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Dale W Doughty, Jr.'s Blog

By Dale W Doughty, Jr. | Mortgage Broker
or Lender in Maine
  • The Preapproval vs. Prequalification

    Posted Under: Home Buying in Maine, Financing in Maine, Home Ownership in Maine  |  February 9, 2014 5:55 PM  |  275 views  |  No comments
    As we enter another season of home buying and selling it is time to review the process for those folks that may be looking to buy their very first home.  Now is a great time to invest in a home. Prices have stabilized and are rising again in most markets, rates remain at historic lows and it is quite possible that inventories will improve as we get closer to spring.

    One of the first steps to entering the real estate market is to secure financing.  This can be a daunting task as the number of lending products is vast, the guidelines and features of each program are quite confusing and the qualifying process has become infinitely more difficult to navigate with the new Regulation Z requirements that took effect January 10, 2014.  The key is to get involved with a lender early to make sure you find the right loan product and are well-informed about your ability to qualify, the amount of money you will need to have to cover closing costs and down payment and whether or not any of your existing debt needs to be paid off or restructured.

    Although each lender is different there are generally two types of qualifications offered by them.  The prequalification process typically just looks at your income and current debts to calculate the amount of monthly housing expense you can afford and (based on current interest rates, estimated property taxes in the community you are looking in and estimated insurance premiums) what that monthly expense equates to for a loan amount.  It may or may not include a credit check and typically does not require you to produce any financial documents.  Many real estate agents will allow a prequalification letter to be used in order to go under contract on a property but some will not.

    A preapproval is more involved.  It typically requires you to produce two years worth of W-2's and/or tax returns, recent paystubs, bank asset statements and other pertinent financial documentation.  A preapproval is a conditional commitment from the lender for a specified loan amount.  The preapproval not only assesses how much home you can afford, but it assesses your credit history, amount of down payment/closing costs you are able to pay, the amount of savings you have on hand in the event of a financial setback and several other factors.  During the preapproval process your mortgage officer will recommend a specific loan product based on your specific situation and the type of home you are interested in buying.

    A prequalification letter can usually be provided on the spot whereas a preapproval may take up to 2-3 days depending on your situation and the time of year.  Usually it is beneficial to seek preapproval well ahead of time, especially if you plan on buying in the busy spring months, and then have it updated later on, if need be.  Usually getting an updated preapproval letter only involves providing up-to-date bank statements and paystubs that show no major reduction in income or assets.

    The conditional commitment or preapproval will have conditions that gives the lender an exit strategy if they don't like the final deal.  Typical conditions include a property appraisal, copy of the purchase and sale agreement, a title commitment from a title attorney, etc.  There may also be specific conditions related to your specific situation including providing documentation for large bank deposits, recent credit inquiries or any anomalies found during the underwriting process. These conditions may vary from one lender to the next so make sure your mortgage officer thoroughly explains them to you and answers any questions you may have.

    If you are well-established financially a prequalification letter may be all you need.  Although keep in mind that the qualification process is much more involved then it has been in the past.  If you are a first-time buyer or aren't sure about your ability to qualify you are better served to make the extra effort up front.  This way you know exactly where you stand and can feel confident that once you find a house you really love your financing will go through and you will be able to close within the timeframe outlined in the purchase and sale agreement.  The underwriting process will be much faster on a preapproved loan versus a new loan application, which will get you into the house faster.

    If you would like to get started on a prequalification/preapproval or you have any questions feel free to call me at (207) 894-5822 or toll-free at (877) 440-2739.  I can also be reached at dale.doughty@peoples.com
  • The Private Road Maintenance Agreement Conundrum

    Posted Under: Home Buying in Maine, Financing in Maine  |  September 28, 2012 2:02 PM  |  4,059 views  |  1 comment
    I often get a lot of questions regarding Private Road Maintenance Agreements. A Private Road Maintenance Agreement is sometimes in place among residents who live on a private road. It typically addresses how maintenance on the road will be addressed financially among the residents on the road. It includes items such as snow plowing, grading, washouts and other common maintenance needs of the typical Northeast road. Most often these roads are not paved and do not meet the minimum requirements of the local municipality to become a publicly maintained road. In order for the agreement to be binding it must be recorded at the local registry.

