion being tappable, according to Black Knight’s recent figures.

Yes, this is a “T and not a “B.” However, just a couple of years ago, you would never have guessed this.

During the early 2000s, everything was all about tapping into your home’s equity line a cash-out refinance or line of credit.

The using your home as an ATM thing for making lavish purchases to just to pay your bills every month.

This resulted in the narrative quickly changing to foreclosures, loan modification programs, underwater mortgages, negative equity, declining equity and so forth.

Funny how this works.

The reversal of fortunes was caused by zero-down mortgages and crashing home prices, many of which were not underwritten properly to start with.

Most of the people who ran into problems buying houses at unsustainable prices at the height of the market, while also relying on 100% financing at the same time to close the deal.

That causes many homeowners to consider walking away or to leave, as housing price depreciation became the leading driver of defaults.

However, for many people who stuck around and were able to ride things out, they are in great shape actually and in a much better position now than they were when they took their mortgages out initially.

However, the housing crisis negative effects are still being felt by others even after double-digit house price gains for many years.

If you happen to be one of these homeowners, or maybe you are not but either way, you might be wondering how some home equity can be built.

This way, when it is time for you to sell your house (or refinance the mortgage), you will be able to do it worry-free.

So let’s check out some of the many ways that equity can be built in your home:

  1. Increasing housing prices – whenever prices of houses go up, your equity will increase simply due to the fact that your property will be worth more money. For example, if the current worth of your house is $100,000, and then in five years it increases to $125,000, you will have an additional $25,000 in equity. Unfortunately, as we are all aware, the opposite may occur as well.
  2. Decreasing mortgage balance – Each month, as you are paying your mortgage off, you are paying a portion of the principle (assuming you don’t have an interest-only home loan) and a part of interest. So you gain some home equity with each mortgage payment that you make.
  3. Larger mortgage payments – If every month you make bigger payments, and the extra part goes towards paying down your principle, you will pay your mortgage of much more quickly and increase your home equity much faster. Effective and simple.
  4. Biweekly mortgage payments – With a biweekly mortgage payment plan, throughout the year you make a total of 26 half payments. That will help to shave your mortgage term down save you lots of interest, and also help with building your home equity much faster as well.
  5. Shorter mortgage term – It is also possible to refinance into a mortgage with a shorter term and lower interest rate, like a 15-year fixed mortgage, which due to the bigger payments will result in equity being built much faster compared to when a traditional 30-year mortgage is used.
  6. Avoid refinancing- On the other hand, if you pull out ash and don’t refinance, all of the equity will be retained in your house. During the boom period, numerous homeowners continued refinancing over and over again until all of their equity has been sucked completely dry.
  7. Home Improvements – Making smart home improvements, when the expected value is more than the cost, it will increase the equity in your home through owning a house that is worth more. Although it appears to be the exact same home, stainless steel appliances and quartz countertops draw buyers in still, so you may able to sell your home for a higher price. If you use sweat equity this can even be done for free.
  8. Maintenance – You can be rewarded for keeping your house in top shape when it is time to sell your house. You will be able to sell it for more, as a result since more equity has been created in your house. Frequently home buyers will put in repair requests with sellers, but it will be harder to ask for concessions if your home has been taken good care of. 
  9. Curb appeal – The same thing is true when it comes to home staging. If your home looks good when it is listed, there is a higher chance that it will and for more money. Simple things can really make a huge difference, like lack of clutter, basic cleanliness, flowers, plants, bright lighting, carpet, new paint.
  10. Rent your home out ) When all or part of a property is rented out, you can build equity through using the rent that you get every month from your tenants. It is pretty sweet when someone else is paying your mortgage off, especially when your property is appreciating at the very same time.
  11. Larger down payment – Putting down a bigger downpayment, to begin with, will help you acquire home equity automatically and help to build it more quickly.

Although it may seem as if you are putting money into an illiquid form of investment, having more equity also means having a loan-to-value ratio that is lower, which might result in a lower interest rate, with no mortgage insurance required and make it easier to get financing.

A lower mortgage rate over time will result in you paying less interest and accruing more equity.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802

Good Prices For First Time Home Buyers Loans In Texas?

What Is a Good Price for a First-Time Home Buyer? 

Part 4

Finding That Perfect Price For A First-Time Homeowner

There is something that we must all consider and that is known as payment shock, which is basically a large increase in monthly liabilities.

