Your REALTOR is being proactive and protecting you. The qualifying purchase amount can change with each property if the HOA fees and Mello Roos taxes are too high. Knowing this upfront will prevent headaches and disappointment. It is important for consumers to realize how these fees interact with the qualifying when making an offer. Good luck in your home search!
Marcie Sands, REALTOR Lic # 01428288
Simply The Best Real Estate Co., Inc.
The question was about LOGISTICALLY why a calculation was changing due to a change in a variable within the calculation. (debt to income as a factor in qualification)
Ask a financial planner what the max DTI is on a VA loan. Or an FHA loan, or a Conventional loan. Go ask a financial planner the timeline required after a foreclosure or short sale to buy. Go ask a financial planner about buy and bail regulations. There is no POSSIBLE way that a financial planner would have any clue what would be important in the LOGISTICS of closing a loan.
What if a financial planner has a client that is self employed and makes a million dollars per year, but shows 50K per year on his taxes? What good is the advice that he can pay 10K per month on a mortgage? That is nonsense, and irrelevant when it comes down to "can this guy buy a house."
What you are eluding to is that financial planners are the white knights that ride in and convince people "not to buy that house that the lender and realtor are fooling you into purchasing..." which is nonsense.
How many financial planners do you know that were involved in the whole "missed fortune" deal where people refinance their homes on option arms and buy variable universal life insurance policies with their savings? How did that turn out?
I have also seen planners say "don't buy that rental property, you can invest in MORE stock!!!" So it cuts both ways.
My point is this. For good advice related to assets, get a GOOD financial planner. For good advice related to loans, get a GOOD lender who is ethical and knowledgeable in putting together plans that fit overall financial goals. If the client wants help establishing those goals, fine, lets consult your financial planner. BUT, in the context of THIS question, in this forum? That is a lender/realtor issue.
Realtor needs to know what the borrower can buy, and the lender has to check all of the data against an increasing WAVE of legislation, guideline changes, qualifications, etc. Stuff that financial planners would have no clue about.
Again, I agree that everyone should have a financial plan, and maybe it is just a situation where you are cynical about the quality of lenders in the marketplace, and I am as well... There are a lot of bad ones. But, in the context of this question, your answer about financial planners is irrelevant, and incorrect. A financial planner doesn't have the tools or expertise necessary to discuss loan qualification.
Trust me. I advise MULTIPLE financial planners on their own mortgages and they all need the advice.
I would argue that a financial planner discussing the ability to purchase a home (from a debt to income standpoint, which the question referred to) would be mortgage lending without a license...
Sounds like you have a good and knowledgable agent.
Kindred Real Estate
CA DRE # 01402946
You really want your team of professionals working on your behalf to be working together. That includes every professional and service provider you may use to complete the process. That said to your question hopefully the segment below from the Fannie Mae Selling Guide will provide some deeper explanation as to why your agent wants to know if your pre-approval also includes cost that can be associated to a specific property like Home Owners Association Fees and Special Assessment Taxes like Mello-Roos fees. Good Luck on your path to homeownership.
B3-6-03, Monthly Housing Expense (08/21/2012)
This topic contains information on the borrowerâ€™s monthly housing expense. Monthly Housing Expense Monthly housing expense is the sum of the following and is referred to as PITIA:
Principal and Interest;
Hazard, Flood and Mortgage Insurance Premiums (as applicable);
Real Estate Taxes; Special Assessment taxes like (Mello-Roos) fees
Any ownersâ€™ association dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit);
Homeowners Association Fees (HOA)
Any monthly co-op corporation fee (less the pro rata share of the master utility charges for servicing individual units that is attributable to the borrowerâ€™s unit); Any subordinate financing payments on mortgages secured b Lenders should enter all components of the monthly housing expense on the application including other financing P&I, hazard insurance, real estate taxes, mortgage insurance, homeowners' association dues, and other proposed housing expenses. If the subject mortgage is secured by the borrower's principal residence, the monthly housing expense is based on the qualifying payment required in accordance with B3-6-04, Qualifying Payment Requirements (08/21/2012). This amount is the monthly housing expense used to calculate the DTI ratio.