    In recent years the mortgage industry has taken more of an interest in such arrangements. Often requiring them to be in place in order to close. Many investors feel that any contributions made by the homeowner to such an "association" should be considered part of the housing expense (much like a homeowners association due) and included in the debt ratios. Other investors are also interested in how the egress and ingress to the property will be maintained in the event of default on the mortgage.

    The common misnomer is that this is an industry-wide guideline that must be adhered to. The fact is, it is not. It is simply what us bankers call an overlay. A guideline that is put in place by a particular investor that is over and above the normal guideline. Although it is true that more and more investors are requiring a private road maintenance agreement, it is also true that there are still several that do not.

    The trick is to address it up-front with the underwriting team so that the loan can be underwritten to a specific investor's guidelines that does not require such an agreement. Some brokers or lenders may not have this ability, others do. As with anything, I suggest that if you own or are purchasing a home that is on a private road, that you discuss the need for an agreement with your lender up-front to prevent a whole lot of wasted time and expense down the road.

    If properly addressed, the lack of a Private Road Maintenance Agreement should have no bearing on the outcome of your closing. In the very rare case where the need can not be overcome, nothing is lost when the issue is explored in the beginning.

    To discuss this topic further you can reach me at my direct line of (207) 894-5822 or toll-free at (877) 440-2739. I am licensed throughout New England and New York.

    ****UPDATE 2-8-2014****  It is amazing to me how many phone calls and emails I get on this topic.  I strongly encourage anyone who is having difficulties with their lender to talk to other lenders in that serve their area.  I am typically able to overcome this issue in my region but I often get calls from as far away as California and Texas.  Unfortunately I am not licensed in these areas and have no working knowledge of what the rules in your region might be.  I can only encourage you to shop around.  If you are in New England or New York I would be happy to try to help you personally.
  • Why Home Ownership Makes Sense

    Posted Under: Home Buying in Maine, Foreclosure in Maine, Rent vs Buy in Maine  |  February 7, 2012 5:57 AM  |  1,478 views  |  No comments
    According to ApartmentRatings.com the average rent on a 2-bedroom apartment rose 19% in 2011 to $1157/month in the Portland MSA.  Although this figure may not be entirely accurate it correlates with a national trend of rising rental costs due to simple economics.  The trend of less people purchasing a home due to economic uncertainty coupled with the fact that the hardest hit in this economy have lost their homes and now rent has increased the renter pool.  Meanwhile, the number of available units has not really changed.

    Based on current market conditions, annual taxes of $2500 per year and insurance of $600 per year a home buyer in this market could purchase a home priced in the $150,000 range and have a monthly housing expense that is at or below the average rent in the area.  Granted there are maintenance costs to be considered, depending on the age and condition of the home but these can be kept under control by learning to do alot of the work yourself.  As someone who has owned a home for the past 15 years I can tell you that I now know more about plumbing, electrical and drywall then I ever thought I would.

    Assuming that you plan on staying in the area for a length of time and retaining the home, you probably have a pretty good chance of realizing some gains in value too.  As dismal as the housing market may seem, the population of the US is growing fast and there will always be a need for housing.  As the economy stabilizes and begins to recover, so will home values in the area.  Not to mention, with countless distressed sales still available in the area, you have an excellent chance of buying a home for well below its current market value and having equity the moment you close.

    Still not convinced you want to give up apartment life?  Consider owning one yourself.  FHA insured loans, which only require a minimum of 3.5% down (which can be a gift from a family member) allow the purchase of apartment buildings with up to 4 units.  The only caveat is that you have to live in one of the units.  What better way to enjoy the urban life then to live in an apartment that is paid for by your neighbors?  After a few years if you decide you want to head for the suburbs, you can rent out the apartment you were living in and collect rent on all 4-units or sell the property and use any equity towards the purchase of your new home.

    Home ownership is at the most affordable level in years.  So, if you plan on calling Maine home for the foreseeable future you may want to sit down with a mortgage banker and get a preliminary analysis of how much home you can afford and qualify for.  With this information you can look at current listings and decide if there is anything in your price range that interests you.  Most lenders do not charge anything for this service and you may be pleasantly surprised by the results.
  • How do Bond Rates Effect Home Affordability?