An example of this would be if your housing payment went up 200%, that would be a shocking experience! Imagine paying $1,000 per month for a rental only to have to pay $3,000 per month the next.

You more than likely are beginning to understand what type of situation you are getting into.

It is always going to be better to stay under budget as it is going to take time to deal with the larger costs of owning a home.

This is true once you begin to see all of the other bills associated with owning a home such as that much larger electric bill.

Many times when looking at a home, we tend to over exceed our budgets, which means you have to have a budget ready to go.

Starter Or Forever Home?

Most home buyers usually look for a starter home to begin with.

Typically with time, they will move up to a larger home.

However, one must understand that there are many transaction costs involved in the purchase of a home.

You may consider that buying your forever home right from the get go is a more sensible solution.

Taking the budget out of the equation, it is still not that simple of a process. Home purchases are not only an expensive transaction they are highly time-consuming.

While the cost to close a home is rather expensive, you can expect the process to be rather lengthy.

In addition, it can be just as expensive to sell a home, one must consider repair costs, closing costs, real estate costs, and other associated fees.

In the simplest terms, buying and selling a home is an expensive process, so limiting the experience may be a good one.

If you have the funds, you may just want to look for a forever home and bypass the whole starter home process.

Many millennials have started with this trend and feel as though it is working out for them.

However, statistics have shown that few people stay in the same location for extended periods of time. For many people, they tend to stay in one home for ten years or less.

This just may ruin the fixed mortgage vs. ARM, however, that is a discussion for another day!

You will just have to weight the proc and cons of a starter home vs. forever home to decide what is best for you.

A starter home is going to be your cheaper option in the beginning, however, a forever home may be the cheaper alternative in the long run.

One must simply take the time to decide what is going to work the best for their finances and options at the time being.

In many cases, starting with a starter home is the only way people are able to save up and generate a down payment for their larger home in the future.

However, what do you do if you want to bypass all that and simply buy one home? It helps you avoid a lot of excess costs and headaches.

Plus it gives you a home that you can grow into as a family. In addition, you are not going to find the same level of competition with a forever home as you would with a starter home, so no bidding wars to contend with.

It seems as though that is the best way to go, doesn’t it?

However, this is one of those cases, where it is easier said than done. In all reality, you more than likely will get tired of that home and end up moving down the line.

You are going to find that it can be hard to find a home that is going to match all the various stages of your life at one time.

The Price Depends On Your Needs

There is not one price that is going to fit everyone for their first home.

It is going to vary depending upn your needs and affordability.

However, it is always wise to look into your future before you make that initial purchase.

Be sure you try to negotiate on the price of the home when you find the right one.

Keep in mind, depending upon your needs and wants is going to have an impact on what you pay.

For every location and number of bedrooms and bathrooms that are required will impact your bottom line.

There are going to be times where your price point and what you need and want are not going to add up and you are going to have to find a way to make things right so you can afford something.

If you do have the extra savings and some wiggle room, you very well may be able to afford your forever home today as opposed to ten years from today.

However, you will still be limited by the amount of homes that are in the market.

Price is always going to be determined by square footage, number of bedrooms, desirability, and of course the location.

Every individual is going to have various needs and find out what they are able to afford is quite different.

Basically, there is not one right number to this equation. It is simply a matter of what you can afford and what is available. As well as how many times you are willing to go through this process.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 click here to go to the first article in this series.

Good Prices For First Time Home Buyers Loans In Texas?

What’s A Good Price For First-Time Homebuyers?

Part 3

Today’s Rates

Those who are buying for the first time might want to aim for prices close to these levels, since starter homes are usually cheaper than others. Having said that, it’s always so simple.

Individual housing markets across the country have a variety of home prices, and a lot of cities fall over the median.

Another thing that is a limiting factor is the homebuyer’s finances because there’s no way to buy more than you can afford to borrow.buying your first house in houston

The mortgage lenders and banks will go through your income, your assets, and your down payment, and they’ll tell you that you can only borrow so many dollars.

You can’t exceed your upper bound, but you can find out what it is by going in to get a pre-qualification or even a pre-approval.

You might dream of buying a home that’s worth $1,000,000, but your finances might ground you to something that’s $400,000 at most.

