The most important element of buying a home – even more than deciding what style, size and school district – is determining how much you can afford. Unless you pay cash (my name is Casey, please call me immediately) you will need to find out how much of a mortgage you qualify for and are willing to pay.

Calculating this is not like figuring the trajectory needed for the Hubble Telescope to take that money shot of Jupiter, but it isn’t as easy as 2+2=4, either.

There are plenty of online mortgage calculators which are accurate. But they don’t necessarily give the complete picture. Most of these calculators do a simple equation based on a given set of variables:

“loan amount”   x   “interest rate factor”  = “mortgage payment (principal & interest ONLY)

There’s simply more to a payment than that. Also, these sites are not equipped to advise you whether you’ll qualify for a mortgage or not. (More on that in an upcoming post.) But for now let’s look at what else is included in mortgage payments.

First, in addition to the principal & interest (P&I) figure one gets using the formula above, most buyers will need to include taxes & insurance (T&I) with their monthly payment. These four components together are commonly referred to as “PITI“.

The T&I are called ‘escrow items’ and equal 1/12th of the annual tax and insurance bills. The lender holds this money in an escrow account. When the tax and insurance bills come due, they’re paid by the lender from the escrow account.

The ‘taxes’ portion refers to the property taxes due on that particular piece of real estate. Since each house will have a unique property tax bill, that cannot be calculated by the online sites. One needs to find out the annual property tax amount, divide by 12 and add that number to the P & I. (In Guilford County, property taxes can be found here. To understand how property taxes are determined in Guilford, read this post)

The ‘insurance’ component is homeowner’s insurance, a figure determined by your insurance agent. Again, take the annual insurance premium, divide by 12 and add to the P & I & T.

Voila! PITI.

But wait. There’s more.

Depending on the type of loan (conventional, FHA or VA) there may or not be mortgage insurance, known as PMI or MPI. This is not homeowner’s insurance but is mortgage insurance, paid as a premium to cover the lender in case of the loan not paid back.

These premiums are really hairy to calculate as they are based on how much down-payment is made, the amount financed and other variables. Here is when speaking with a good, knowledgable lender is absolutely a must. And, not for nothing, but a lender on the other end of a 800 number is almost certainly NOT going to know about the property tax and insurance situation for your particular locale. Call someone who knows your market.

To illustrate what I mean, here’s a recent communication from my favorite lender, explaining yet another change in FHA loans:

Huh?

Fear not. Getting all this figured out doesn’t have to fall on you alone. Or on me, thank goodness. Asking qualified professionals for help just makes good sense.

Now, where’s my Advil?

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The thoughts & opinions are mine. The quips that fall flat are someone else’s. Please feel free to shoot me an email with a question or a good joke.

And remember, real estate agents aren’t bad. We’re just drawn that way.

There are many clocks in our house. From the digital ones on the DVR box, wall oven, under-cabinet radio, alarm clocks for for both Mr. Durango and me to the ones at the bottom of the three computers to the watch our oldest son left here after visiting this weekend – it started beeping at 6:30 this morning – to the grandfather clock in the front hall to the mantel top clock in the den to the cuckoo hanging in our kitchen (the cuckoo CLOCK is hanging, wiseguy) we are covered, clock-wise.

Even so, time can still manage to slip up on us. And it is slipping up on all the 1st time home buyers who haven’t stepped up to take advantage of the $8,000 tax credit. As it is currently designed, the last day to close on a house and receive the credit is November 30th.

December 1st will be a day late and $8,000 short.

Let’s be clear. There is still time to find a home and go through the process and close by the deadline. But if you are hoping to take advantage of the credit, you might want to get going before the new seasons of “Lost” gets started as I understand that show can be quite the time suck.

There is a chance the deadline will be extended. And there’s a chance my youngest will become obsessive about his room being tidy as well. We can continue to have faith, but let’s not bank on either of things happening in a timely manner.

What should be your first step if you haven’t already started towards buying in time for the credit? Pretty much the same as always. Time is just really of the essence in this case.

So, my personal recommendation is to get thee to a good lender immediately. The loan process is what can take the longest in a real estate sales transaction and it can be started before you find the house which can save time. A lender can actually get your loan approved, contingent on whatever house you find appraising at the contract price, before you step foot into the first property on your search list. And the benefit is that the lender will have the information needed to finalize the loan once the house is found and you’ll know your perimeters, money-wise.

Once you’ve established the loan, get with a good agent and start looking at houses. Don’t mess around with looking with several agents. That’s not efficient, not effective and wastes time. You have to get to know each one, answer the same qualifying questions over and over and ultimately that doesn’t serve your purposes.

Find an agent you like and go for it.