    Posted Under: Home Buying in Maine, Financing in Maine, Credit Score in Maine  |  September 22, 2011 5:22 PM  |  1,975 views  |  No comments
    There has been a lot of talk lately about a "flight to safety", "bond rallies", "quantitative easing" and now the buzz word of the day "twisting."  What does it all mean? 

    Simply put, mortgage rates are directly effected by bond yield, mainly on the 10 year note.  Bonds are nothing more than promises to pay.  Large corporations and government entities all issue bonds (take loans) in order to pay for infrastructure needs.  When we talk about the 10-year note we are referring to T-Bills, or a loan taken out by the US Government.  Historically, these have been considered one of the safest places to keep money, "backed by the full faith and credit of the United States of America."

    So, again keeping things simple, when Wall Street investors see turmoil in stocks and other investments they tend to seek safer places where they can park their money.  Hence, in most cases, when the stock market is coming down, many institutional investors will move their money into T-Bills to ride out the storm.  This raises the price of bonds and drives down their yield which drives down the borrowing costs on a mortgage.

    Now, the important part, "What does that mean to me?"  In most cases it can mean quite a bit.  As of this morning, the average mortgage rate on a 30 year fixed mortgage was around 4%.  Assuming you were shopping for a $200,000 mortgage, that would equate to a payment of $955/month. 

    In comparison, last March (6 months ago) the average rate was around 4.81% making the same $200,000 mortgage payment $1050/month or $95 more per month.

    Lets look at it another way.  Lets say that last Spring you visited a mortgage professional and he or she determined that based on your income the maximum amount of mortgage payment you could afford is $1050/month or a mortgage amount of $200,000.  You received a pre-approval letter for that amount and have been shopping for the perfect house but unable to find anything that fits the pre-approval letter you were given.

    Now, when a lender determines how much mortgage you can afford they care more about payment and less about loan amount.  So, your pre-approval letter giving you the green light on a mortgage payment of $1050/month can now qualify you for a $220,000 mortgage, based on the current rates of 4%.  This may open up alot more options for you depending on what market you are shopping in.

    So, where's the bottom?  Should I wait a little longer to refinance or go under contract on that new home?  Probably not.  Once again, mortgage rates are closely tied to the 10-year bond.  Today's mortgage rates are based on a 10 year bond yield of around 1.7%,  That is an historic low.  When you factor in inflation, 10 year bonds have an effective yield around 0%.  As an investor, that doesn't make much sense and will likely force many traders to take on a little more risk to park their money somewhere else.  Let's keep in mind, Wall Street traders earn millions of dollars every year but their incomes are incentive based and tied to the performance of the money that they invest.  When a risk taker on Wall Street is calculating his year-end bonus and finding that 10 year bond yields mean his Lamborghini is about to become a KIA, you might find the trader on Wall Street scrambling to start making some money again.

    Over the near term this could mean a sell-off in bonds which would trigger rising mortgage rates.

    Money Markets are far more complicated than this but this should give you an idea as to how the markets effect mortgage rates and how mortgage rates can effect your payment and how much home you can actually afford.

    For a consultation that is specific to your needs with no cost or obligation call me at (207) 894-5822 or visit my website.


  • Tired of Renting?

    Posted Under: Home Buying in New Hampshire, Financing in New Hampshire, Credit Score in New Hampshire  |  January 22, 2011 4:48 PM  |  880 views  |  No comments
    A yard that your children can play in.  A garden where you can plant the flowers and vegetables of your choice.  The freedom to have any pet you may want and decorate your home to your specific taste  The peace of mind and pride that goes along with owning your own home and not being at the mercy of a landlord.  These are all really great reasons to buy a home in your lifetime.

    Affordable but stable pricing, historically low interest rates that show signs of increasing and a giant inventory of available homes for sale are all the reasons why now is the time to react.  As the economy grows interest rates will climb, real estate prices will climb and the home of your dreams may become out of reach.

    If you are currently renting, have a stable income and relatively good credit then you should be thinking about becoming a homeowner. 

    If you don't mind apartment life and are somewhat handy, you may consider buying a multi-unit.  Multi-units qualify for FHA financing allowing you to put down as little as 3.5% of the purchase price.  Then your neighbors can pay your mortgage for you (through their rent payments)!  If you ever get sick of apartment life you can simply move out and rent the unit you were living in too.