If the subject mortgage is secured by a second home or an investment property, the qualifying payment amount is considered one of the borrower's monthly debt obligations when calculating the DTI ratio. The monthly housing expense in these cases represents the PITIA associated with the borrower's principal residence. Refer to the Qualifying Payment Requirements for details on calculating the qualifying payment.
Robert H. Ashburner, Jr. NMLSR 607856
300 32nd Street, Suite 300
Virginia Beach, Virginia 23451
Office (757) 390-2235
Mobile (757) 652-5851
Fax (757) 390-2335
NMLS # 6395
Financing Kentucky One Home at a Time
I do a lot of work WITH financial planners in certain situations, but a financial planner has nothing to do with factoring in the affect of Mello Roos and HOA payments on a pre-approval.
The decision to buy the home and PAY those costs as a portion of their monthly expenses, sure. They can talk to their advisor about that. Their after tax benefits of purchasing vs. renting? Sure! Talk to your CPA.
I go through all of this, but LOGISTICALLY SPEAKING the person to talk to when deciding whether or not an individual is qualified for the LOAN is the LENDER. Period.
I know where you are coming from, but it is two separate conversations. Personal Finance vs. Qualifying ratios...
Buying a home is NEVER just about a buyer's income, expenses and qualifying ratios. It's about their total financial picture over the entire period they intend to own the home. Agents do their clients a tremendous service when they counsel them to obtain good long term financial planning help before they make the biggest single investment of their lives.
Sure, it is normal for agents to verify your pre-approval letter with your lender, but I highly recommend you discuss your purchase with a qualified financial planner, too, before you make an offer.
I yield the soap box.
How do I provide a pre-approval letter without a dollar amount? It states per application, never once had a seller balk at that. Exceptions? Yeah, REO specific.
NMLS # 6395
Financing Kentucky One Home at a Time
Good luck to you!
Realtor need to have a pre-approval or pre-qualification letter from you lender when they submit an offer for you. Your Realtor is taking good care of you by making sure that you have the finances to include the additional HOA and Mello Roos Fees which are substantial in 4S Ranch.
You would not be happy to find a house , and then learn that you didn't qualify for the loan.
Buyers need to be pre-approved and ready to make an offer even more that we are in a Sellers market.
There are not enough houses for sale and many buyers are experiencing multiple offers and over bidding situations. If you have to delay submitting your offer in order to get a lender letter to your agent you might miss.
In my opinion it appears that you do not trust your Realtor. It is very important that you have trust your Realtor - trust that they are giving you wise advise, good information and guiding you.
Finding the right Realtor to help you is very important.
Your maximum pre-approval is calculated using a formula called a "debt to income ratio". In essence, it is a ratio that describes the maximum in monthly payments you can have as a portion of your maximum monthly gross income..
So, very simply, if you have HOA and Mello-Roos costs, those are monthly costs that will take up a portion of your borrowing power...
For instance: Conventional loans are typically approved at about 45% max debt to income ratio.
If you make 10K per month, that means ALL of your debt (including your proposed new home Principal, Interest, Taxes, Insurance, HOA, Mello Roos, etc...) has to be under 45%, OR, in this case, 4500 dollars...
So, if you have 1500 dollars worth of credit card payments, car payments, and a loss on a rental property, that leaves you with 3,000 dollars TOTAL for your new home payment...
Obviously in this case, you can buy a lot more house if you DONT have HOA's and Mello Roos, or any additional payments, because more of that "bandwidth" is freed up for actual LOAN payments.
Many times we will have clients pre-approved for 500K on a HOME, but only 450K on a CONDO, because the 400 dollar HOA takes away from what would have otherwise been available "room" to increase their loan amount...
Any other questions or for a second opinion on rate/costs, I am available to help in any way that I can.
They want to make sure the monthly payment and DTI including all fees (particularly Mello-Roos in 4S Ranch) will not be an issue at the 11th hour.
They should have explained that to you, however.
Real Estate Broker/ RealtorÂ®
Trulia's #1 Recommended Broker in Oceanside!
McAllister Homes Real Estate
Residential Sales & Property Management
Not all areas are used to asking about Mello Roos. The additional payment could blow up your qualifying ratios and the whole transaction.
Your agent is doing her due diligence!!