Updated: Wednesday, May 12, 2021
Debt Ratios On Your Own Terms
One of the key components to a loan approval is affordability. In fact, theres a mortgage guideline referred to as ATR, or ability to repay. Lenders are required to make sure the borrowers can afford the new monthly mortgage payments. The new mortgage payment will include not just the principal and interest portion but a monthly allotment for taxes and insurance, even if taxes and insurance are paid separately from the principal and interest part.
Affordability compares the total mortgage payment with gross monthly income. This results in a percentage, or a ratio. Most loan programs carry two such ratios, a front and a back ratio. The front ratio is the total mortgage payment while the back ratio includes the mortgage payment plus other monthly credit obligations such as car payments or credit cards. Ratios do not include other expenses such as utilities or other such everyday cash outflows.
For example, if a mortgage program asks for a front ratio of 30, that means the mortgage equals 30 of gross monthly income. A 3,000 mortgage would have a 30 front ratio with a 10,000 per month gross monthly income. If the program then asks for a back ratio of 43, then to use the same scenario, total expenses for both front and back would come to 4,300.
Debt ratios however are typically not hard and fast rules. Someone could have a 3,200 mortgage payment and still be able to qualify for the same program. These program guidelines are issued by the entity that will ultimately buy the mortgage, typically either Fannie Mae or Freddie Mac. Individual lenders may also impose their own internal ratio requirements. If Fannie says a program needs a front ratio of 30, a lender could require the ratio be no greater than 30, even if Fannie allows some leeway. What lenders cannot do however is exceed maximum ratio requirements.nbsp;
Loan programs, most of them anyway, are approved electronically with an automated underwriting system, or AUS. When a loan application is submitted through an AUS, a decision is issued almost immediately. This process also means a loan application could have a front ratio of 35 and still be approved. If the automated approval is indeed issued, the ratios are essentially ignored. That is unless the ratio exceeds an established limit. For example, if the back ratio limit is 50 and the loan carries a back ratio of 52, the loan will likely be turned down.
Okay, lets return to affordability as it >
Yet just because someone can qualify for a higher amount, the mortgage payment might be somewhat uncomfortable for the applicant. Sometimes the new payment crosses a payment shock threshold. If someone is used to paying 1,000 per month in rent but discover they can qualify for a 2,000 payment, that could be a shock. If this is you and you find out how much you can qualify for but its way more than youre used to, dont feel obligated to take the maximum. Youre going to be the one making the monthly payments, not the lender. Take what youre comfortable with. If thats the maximum, then fine. Otherwise, stay in your own lane and get a mortgage amount thats familiar with you.
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Ask the HOA Expert: Amendment Proposals, Late Fees, Window Replacements
Question: How many members does it take to propose a governing document amendment?
Answer: There is usually no minimum number required to propose an amendment. Any member in good standing can propose an amendment. That said, the Board is not required to ensure a proposed amendment is in proper form, legal, etc. The member proposing an amendment should provide to the Board in writing:
The specific amendment language.
The reason the amendment is necessary and background.
An opinion letter from a knowledgeable attorney that confirms the amendment complies with the governing documents, state and federal law.
Willingness to pay for extraordinary costs associated with the amendment process research, attorney opinions, mailings, etc..
These requirements are reasonable and will limit the number of amendment proposals to those that are seriously supported. Although it is not required, including the names of other members that agree with the amendment as evidenced by their signatures on the a petition will help expedite the procedure. The greater the support, the sooner it will be dealt with.
Question: Our bylaws state that our dues are past due after the 5th and carry a 2 percent late fee. The late fee is a pittance and many of our members are habitually late. What can be done to increase the penalty?
Answer: Besides amending the bylaws to increase the late fee which takes an appropriate vote of the members, the Board should adopt a comprehensive Collection Policy which includes a provision for turning over all accounts delinquent for more than 60 days to an attorney for collection, filing of lien, etc. These additional collection costs can be added to the outstanding balance and are usually an incentive for most folks to pay their bills. The Board could also enact an "administrative fee" of, say, 15-25 to cover the cost of time and supplies it takes to get a late notice out.
Another collection tactic is an Acceleration Clause which is triggered if payments are late for, say, 60 days. In this case, homeowner fees for the remaining part of the year are accelerated called due.