It’s still a good starting point, given that you’ll have established what your affordability and personal price ceiling are like. It also means that when you spend time on Redfin or Zillow, you can just set the maximum filters at $400,000 so that you don’t see anything above that.

If you find yourself not wanting to deal with anyone personally, you could choose to put your financial numbers through some mortgage calculators, but you need to be mindful of the fact that these aren’t nearly as accurate.

In either case, you need to look at things other than money, given how there are other factors in play. They include but aren’t limited to the features you’ll require, how long you intend to live in the home, why you want to buy to start with, and so forth.

Do You Hope To Live Above, Below, Or Just At Your Means?

Do you have fun making do with less? Or do you spend until you’re broke? There’s no law that says you must spend the full maximum that you can afford.

Many find it sensible to stay under their maximum so they walk away with a safety net for things that they can’t anticipate.

Let’s go back to our previous example, where you qualified for a maximum buying power of $400,000. It’s useful, certainly, although that doesn’t mean it’s mandatory to spend all that.

You have credit cards, right? Some issuers will give you credit lines up to $25,000. Did you run out and spend all of that? Unlikely. I doubt you even got close.

That number is just what they’ve figured out from your employment, income, and credit history.

Mortgage lenders also do this, using things like proposed down payments and debt-to-income ratio in order to determine your maximum purchase price.

Again, is spending that much even a good idea? Chances are good, particularly if it’s your first time, that you might be smart to aim somewhat lower.

Consider that homeownership typically comes with a lot of unexpected costs, although seasoned homeowners might not think of them as unexpected at all. However, if you’re a first-time homebuyer, they might just shock you.

Even your monthly bills for home maintenance can keep you up at night. If you weren’t already paying for trash, gardening, water, insurance, and other utilities, and now you suddenly are, it can be a jolt to you, and your bank account.

Also, don’t forget that property tax bill or your monthly mortgage payment. There’s also that new furniture you need to buy. You might even have a baby coming into the picture. It’s a lot to deal with!

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 click here to go to the next article in this series.

Good Prices For First Time Home Buyers Loans In Texas?

What’s A Good Price For First-Time Homebuyers?

Part 2

If you have credit cards, then you know that issuers give you credit lines you can spend. Some cards might give you as much as $25,000. Should you actually go out and spend every dollar? No, you shouldn’t, and you probably never came anywhere close to that if you had such a card.

That $25,000 is just what they figured you could safely handle after they went through your reported income, your employment history, and your credit reports.

buying your first house in houstonYou can expect mortgage lenders to do much of the same thing. They’ll figure out your max purchase price based on factors like debt-to-income ratio and the down payment you’re willing to make.

This is no different than a credit card in that you shouldn’t spend it all. It’s a smart money move to aim for a home that costs less than your upper bound, particularly if you are buying for the first time ever.

Owning a home has a lot of costs that you might not know about yet. Veteran homeowners know about them, but if your history is in renting, then you don’t.

Just the monthly overhead that keeps your home up can be daunting. If you rented, you maybe had the rent, the power, and the cable or Internet, and some apartments even throw those in these days. You weren’t paying for maintenance, water, trash, landscaping, insurance, or property taxes.

Forget the monthlys. What about the furniture? What about the new baby coming? Oh boy! You also have to factor in something known as payment shock, and that’s basically a big jump in monthly liabilities.

For instance, should your housing payment double, it will stun you. If you had been renting for a grand each month and now owe triple that every month, then you might hear concerns from an underwriter.

You need to be concerned too. At the very least, recognize what you happen to be getting into here.

What’s A Good Price For First-Time Homebuyers?

Trying to buy your first home can make you want to pull your hair out. No matter how much you pay, you’ll lose sleep for a few weeks, if not longer.

When I bought my first home, I buried my head under pillows and stayed there as long as I could every morning. I was stressed out beyond belief.

I eventually talked to one of my friends, and brought it up. He told me that if I was anxious over what could happen, then I was halfway there already. I was told in no uncertain terms to chill out. I tried. I really did try.

You’ll Find Out The Most You Might Afford From Your Lender

Start the process by visiting your bank or a mortgage lender.

Many of them offer pre-qualification or pre-approval letters free of charge and without any commitment on your part.

They’ll look at your finances to figure out how much they can afford to lend you.

This will establish how much you can spend when you hunt for a home.

