Home Buying in 92127>Question Details

sapnadeval, Home Buyer in San Diego, CA

Realtor asked for our lender contact to discuss if our max limit for pre-approval factors in HoA and mello-roos fees. Not sure why though. Any ideas?

Asked by sapnadeval, San Diego, CA Tue Mar 12, 2013

Help the community by answering this question:



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!

Kind Regards,
Marcie Sands, REALTOR Lic # 01428288
Simply The Best Real Estate Co., Inc.
2 votes Thank Flag Link Tue Mar 12, 2013
John, I am sorry, but you are completely incorrect, and I think you are missing the point of the question.

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.

1 vote Thank Flag Link Wed Mar 13, 2013
I am not selling securities, or discussing any asset portfolio. That would be financial planning without a license.

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...

1 vote Thank Flag Link Tue Mar 12, 2013
Financial advisor?? Your lender is the one doing your loan, and your agent is the one finding you a property that adheres to your loan's criteria. You are approved for a certain loan amount, taking into consideration your monthly expenses. When you buy a condo or a home with an HOA and/or Mello Roos, those monthly expenses change, depending on the property, right? Your agent is doing the right and responsible thing by knowing your numbers so she knows which properties will work. ANY agent can get you into escrow, which costs YOU money out of pocket in the first week by the way ($650-ish for an inspection and appraisal). If you fall in love with a house and you can't get the loan, you don't get that money back. Plus, if you're using a FHA loan, a good and knowledgable agent will want to know if the lender can approve a qualified complex that's not FHA approved. Not all can; do you want to be limited by your choice of lender? Your agent also needs to know how long your lender needs to close. If they need 60 days, or in this market, even 45 days, it can make it hard to get your offer accepted.
1 vote Thank Flag Link Tue Mar 12, 2013
In short - lenders work with ratios. HOA and Mello-Roos effects those ratios. If your lender's approval amount is based on no additional housing fees other than mortgage, tax and insurance - and then they learn that there is both HOA and Mello-Roos, this could dramatically impact your approve loan amount.

Sounds like you have a good and knowledgable agent.

David Rudd
Kindred Real Estate


CA DRE # 01402946
0 votes Thank Flag Link Sat May 4, 2013

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 borrower’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

Ground Rent;

Special Assessments;

Any owners’ 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 borrower’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
Monarch Mortgage
300 32nd Street, Suite 300
Virginia Beach, Virginia 23451
Office (757) 390-2235
Mobile (757) 652-5851
Fax (757) 390-2335
0 votes Thank Flag Link Sat Mar 16, 2013
Daniel - I have to disagree. A financial planner discussing what type of mortgage is best for their client and how to go about qualifying for it is EXACTLY what a financial planner is both trained for and supposed to do. I agree that they are not in the business of recommending and selling a specific loan product, but specifying the general type and amount of a mortgage loan that meets the client's total financial goals is something a financial planner does, not a lender. Real estate people should not be discussing a buyer's personal financial plan for future spending outside of housing expenses, but that type of consultation is EXACTLY what is needed so that the buyer can make an informed decision regarding not how much they COULD borrow, but more appropriately how much they SHOULD borrow.
0 votes Thank Flag Link Wed Mar 13, 2013
Because all loans factor in HOA fees into your debt-to-income ratios. But again, I emphasize this is a conversation that should be between you and the loan officer, not the Realtor and LO. See my previous comment,

Good luck,

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
Web Reference: http://jamessimms.com/
0 votes Thank Flag Link Wed Mar 13, 2013
Daniel, I understand what you're saying - that ethical lenders do take into consideration as much as is reasonable the total financial picture of a borrower. But there is a line that I believe many agents and lenders cross when they say something like, "you can afford this home!" Qualification for the mortgage is one thing, but affordability is not something we should be making a judgement call on. That would be practicing financial planning without a license.
0 votes Thank Flag Link Tue Mar 12, 2013
I do that all the time. We've all experienced the downfall of the housing market, and experience has taught me to me careful. Sometimes, clients omit telling me something; sometimes they omit telling the lender something. The agents and the lender are just parts of the same team trying to successfully navigate a home purchase.
0 votes Thank Flag Link Tue Mar 12, 2013
HOA and Mello-Roos fee's are the same as installment debt on your credit report, and impact your debt to income ratio. Therefore, if a lender qualified you without considering or knowing about these fee's, it could impact capacity to close on the home.
0 votes Thank Flag Link Tue Mar 12, 2013
John, a good lender is going to discuss the maximum qualifications, but I ALWAYS go a step further and discuss from a personal finance standpoint where they should be, so that they can budget accordingly.

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...