    If you are tired of apartment life now then you're in luck because there are many, many quality homes for sale right now and there are programs available that offer 100% financing on many of them.

    What do you need to do to get started and consider homeownership a little more seriously?  First, get prequalified for a mortgage.  The best way to do this is to schedule a consultation with an experienced Mortgage Banker who can review your credit and financial status with you and determine what mortgage product makes the most sense for your particular situation.  You usually will need to provide paystubs, bank statements and other supporting documents so that your banker can accurately calculate your income and determine how much home you can afford and which mortgage program makes the most sense for you.

    Once this is done your Banker can provide you with a pre-approval letter that will indicate how much home you can afford and any property type restrictions you may have.  A copy of this should be provided to your Realtor to help them find you the right home.  Often your Mortgage Banker will have names of Realtors that he or she has worked well with in the past but ultimately it is your decision who you use to find a home, or if you even wish to use one at all.

    Depending on the type of residence you are considering, how much money you earn annually and other factors you may qualify for programs that allow you to buy a home with little or no money out-of-pocket expense.  In today's market many renters are able to buy a new home without any money down and are finding themselves with a mortgage payment that is lower then what they were paying in rent.

    If you would like to schedule a consultation, submit a quick application over the phone or receive a free booklet on understanding mortgage settlement costs, call me at my office at (207) 850-1007, toll free at (877) 440-2739 or email me at daled@reliantsanford.com.  You can also submit a secure, quick application online 24/7 at www.ReliantSanford.com,
  • Tired of Renting?

    Posted Under: Home Buying in Maine, Financing in Maine, Credit Score in Maine  |  January 22, 2011 4:47 PM  |  856 views  |  2 comments

    A yard that your children can play in.  A garden where you can plant the flowers and vegetables of your choice.  The freedom to have any pet you may want and decorate your home to your specific taste  The peace of mind and pride that goes along with owning your own home and not being at the mercy of a landlord.  These are all really great reasons to buy a home in your lifetime.

    Affordable but stable pricing, historically low interest rates that show signs of increasing and a giant inventory of available homes for sale are all the reasons why now is the time to react.  As the economy grows interest rates will climb, real estate prices will climb and the home of your dreams may become out of reach.

    If you are currently renting, have a stable income and relatively good credit then you should be thinking about becoming a homeowner. 

    If you don't mind apartment life and are somewhat handy, you may consider buying a multi-unit.  Multi-units qualify for FHA financing allowing you to put down as little as 3.5% of the purchase price.  Then your neighbors can pay your mortgage for you (through their rent payments)!  If you ever get sick of apartment life you can simply move out and rent the unit you were living in too.

    If you are tired of apartment life now then you're in luck because there are many, many quality homes for sale right now and there are programs available that offer 100% financing on many of them.

    What do you need to do to get started and consider homeownership a little more seriously?  First, get prequalified for a mortgage.  The best way to do this is to schedule a consultation with an experienced Mortgage Banker who can review your credit and financial status with you and determine what mortgage product makes the most sense for your particular situation.  You usually will need to provide paystubs, bank statements and other supporting documents so that your banker can accurately calculate your income and determine how much home you can afford and which mortgage program makes the most sense for you.

    Once this is done your Banker can provide you with a pre-approval letter that will indicate how much home you can afford and any property type restrictions you may have.  A copy of this should be provided to your Realtor to help them find you the right home.  Often your Mortgage Banker will have names of Realtors that he or she has worked well with in the past but ultimately it is your decision who you use to find a home, or if you even wish to use one at all.

    Depending on the type of residence you are considering, how much money you earn annually and other factors you may qualify for programs that allow you to buy a home with little or no money out-of-pocket expense.  In today's market many renters are able to buy a new home without any money down and are finding themselves with a mortgage payment that is lower then what they were paying in rent.

    If you would like to schedule a consultation, submit a quick application over the phone or receive a free booklet on understanding mortgage settlement costs, call me at my office at (207) 850-1007, toll free at (877) 440-2739 or email me at daled@reliantsanford.com.  You can also submit a secure, quick application online 24/7 at www.ReliantSanford.com,
  • How Do I Determine How Much Home I Can Afford?