Data from the National Association of Realtors looked at the national median prices of single-family homes in the fourth quarters of 2017 and 2018. They went from $247,800 up 4% to $257,600.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 click here to go to the next article in this series.

Good Prices For First Time Home Buyers Loans In Texas?

What’s A Good Price For First-Time Homebuyers?

Part 1

Buying your first-ever home can get rather nerve-wracking. No matter how much you pay, whether that feels like a lot or a little, you’re going to have some nights early on where you can’t sleep.

When I first bought a place, I buried myself under my blankets and didn’t come out for a while, and that happened for more nights than I want to admit. It was very stressful.

I even talked to a friend about this, and he told me that if I was worrying about what-ifs, then I was practically already there. He told me to chill out, okay? I got it.

The Lender Tells You How Much You Can Afford

Your first stop is probably going to be a mortgage lender or bank.

You might get a pre-approval or pre-qual letter free of cost or obligation.

You can use that to determine how much you can afford just based on your current finances.

That will at least set up a price ceiling you can use as an upper limit for your home search.

There’s no universal answer that suits everyone, but we’re able to talk about underlying stuff that comes up with solutions that work for you.

buying your first house in houstonThe National Association of Realtors has data that claims the national median home price for an already existing home for a single family during the last quarter of 2018 was $257,600, which was up 4 percent from the previous year, when it was $247,800.

First-timers might want to look for prices close to these points because starter homes usually fall on the cheaper side of the price scales. Then again, it’s not always so simple.

Home prices in different housing markets around the country are all over the place, with a lot of cities being over the median.

Also, your finances will factor in since they will limit just how much you’re able to afford, and there’s no way around that.

The mortgage lender or bank is only going to let you borrow so many dollars based on your down payment, income, and assets.

That means you could just visit to get your pre-approval or pre-qualification so you can know just how much you are able to afford. This is known as an upper bound, meaning you know you can’t exceed it.

Even if you’d like to purchase a million-dollar home, you might wind up getting limited to properties worth $400,000 because of your finances.

This is a good start since you at least have a pretty good idea what your price ceiling and affordability are. It means you’re able to set your filters on things like Zillow and Redfin so they don’t exceed your purchase price of $400,000.

If you’d rather not talk to anyone, you can even just run numbers on your own through a mortgage calculator, although odds are that it won’t be nearly as accurate.

Either way, you should look past money because there are certainly other considerations, like why you’re buying to start with, just how long you intend to stay, the features you might need, and so forth.

Do You Plant To Live Within, Below, Or Above Your Means?

Are you a frugal soul that enjoys getting by with less? Or do you swing for the fences? It’s not necessary to spend the full maximum that you’re able to afford.

It can even make some sense to buy under so you wind up with a safety net that can cover unexpected costs.

Using the instance from earlier, assume you only qualify for a maximum purchase price of about $400,000. It’s helpful, sure, but it also doesn’t mean that you should spend it all.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 click here to go to the next article in this series.

Are 30-Year Fixed Mortgage Loans In Texas In Danger?

Should We Worry about the 30 Year Fixed Mortgage

Part 2

Calabria Used a 30-Year Fixed Mortgage

Investigative reporting done by The Wall Street Journal has shown that nominee Calabria actually has a 30-year fixed loan on his current residence, which was bought back in 2010. At that time the rate range for these types of loans were anywhere from 4.23% to 5.10%. Rates did drop after that, and he may or may not have taken advantage of a re-finance, another reason these loans and their terms are so popular.

In addition to this it is worth noting that Calabria’s public testimony has no mention of these loans in his prepared remarks. He also re-affirmed that he will be serving Congress and not imposing his own view on how things should be done. While some of this should be expected no matter what when it comes to public hearings and testimonies, it does seem like this is a topic that would come up if a major part of his vision was putting these loans on the chopping blog.

All Smoke Or Is There Any Fire?

As always, it’s hard to know for sure how this is going to work until everyone is in place and actually on the job. While it makes sense to have concern, but at the end of the day based on the reporting right now, this is probably more of unnecessary worry than actual legitimate concern for the pro-30 year loan crowd. In today’s economy few want to take the risk of big or wholesale changes unless they really are confident in this being a necessary change to avert disaster as well as having a clear plan in place to defend against public criticism or importance. The idea that a loan program that is involved in 90% of home purchases & 80% of all mortgages will change or disappear overnight. Even if an adjustment is made away from these loans, this is definitely going to be a long-term shift. That makes the “sudden disappearance” of these loans very unlikely. In the end a major point to consider is that most homeowners only stay on a property for 5-10 years before they move to a different property. Paying more for an interest rate they won’t keep for close to 30 years just doesn’t make sense.

