How much can I expect to be approved for?

Asked by Jon Olson, San Diego, CA Sun Feb 1, 2009

I am planning on buying something that is available in the pre-foreclosure market sometime in the next 6 months. If the home has a substantial amount of equity left in the home, how much buying power can I expect to get from the banks.
Lets just give a range example...
I.E. -
I am married, live with my wife, say our income is between $90,000 - $110,000. We both have steady jobs, credit scores north of 750, my wife is going to school to get her masters (which is paid for), we have no debt up until now, no student loans, no revolving debt, and plan to put down between $50,000 and $75,000 as a down payment.

How much buying power can we expect to see from a bank here in San Diego?
Also, is there any first time home buyer programs that we can participate in with our high income?

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Damon Bottic…, Agent, Las Vegas, NV
Fri Jan 13, 2012
If you're purchasing a home, buying power and how much you can qualify can easily be determined by a lender. However, you mentioned "If the home has a substantial amount of equity left in the home" ...the amount of equity in the home won't matter, because any existing loans will have to be paid off.
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Seth Chalnick, Agent, Cardiff, CA
Mon Feb 2, 2009
Hi John, as a buyer's advocate and registered mortgage advisor, I specialize in helping buyers just like you figure out exactly where you stand.

Since you have at least 10% down, you will go "conventional / conforming" on your loan and pay monthly mortgage insurance of somewhere around $180/mo. FHA is a great program, but in addition to the monthly insurance, you also get about $5k-$6k tacked onto your loan balance to pay back.

With conventional, you can get MI removed when your equity increases above 20% (but you can't w/FHA). With no debt you will qualify for around $475k... more actually, but you'll want to keep your loan amount under $417k to get inside the sweet spot of rate and loan program. You also will need to budget about $10k to $12k for closing costs, prepaid expenses, inspections, etc.

Finally, you should find somebody you trust to guide you throughout the process. There are many misconceptions out there, i.e. "buy a pre-foreclose with equity in it". If there were equity in it, they owner would likely sell it, or if there was some but not enough equity in it to pay the seller's closing costs, then a sophisticated investor who eats, sleeps, and breathes this market segment, would swoop in an write a check to buy the seller out for the entire amount of the house before you even knew the house was available... that's because the house is not available until it gets listed on the market.

The only way to contact the seller is to knock on about a thousand doors of folks who are about to lose their homes. Not a fun way to spend an afternoon. While there are many ways to save tens of thousands of dollars, this is not one of them.

A good agent will help you take advantage of opportunities and steer clear of hype and pitfalls. A great agent will help you weave the total home buying and loan shopping experience in to one focal point of understanding, so you can wrap your head around it and get things answers in laymen’s terms and that you 'get' intuitively.
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Jeffrey Doug…, , San Diego, CA
Mon Feb 2, 2009
Dear Jon,

As Cassandra has answered your best bet is to speak to a few loan officers or mortgage brokers regarding you qualification question. Your personal situation that you have outlined would more than likely allow you to be qualified for some excellent finance options.

Here is a general answer to your question.

Condo's in 92130 start at around $350,000 and single family homes from of low of $550,000 from a search of the Multiple Listing this morning. If you were to purchase a condo at $400,000 for instance and put a 20% down payment of $80,000 your loan amount would be $320,000. Let's say you got an excellent rate on your loan of 4.75% your monthly payment would be $1,669.27. Property taxes would be $416.00 per month, estimated hazard insurance of $75.00 per month, HOA estimated of $300.00 per month for a total monthly payment of $2,460.27. If you gross monthly income is $8,333.33 this monthly payment would be roughly 29% of your gross monthly income. Generally speaking your home expenses should not exceed 26% to 28% of your gross monthly income - and for FHA 29% of your gross monthly income.

An FHA loan requires a small down payment of approximately 3.5%. So if you used this financing and purchased a property for $350,000 with $12,250.00 your loan amount would be $337,750.00. Again at 4.75% your monthly payment would be $1,761.86.

All of the above information is very general in nature and I would suggest you speak to a loan expert regarding your best options and best available rates. You both a strong buyer's and should have some good options. There are also some first time home buyer incentives that they can discuss for you as well as reserve funds that you will need.

Now to answer your questions regarding pre-foreclosure I assume you mean a short sale. This is where the Seller owes more than the property is worth and may approve the sale and collect less than owed. In essence the Seller sells the property but has to get approval from the Bank for the shortfall. There are a great deal of homes on the market in this condition and some lenders will have special financing offered, this will differ from home to home.

I have written an interesting blog post of short sales which is posted below in web resources.

The other options you should consider are actual Bank Owned properties which have been foreclosed on. Many banks will have special financing. Also don't forget about the motivated seller on the market that has priced their home to sell, as I mention in my short sale article - short sales can take a great deal of time, sometimes up to 3 or 4 months.

Jon, I hope this helps a bit. Get started with that mortgage broker or lender to get your specific answers - they will also be able to provide a loan qualification letter which will allow you to negotiate your best deal. I have posted another article on the 5 tips to a successful offer with the link listed below;…
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Cassandra Up…, , San Diego County, CA
Mon Feb 2, 2009

This question is best for a loan officer. Based on what you said, most likely you'll be approved for much more than what you think and I would recommend determining a monthly payment for which you're comfortable with and stay within that amount.

You'll need to consider several factors when determinig that "comfortable payment". I see you're looking in the 92130 (Carmel Valley) area. Most of Carmel Valley has mello-roos and HOA's. That can be an extra $300-$500/month in addition to your mortgage payment, mortgage insurance (if any) and Property Taxes.

Since you have such a large sum to put down, you'll have options between an FHA or conventional loan. An FHA only requires a 3.5% down, however, you may obtain a lower rate with a conventional loan. Typically, a conventional loan also is more attractive to a seller and if you are facing tough negotiations, it would be to your benefit to go with a conventional. FHA is geared toward first-time homebuyers who need more flexibility with qualifying for a loan.

You honestly need to begin with a loan officer, would you like a referral? I have several on my web site: Do you need a Realtor to get started with? I'm happy to help.

Let me know!

Have a great night,
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