    Posted Under: Home Buying in Maine, Financing in Maine  |  September 17, 2010 8:12 AM  |  375 views  |  No comments

    One of the most common questions I hear from prospective home buyers is “How Much Home Can I Afford?”  In years past that answer was often “as much as you want” followed by a Mortgage Broker structuring a creative loan package that made the dollar amount “affordable.”  Nowadays, lenders are taking a much more conservative and sensible approach.

     

    To determine how much home you can afford, you must first determine what your base gross income is (and unlike years past be able to document it).  Gross income is before taxes, insurance and whatever other deductions you have are made.  For example, if you earn $15 per hour and are guaranteed 40 hours per week your base income is $600 per week or $2600 per month.  If you also receive overtime and can consistently show overtime over a period of two years or more from the same employer you could add that in as well.  Calculating commission income and self-employment income requires taking a two year average from your last two years tax returns but the exact calculations involved are beyond the scope of this article.

     

    So, we’ve determined you earn $2600 per month.  Now we need to know what debt payments you currently have.  Let’s say you have a $200 car payment and a credit card with a $40 minimum payment.  Your current monthly debt totals $240/month.

     

    Debt-to-income (DTI) ratios are one of the biggest factors that lenders look at when determining whether or not to approve or decline a loan.  Your DTI is calculated by taking your total debt payments ($240) and dividing them by your total income ($2600).  So, in this case the DTI calculates to 9.2%. 

     

    When you finance a home you will have additional debt that is calculated into this ratio.  Your mortgage payment (principal and interest), your property taxes, your homeowner’s insurance, mortgage insurance (if applicable) and Homeowner Association Dues (if applicable) also get added in.  Once this is all added in your total debt ratio should not exceed 41% (although some lenders will go up to 50% or more in certain cases).  So, 41% of $2600 equals $1066.  This means the lender is comfortable with you having total debt payments of $1066 per month.  You already have $240 so that leaves $826/month that can be spent on housing expenses.

     

    Now you would need a calculator to continue but at 4.5% on a 30 year mortgage every $1000 you borrow will cost you $5.07 per month.  Let’s say you found a house you like and the listing reports that the taxes on the property are $2400 per year.  We can safely guess that homeowners insurance will be around $600 per year.  So, we need $3000 per year for the taxes and insurance which divided by 12 months equals $250.  That leaves us with $576 available for the mortgage payment ($826-$250=$576).  If we take the $576 and divide it by the $5.07 we get 113.609.  If we multiply that times $1,000 we get the maximum amount we can borrow on our new house, which is $113,609.

     

    How much you will need to put down will vary on several factors and there are many programs available that allow you to put as little as 0% down and some programs require as much as 20% down.

     

    If you have a lot of money in savings or have exceptionally high credit scores you may be able to buy a home with a higher DTI ratio and therefore be able to borrow $160,000 or more.  The best option is to contact a Mortgage Broker or Bankerbefore you start shopping and be pre-approved.  Once you are pre-approved by a lender they will issue you a letter that states how much you are able to borrow and what the conditions of your loan are.  This will allow you to confidently shop for the home of your dreams, knowing that your financing is in place once you find it.  Having a pre-approval letter also helps in the negotiation process because the seller knows that he or she is negotiating with a truly qualified buyer.

     

    If you are considering purchasing a home in the next year or so, now is the time to do it.  Aside from the fact that prices are down, rates are very low but creeping back up.  In the same scenario above let’s look at your affordability as rates move up:

     

    30 Year Mortgage at 4.0%   $120,755 (Where they were a few weeks ago)

    30 Year Mortgage at 4.5%   $113,609 (Where they are now)

    30 Year Mortgage at 5.0%   $107,263 (Where they were this spring)

    30 Year Mortgage at 5.5%   $101,408 (Where they were last September)

    30 Year Mortgage at 6.0%   $96,000    (Where they were September 2008)

     

    So, if mortgage rates moved up just 1 ½% in the next year you would have to lower the amount you could borrow by $17,000.  This could mean one less bedroom then you wanted, or a smaller yard with little room for the kids to play or not being able to find a home at all.

     

    Many lenders may charge an application fee or credit report fee up-front.  I choose not to.  For a free analysis and pre-approval contact my office at (207) 850-1007 or toll-free at (877) 440-2739.  You can also apply on line 24/7 by visiting www.ReliantSanford.com.

     

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