The Texas Mortgage Pros team consists of mortgage professionals all over Texas. We are committed to providing our clients with the highest quality service for your mortgage needs. Combined with the lowest rate and multiple loan programs available in your area – Spring, San Antonio, Tomball, The Woodlands, Dallas, Austin and Houston, Texas. Our outstanding mortgage professionals with years of experience will work with you one-on-one to ensure that you get the home loan that is tailored specifically to meet your situation and expectation. Whether you are purchasing your dream home, first home, refinancing an existing loan, or consolidating debt, our highly experienced team of loan officers can help you find the right loan program at the lowest rate possible.

Our ultimate goal is to create a lasting relationship with each of our clients that we may continue to provide excellent service for many years to come. Unlike many of the larger nationwide mortgage companies that are out there, all your information will be kept secure and private. Our name is trusted throughout the lending community.

 

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 Click here to go to the first article in this series.

Are 30-Year Fixed Mortgage Loans In Texas In Danger?

Worry or False Flag: Is the Popular 30 Year Fixed Mortgage Loan Going Away?

Part 1

The 30 year fixed mortgage has been a mainstay of home buyers for decades now, and for most people who don’t follow financial news or the markets it can be easy to believe it will be around forever. But is that true? While it’s not saying anything controversial to suggest this is the most well-known loan as far as terms and long-standing use, that doesn’t mean the model will stay viable forever.

Back in 2014 some fretting about the 30 year fixed mortgage because when Dick Bove made the attention gathering claim that the Fed’s decision to taper off purchasing mortgages would make those loans non-viable going on in the future. In other words, it might actually be curtains for this loan program – and that caught plenty of attention.

So Should We Kiss the 30-Year Fixed Mortgage Good-Bye?

There’s a lot of controversy over this idea. Seeing as how the terms and affordability of the 30 year fixed mortgage allowed home ownership to become so widespread, it’s kind of hard to imagine a modern lending world where this is not an option. Is this something to actually worry about, or is it just fear mongering and paranoia?

While only time will tell, it does seem that every few years speculation fires up about Fannie Mae & Freddie Mac. These agencies are government controlled and have been since the 2008 collapse. They have long been a necessary part of the economic process to back these loans and make them a viable option that banks are willing to embrace because of the backing that comes from those agencies. In other words, they play the “Middle Man” that allows the process to work smoothly.

However, Mark Calabria, the most recent nominee to become FHFA (Federal Housing Finance Agency) director may decide he doesn’t like government purchasing 30-year fixed mortgages. If the order comes to stop buying those loans, the un-doing of Fannie and Freddie could take place. These two organizations back the majority of all 30-year mortgages out there. When the market becomes far less liquid, the prices either shoot up or those type of loans will no longer be favored. This could push them to extinction over time.

This seems like a huge shift, and it would be, but it is very possible.

So If Not 30-Year, Then What?

If this happens then a likely spike in interest rates would make the current 30-year fixed mortgage loans far less competitive and thus far less appealing. Some think these massive shifts in interest rates or changes in interest could result in a shift to ARMs.

Without the stability and backing that Freddie & Fannie bring to the table, these don’t become the easy access good deals that homeowners have enjoyed in the past, and it makes them scarier investments.

If this situation was to play out, there’s a good chance that 5/1 ARM or 7/1 ARM loans would become about as attractive an option (or an even better option) than any new 30 year rate that would be made available. These could get even better if investment interest in 30-year fixed rate loans dried up after the changes. Banks won’t keep putting out loans that there’s no investment interest in.

While this would be a huge change, it is worth noting that the 30-year fixed mortgage is rare or a huge minority of home loans in many advanced economies like the UK, Ireland, the Netherlands, Canada, South Korea, and Spain. So other options are viable, even if the transition appears to be a bit rough at first glance.

Before making a decision, let one of the experts at The Texas Mortgage Pros help you find out exactly what loan is best for you.  Contact us today Or Call Us @ (866) 772-3802 Click here to go to the next article in this series.

