Dear Michael: How does a lender decide how much I can afford and what loan I qualify for?
Answer: The lender considers your debt-to-income ratio, which is a comparison of your gross (pretax) income to housing and non-housing expenses.
Non-housing expenses include such long-term debts as car, student loan payments, alimony or child support. According to the FHA, monthly mortgage payments should be no more than 33 percent of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41 percent of income.
The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
Dear Michael: I am looking at buying a specific home…it is older and built in 1954. Does an older home have a lower value then a newer home?
Answer: There isn’t a definitive answer to this question, but if a home has been remodeled extensively then the value of that home should be higher.
You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, and offer more charm and ambiance.
People who buy older homes, however, shouldn’t mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems and are usually easier to maintain. They may also be more energy-efficient.
People who buy new homes often don’t want to worry initially about upkeep and repairs. It’s all a matter of taste. If you are buying an older home that has not been updated be ready to spend some money for upgrade. No matter how updated a home is, if it is not in a good location then its value will be lower.
Dear Michael: I am in escrow on a home and my lender is suggesting we buy discount points. What are discount points?
Answer: Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1 percent of the total loan amount.
Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid.
Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment over the length of the loan. Points are tax deductible when you purchase a home.
Michael Kayem is a Realtor with Re/max Estate Properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or email them to him at: homes@agentmichael.com