Can you afford a house?

The question is really about being able to get a mortgage. Most people can not pay cash for a home and need a mortgage and need a pre-approval stating that they are at least qualified for a mortgage.

The easy but not exact rule of thumb is that if you add up all your monthly expenses and a mortgage and divide by your gross monthly income you need to come up with a number no higher than 36%.  Lenders are looking at an income to debt ratio. Debt is car payments and student loans and credit card payments and of course a monthly mortgage payment.

There are mortgage calculators all over the internet which makes it easy to calculate how much a mortgage payment might be.

Home buyers also need a down payment and the ability to pay closing costs. Down payments start at about 3% and typical closing costs will add up to about 3% of the loan amount. There are programs for downpayment assistance and sometimes sellers can help with the closing costs.

We struggled to buy our first home but have never regretted it.

Also see Housing for minimum wage earners

Your house is a bank?

Mortgage interest rates have gone up a little from what has been an all time low. Some are even up over 4%. GASP! I can not help but remember all the years when they were over 8% and even over 15%.

However when rates go up fewer people refinance and that means that fewer loan officers have loans to work on which means their income goes down. Get ready for the post cards and mailers about how much you can borrow.

Last night I even saw an advertisement about how your home is your bank. Using home equity as a source of cash isn’t a bad thing. Especially when the money is used for a new roof or for that boiler you have always wanted. The interest rates are usually more favorable than they are on other types of loans and for some there is a mortgage interest tax deduction.

However there is some danger in treating a home like a bank, because it isn’t just a bank it is where you live and probably your most valuable asset. It wasn’t all that long ago that home values went down and millions of home owners ended up owing more on their homes than the homes could be sold for. Getting into a negative equity situation can lead to foreclosure.

There are numerous advantages in not borrowing money that should also be explored before withdrawing money from the bank of home equity.

Maybe I just have the post housing crash jitters. . . but please borrow responsibly. It doesn’t seem like the banks suffered because they lent money to people who could not pay it back but many former home owners did and still are.


Mortgage rates were not as fair a decade ago

state fair

This is from a post I wrote on the first day of the Minnesota state fair 10 years ago.

Mortgage Rates – Freddie Mac Primary Market Survey – average rates for 30 year, conforming, fixed rate mortgages:

week ending 8/24/2006 6.48%

week ending 8/17/2006 6.52%
week ending 8/10/2006 6.55%
week ending 8/03/2006 6.63%
week ending 7/27/2006 6.72%
week ending 7/20/2006 6.80%

According to Freddie Mac Average rates this week look like this:

Average rate for a 30 year conforming loan is 3.43%

Houses in St. Paul are still on average less expensive than they were in 2006 and interest rates are lower.

Today is the first day of the Minnesota State Fair. Enjoy!


It isn’t sold until it closes

Most home buyers and sellers are only vaguely aware of what a closing is. Here in Minnesota we close at the table which means that the buyers and sellers get together and sign documents. Checks, keys and often best wishes and advice are exchanged. Either party can choose to “pre-sign” and skip the closing and that happens too. Occasionally so much animosity has built up during the buy/sell process that buyers and sellers opt to close in separate rooms.

In Minnesota purchase agreements (contracts to buy a home) have to have a closing date in them. Closings do not always happen on time. The most common reasons for a delay is delayed loan approval. There are a ton of reasons for this too and no penalty to the lender for a delayed closing.

Closings are usually held in a conference room at a title company. Even though I run a fairly paperless business closings involve a lot of actual paper documents and often require copiers and believe it or not fax machines.

On homes that are financed prior to or during the closing money is wired to the title companies trust account and that money is used to pay for the house. Checks for the proceeds of the sale are cut and given to the sellers. The actual closing usually takes an hour and buyers will be doing most of the signing because of all of those loan docs.

Title companies provide title insurance for buyers and they make sure the necessary documents get filed with the county. They also send money to the sellers mortgage company to pay off the mortgage and they prepare these wonderful settlement statements that show all of the charges buyers and sellers pay when the buy or sell real estate.

Working as a closer requires a license. Closers are the people who make sure every t is crossed and i is dotted.

Some home buyers and sellers let their lender of real estate agent recommend a title company and others search the internet looking at prices. Either way buyers and sellers always have a choice. Usually the closing takes place at the buyer’s title company. Closings are often scheduled for Friday at the end of the month.

After the closing we can usually find out how much the home sold for.

Interest rates are falling

We have been expecting interest rates on home mortgages to rise but they have been falling since the “brexit” vote last week. On Monday, the 30-year fixed-rate mortgage averaged 3.46 percent, near the lowest average since late 2012,® reports. In other good news the number of homes on the market in St. Paul is slowly rising giving buyers a few more choices but inventories are still at historic lows.

Freddie Mac mortgage rates

Delayed closings

Delayed real estate closings are almost as common as on time closings. There isn’t any penalty for lenders who can not make the closing date but for buyers and sellers there are penalties. Sometimes a seller can not close on a home they just bought. Occasionally families have to move out of a rental and have no place to go.

Closing date

The loan officer will tell the buyers that he/she can handle the closing date but there are many other departments and parties involved in the process. It isn’t unusual to check in with the lender the week before the closing and find out everything is on track only to find out the week of the closing that it will be delayed.

Closings on any kind of condo or townhouse are far more likely to face closing delays than other types of real estate sales. In some of the downtown condo buildings it has gotten ridiculous.

Buyers and sellers need to understand that closings are more likely to happen on time if there are at least 45 days between the time the offer is made and the closing date. With condos allow at least 50 days. Closings are more likely to be on time with conventional financing and if the buyer is making a large down payment like 20%. However is it possible to have an on time closing with 3.5% down and an FHA loan.

Sometimes closings are delayed for hours, or days or even weeks.  Month long delays are not very common but it can happen.

Some lenders blame the new TRID (TILA RESPA) rules which require the final numbers for persons borrowing money to be available three business days before the closing. I think it is more complicated than that and if there were some penalty to lenders for delayed closings there would be no such thing as a delayed closing. It makes sense to have “delayed closing” rules and laws as part of any consumer protection law that affects mortgage loans on home purchases.

Home buyers and sellers need to understand that a home sale or purchase may not close on time but most will probably close eventually which isn’t useful information when scheduling a move. Sometimes buyers can get the sellers to agree to an early move in date. Other times the sellers can not move because they need the proceeds from the sale of their home to close on another home. One delayed closing can impact several closings.