0 votes Thank Flag Link Tue Mar 12, 2013
Financial advisor??? Hell yes. I have yet to meet an agent or lender (unless they are also a CFP) who is qualified to help either an individual or a family put together a retirement plan, children's education savings plan, rainy day fund, or a comprehensive financial plan that includes the many goals that most working people have in their lives. To buy a home without taking these things into consideration could be financial suicide.
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.
0 votes Thank Flag Link Tue Mar 12, 2013
It has always been my belief that if you are working with the right realtor, and the right lender - they should work together to ensure you only looking at properties you can and should offer on. If your max sales price is calculated without HOA and Mello Roos, and you would like to inquire about a property that is assessed $200/mo, you should reduce your max sales price by $25k as a basic rule of thumb. Often times a Realtor will rely on your lender to accurately calculate the Mello Roos and the impact these additional costs would have on your individual max approval - which they should do. There also may be pricing adjustments to your loan if you are looking at a condo, or other approval guidelines your Realtor may need to be aware of. You should also confirm with your lender these figures to ensure you are aware of the actual payment including these expenses and are comfortable with the calculations when you consider your budget. Don't be afraid to let your Realtor work with your lender. If you are working with professionals you trust - this is what should happen . If you are not working with professionals you trust - you should work with someone else.
Web Reference: http://www.guildMESAsd.com
0 votes Thank Flag Link Tue Mar 12, 2013
I'm going to buck the tide of answers and say that your agent shouldn't be contacting your lender for this information - your agent should be contacting your financial advisor. Sure, lenders have lots of qualifying guidelines that they use to determine your maximum buying power (loan amount given your cash available to close). I used to be a mortgage lender, and if there's anything I learned from that experience it's that only a professional financial planner can look at a buyer's total income and expenses, now and planned in the future, to determine how much a buyer SHOULD borrow. The most recent mortgage default fiasco wasn't just caused by insane lending standards mandated by Congress, though that was a major contributor. It was also caused by unqualified agents and mortgage lenders who convinced buyers to spend the maximum amount they could qualify for, even if that amount was significantly over what they SHOULD be borrowing.
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.
0 votes Thank Flag Link Tue Mar 12, 2013
Your question does not state if it is your Realtor asking or the Seller’s. Not that it makes a big difference, I do not tell my referral partners what the buyer is qualified to borrow regardless of who is asking. Yeah, I know, I know, ALL loan officers tell the Buyer’s Realtor what they can spend, that doesn’t make it right and I don’t do it. It is actually a violation of several federal laws to do so without the Buyer’s specific permission. Due diligence is something you do about a property, not what the client can borrow. Agents, before you freak out, my suggestion to stay out of that area protects you as much as it does the Buyer, think about it….

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.

Good luck,

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
Web Reference: http://jamessimms.com/
0 votes Thank Flag Link Tue Mar 12, 2013
This is something any experienced Realtor will do. As you look at different properties, you will see some properties have higher fees (HOA, Mello Roos, Club fees, etc...). These can definitely affect the loan approval process when you get into escrow. Knowing your buying power and limitations is key to procurring a successful transaction.

Good luck to you!

David Crowell
RE/MAX Solutions
0 votes Thank Flag Link Tue Mar 12, 2013
Hi Sapnadeval,
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.
Janet Mccarthy
Premiere Homes
0 votes Thank Flag Link Tue Mar 12, 2013
Well, first off, your lender should be in contact with your Realtor CONSTANTLY. They are linked, and will stay linked throughout the process, so communication between the two 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...

Make sense?

Any other questions or for a second opinion on rate/costs, I am available to help in any way that I can.


Daniel Lehman
WJ Bradley
0 votes Thank Flag Link Tue Mar 12, 2013
This is a common practice and shows that your agent is very responsible and forward thinking. Kudos to them for thinking ahead and looking out for the overall picture! :)
0 votes Thank Flag Link Tue Mar 12, 2013
Hi Sapnadeval,
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.

Sinead McAllister-Clifford
Real Estate Broker/ Realtor®
Trulia's #1 Recommended Broker in Oceanside!

McAllister Homes Real Estate
Residential Sales & Property Management
License 01366009
858-205-5215 CELL
brokermcallister@gmail.com EMAIL
0 votes Thank Flag Link Tue Mar 12, 2013
Those are factors that will impact the approval of the loan since they have a financial impact on your ability to pay.
0 votes Thank Flag Link Tue Mar 12, 2013
Many lenders PREapproved you without asking proper questions.
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!!
0 votes Thank Flag Link Tue Mar 12, 2013
probably because they want to make sure that you will be able to afford the property including all costs, especially if you are looking at places with high HOA fees.
0 votes Thank Flag Link Tue Mar 12, 2013
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