Once you find the house, the negotiations will take as long as they take. Perhaps you and the seller will come to a meeting of the minds in a day. Maybe a week. That’s up to the parties. Try not to get bogged down in whether the seller will leave the 15 year old swing set or if the living room is intolerably orange. And if the seller gets bogged down in their own issues, consider moving on to another property.

It’s unpredictable but as a rule, when a buyer wants to buy a house that a seller wants to sell, things get worked out.

So, the countdown has started to November 30th. Here’s your “to do” list if you want to get that $8,000 tax credit:

• Communicate with a good lender and start the approval process
• Establish a relationship with a Realtor with whom you’re comfortable and start looking at homes that meet your needs and price range
• Eliminate those homes from your mind that won’t work. Try to compare no more than two houses at a time and eliminate all the rest. Otherwise, they start to run together and you can’t remember which one had the half bath off the kitchen that skeeved you out and which one had the killer deck.
• Stay on top of whatever your lender has told you she needs to get things completed
• Be prepared to get a bit freaked out. Nearly all 1st time buyer do. You’ll be glad you went through it all once your in your own place.

This is a rare, as in never before, opportunity to not only become a home owner but to receive massive coinage for the privilege of doing so.

It all adds up to this being the time to make that leap and reap the rewards, happiness-wise.

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The thoughts & opinions are mine. The quips that fall flat are someone else’s. Please feel free to shoot me an email with a question or a good joke.

And remember, real estate agents aren’t bad. We’re just drawn that way.

Excellent question. So call a lender and ask. And if they give you an answer without asking you any questions, say thank you, hang up and call someone else.

Why? Because in today’s world there is no such thing as “today’s interest rate”.

There’s barely even “this morning’s interest rate” or “this quarter hour’s interest rate”.

Additionally, there isn’t one interest rate at any given time. There are many variables that determine which one of many rates you can get.

The reason?

Risk management. (Funny how the lenders have decided to actually manage risk instead of create it. But that’s a topic for another post…)

Unlike a couple of years ago when one merely needed to be an inhabitant of the Earth and the nerve to apply for a loan to get a mortgage, banks have returned to, shall we say, more circumspect guidelines.

So, your interest rate will be determined by*:

• FICO score
• how much you put down
• loan amount
• type of loan (conventional, FHA, VA)

And in addition to all these factors going in to determine the interest rate, they will also determine how many points, if any, you’ll need to pay to get that rate. [For a quick explanation of points, read this.]

For example, if you have a FICO score of 720, are putting down 5% and are borrowing $150K with a conventional loan, you might be quoted a rate of 5.625% with 1 point.

Same scenario except you have a FICO of 650 and your rate could be 5.875% with 2.5 points.

Same scenario except your getting an FHA loan and your rate could be 5.5% with 1 point.

Any of these numbers may work for your situation and a good lender can help you sort out whether it makes sense to pay the points, put down more, change to an FHA loan, or wait and work on your FICO score.

The bottom line is this: Don’t think that whatever rate you read or hear about at any given moment in ads will be relevent to your situation. And a lender who starts asking you for more details is not being a jerk but rather is doing the right thing. One who quotes you numbers without determining some key factors is not serving you well.

Ask your agent, your parents, your cube mate if they have a good lender to recommend. There’s a lot of mortgage money out there to be loaned. Buyers just need to meet a few more requirements.

And being an inhabitant of Earth is still a plus.

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If you have questions, comments or a good joke to share shoot me an email.  I’m a full time Realtor®, I love what I do and would be thrilled to hear from you.

* Mortgage lending practices can vary from region to region, lender to lender, and can be affected by market conditions. Lending criteria can change, and have. Often. The information I provide is based on my experience in my area. So, again, ASK QUESTIONS.

You may have, just maybe, heard a news story or two (thousand) about the economy. In broadcast journalism, the practice of coining a few catchy phrases and repeating them ad nauseum, has become the rule of the day. You know what I mean. One begins to wonder if certain words can be uttered without certain others. Try to say “downpour” without saying “torrential”, or “controversy” without “firestorm of”. Or “credit” without “meltdown”.

Go ahead. Just try.

But the thing is, there can be downpours that aren’t torrential and not all credit is in meltdown.

There is mortgage money to be loaned. And the lenders want to make you these loans. They don’t make money unless they loan money. (Commercial credit, now that’s another creature and is not to what I refer here.)

The catch is that you have to have a job, a decent FICO score and some money to put down, none of which is unreasonable if you want to borrow money. And it’s the way it always was up until things got wacky in the lending world, what with the “no doc” loans, borrowers with FICO scores lower than their bowling scores and 0% down.

But things are mostly back to normal in regards to lending requirements. And rates are great. My friend and colleague, Christie Caldwell, sent out these rates a couple of hours ago.