What Is An Interest Only Mortgage

Interest Only Mortgage Loans

An interest-only mortgage does not decrease the principal loan amount but rather the installments only cover the interest charged on the loan amount every month. This basically means that you will always owe the same amount to your loan provider as you are only paying the interest. Where there is a small niche market for these type of loans, they are not for everyone.

These type of loans are secured by the property that has been purchased. Although there is an option to pay more than the interest, this option is rarely taken. An interest only mortgage is popular due to the fact that it greatly reduces the monthly installment on the mortgage. However, these types of loans do have a bad reputation and are often made out to be high risk. Just like most types of mortgages, this type of property financing option does have both advantages and disadvantages and when used correctly under the right circumstances, can be highly rewarding.

How Does An Interest-Only Mortgage Work?

The principal loan amount is not taken into account when calculating monthly installments. Only the interest charged on the loan will need to be repaid on a monthly basis. For example:

A principle loan of $100,000 bearing 6.5% interest amortized over a 30 year period would result in a monthly repayment of $627 including both the principal and the the interest (P&I). The interest portion of this amount would be $541.50. This would result in a monthly saving of $85 when taking an interest-only loan.

Different Types Of Interest Only Mortgages

Most types of mortgages that provide an interest-only option do not have an unlimited term. In other words, you cannot continue to only pay the interest forever and after a specified period of time, the principal loan amount becomes fully amortized over the remaining term of the loan. For example, a 5/25 mortgage would allow for interest only payments for the first 5 years of the 30 year term and there after the principal loan amount will be amortized over the remaining 25 years of the original term when both interest and principal amount will form part of the monthly repayment.

To give you a better idea of how this works, look at these to popular options:

  • A 30 year mortgage with the option to pay only the 6.5% interest for the first 5 years on a principle loan amount of $200,000 will result in repayments of $1,083 per month for the first 5 years and $1,264 for the remaining 25 years of the term.
  • A 40 year mortgage with the option to pay only the 6.5% interest for the first 10 years on a principle loan amount of $200,000 allows for an interest-only payment in any chosen month within the initial 10 year period and thereafter, installments will be in the amount of $1,264 for the remaining 30 years of the term.

How To Calculate An Interest-Only Payment

It is easy to calculate interest on a mortgage:

  • Multiply the principal loan amount by the interest rate. In the above example, this would be $200,000 multiplied by 6.5 which is $13,000 in interest annually.
  • Divide the annual interest by 12 months and you arrive at your monthly interest payment on your mortgage. $13,000 divided by 12 equals $1083 which is what you will pay in interest on a monthly basis.

How Can You Benefit From A Interest Only Mortgage?

An interest-only loan is ideal for a first-time home buyer. Most new home buyers do not have the available income to afford to repay a conventional mortgage and therefore opt to rent rather than purchase.

The option to pay the interest-only in any given month provides the homeowner with some financial flexibility when it comes to unforeseen circumstances. In other words, the homeowner does not pay only the interest every month but can choose to do so when they need to during a month of financial difficulty or where an emergency has arisen that prevents them from making a full repayment.

Self-employed individuals or commission earners who do not earn a stable monthly income can also benefit from these type of loans. In high earning months, they can pay more towards the principal amount and in low income months, opt to pay only the interest on the mortgage.

What Does It Cost?

Due to the slightly higher risk that a loan provider may run in offering an interest only mortgage, these type of financing options are often a little more expensive than traditional mortgage options. Most often, the difference is as little as 0.5% in the interest charged on the principle amount.

Additional fees and charges may also apply as may a percentage of a point on the principal amount in order to grant the loan.

Misconceptions And Real Risks

The balance owed on the mortgage will never increase as it does with ARM loans. Increasing the balance is referred to as negative amortization and does not apply to interest-only mortgages.

The greatest risk is when it comes to selling a property which has not appreciated in value. If the principle amount has not been reduced due to paying interest-only, the loan amount will not have changed and therefore the full amount will become due. This will mean that the homeowner will run at a loss.

On the other hand, it is important to note that this is a risk that is run when taking out a conventional mortgage. It is rare that a loan will cover the costs of a selling a property that has not appreciated in value. A significant down-payment will reduce the this risk factor on an interest-only mortgage.

A drop in the property market can result in the loss of equity on the property. Once again, the risks associated with a decline in the property market is run by all homeowners whether they opt for an interest-only mortgage or a home loan that is fully amortized.