Assuming a purchase price of $250,000 rates looked something like this, using the FICO/LTV/Interest Rate model:

• 680/95%/5.50%
• 680/90%/5.50%
• 680/80%/6.00%

• 700/95%/5.50%
• 700/90%/5.50%
• 700/80%/5.875%

• 720/95%/5.375%
• 720/90%/5.375%
• 720/80%/5.50%

• 740/95%/5.375%
• 740/90%/5.375%
• 740/80%/5.50%

If your FICO is below 680, you can still get a loan, but you’ll be looking at paying more for ‘points’. And a gold star to the first one to see where things may seem a bit odd in this. [HINT: put down more, pay higher rate?]

Keep in mind that rates can change frequently. As in, several times a day. But these are good guidelines for where things are in general. Also, a borrower’s rate will be impacted by the amount financed, debt/income ratio, etc.,

Again, these numbers are a guide for today. Around noon. Before I go get another cup of coffee.

Just know that the torrential downpour of news items covering the firestorm of controversy about the credit meltdown may be missing some of the facts regarding mortgages.

This is a most excellent question, and one about which I’ve been wondering myself. In Greensboro and surrounding areas, the selling price to asking price percentage has historically been in the 95% to 97% range. For buyers coming from other parts of the country, paying that close to the asking price has sometimes been really hard to swallow. Like, “50 peanut butter covered saltine crackers with no milk to wash it down” hard to swallow.

But them’s the figures. Or at least they were the figures until the current..unpleasantness…started.

So, surely buyers are getting to knock off 10, 15, 20 percent off prices and getting deals. Right?

Not so fast, Grasshopper. Let’s look at some figures for the year and half or so:

In Greensboro (and I’ll be looking just at Greensboro for these purposes, to keep my brain from breaking trying to pull data from the multi-county area that comprises the Triad MLS) the averages for CLOSED properties are:

June 1, 2008 – November 30, 2008* (the most recent 6 months)

• Average List Price:       $177,310
  
• Average Sales Price:     $171,527
  
• Sales/List Percentage:      96.7%
  

June 30, 2007 – May 31, 2008 (the 12 months prior to that)

• Average List Price:       $179,819
  
• Average Sales Price:     $174,969
  
• Sales/List Percentage:      97.3%
  

First we can see that the List/Sales price percentage is nearly the same. Second we can see that list prices in the most recent 6 month period are lower than in the preview 12 month period.

So, what gives? What’s with all the desperation and angst in the market we keep hearing about?

Well, it’s out there. Just not necessarily in the Greensboro city limits. If you read my earlier post you know that in the whole of Guilford County, of which Greensboro is the largest city and county seat, average prices have fallen more dramatically. But even with that the average sales/list price came in at about 95.5%

One reason for this is that there is another variable and that’s the original list price of houses. As homes have remained on the market and inventory has increased, sellers have reduced the asking price of their home. In the aforementioned time frames we see the following:

June 1, 2008 – November 30, 2008 (the most recent 6 months)

• Average original list  price: $191,138
  
• Average final list price:       $177,310

June 30, 2007 – May 31, 2008 (the 12 months prior to that)

• Average original list  price: $186,437
  
• Average final list price:       $179,819

Thus, we can see that sellers have – on average – already reduced their asking price by about 7% recently before hitting the number that produces a sale whereas a year or so ago, all other things being equal, that owner would have reduced by only about 4%.

All this having been written, it is clear that while some deals are being made with great price concessions being made by sellers, it’s still not fire sale time. Not in Greensboro, anyway. Other parts of the country are experiencing very different trends.

Just know that low-balling an offer may get you a deal. Or it may get you an irritated seller who feels they aren’t interested in being reamed and won’t deal with you. One never knows.

Each transaction is unique to the individuals involved. There is no absolute in the purchase or sale of a home. It’s exciting and traumatic and scary and exhausting for those on both sides of the table. And keep in mind that there are humans involved. Some in not so great a place.

Be nice. And if you can’t be nice, be humane.

* Again, all data is pulled, compiled and possibly jacked up by me, but I’ve tried to keep it as clean as possible and is all from Triad MLS (Multiple Listing Service).

One of the keys to living a contended life is surrounding yourself with the people and things that mean the most to you and going places that make you happy. Or laugh. Or feel comfortable, safe and valued. The following is a list – and it will grow as I have the time, camera and discipline – of such places and people for me*.

If you have a “favorite” that you feel should get a shout out, let me know. I want as many treasures in life as possible and all suggestions are welcome!

Greensboro Country Park

Maxie B's Bakery

David Bowers, MD. My plastic surgeon

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* The opinions expressed are mine. Only mine. My husband, friends and certainly my children don’t want to be painted with my proverbial brush. Even the places I recommend as one of “My Faves” have nothing to do with these posts. And they don’t pay me for them or give me freebies.

I like them. They don’t necessarily like me back.  So take this all for what it’s worth – the opinion of a blogger.