This tactic is, of course, more effective when invoked early in the year.
So there are a number of alternatives the Board can use to enforce timely payments. Of course, any additional collection penalties and procedures proposed by the Board should be reviewed by a knowledgeable HOA attorney in your state prior to enactment. A sample Collection Policy is available at Regenesis.net in the Policy Samples section.
Question: Our condominium is undergoing a total siding replacement this summer. The building is 30 years old and has single pane windows. Many believe we should replace the windows as well but replacement is an owners responsibility. Can the HOA force the issue?
Answer: If window replacement is an owners responsibility, the HOA cannot force an owner to participate in a window replacement project. However, it is very likely that getting all the windows replaced at the same time will reduce the cost by up to 50 percent due to bulk buying and having the siding removed for the installation.
Buying this many windows at once qualifies the HOA for factory direct pricing and with the HOA contracting the installation, the cost will drop dramatically over the best price any owner could ever hope to get. Installing new windows now also ensures that the new siding is not altered or damaged by future window replacements.
Noise reduction and utility savings of thermapane windows always justifies spending the money. Your window distributor can provide you with savings and pay back calculations. Energy efficient windows will also increase the unit market values due to enhanced curb appeal and livability. Between reduced energy costs and increased market value, this one is a no brainer.
The Board simply should make its case and assume all owners will fall in line. If you only get a majority, it is still possible to amend your governing documents to make window replacement an HOA responsibility. Then, the HOA could move forward with the project even over the protests of a minority, or move ahead for those that agree and require future installations by owners to comply with the same standard. Finally, siding replacement time is also a good time to consider exterior lights and door replacement.
Question: One of our homeowners runs a landscaping company and wants to bid our work. He isnt licensed or insured. Comment?
Answer: The HOA should only hire contractors that are licensed, bonded and insured. It is usually a bad idea to hire homeowners even when they are properly licensed. If it doesnt work out, you not only would have to fire a contractor, you will alienate a neighbor. Plus, there is an unavoidable conflict of interest in this kind of arrangement.
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What to Know About Earnest Money
Earnest money is just one of the many terms to know when it comes to buying a home. Its something you might initially overlook, but not understanding earnest money can create roadblocks in your process to buy a home once youre ready to make an offer.
The Basics of Earnest Money
In simple terms, the earnest money is a deposit that you put down to show that youre serious about buying a house. You want to show the seller that you really do want the home, and earnest money might be anywhere from 1 to 5 of the total purchase price.
It helps sweeten your offer to a seller and shows them that you want to take the necessary next steps to buy their home.
Then, in exchange for the earnest money, the seller will take their home off the market. Theyll start to work to arrange things like inspections.
Earnest money goes into an escrow account while you wait on your closing. The escrow account is with either the sellers broker or title company, or an escrow company.
Theyre essentially secu>
How Much Earnest Money Should You Offer?
Again, earnest money is typically anywhere between 1 and 5 of the price you agree on with the seller to buy the house. Theres a lot of variance in this, though. For example, in some locations, you might do a fixed amount and in others you could pay a percentage.
In very popular housing markets, you can see very high earnest money deposits. Your real estate agent will help you know whats in line with your area.
Earnest Money Is Not a Down Payment
This can be an area of confusion for some buyersearnest money is not a down payment. Your down payment is fully separate from earnest money and is anywhere from 10-20 of your homes purchase price.
You need to make sure that when youre thinking about how much a house will be, youre adding up your earnest money and your down payment. Your earnest money is due when you make an offer, while your down payment and closing costs are due later.
Is It Refundable?
When you enter into a purchase agreement, it will outline contingencies. These are situations that are agreed upon where you can walk away from a deal and still get your earnest money back.
For example, you might have an appraisal contingency in case the appraisal is lower than the sale price.
Your real estate agent will help you decide the contingencies to put in your contract.
If youre in a highly competitive market, you might agree to nonrefundable earnest money. Thats very risky because if your sale falls through, the seller gets to keep your money.
If you break the terms of whatever your purchase agreement is or you decide you dont want to buy a house anymore, then the seller can keep your earnest money.
This is why its important to work with a qualified real estate agent. Theyll help you understand what you need to know before you sign anything because otherwise, you could end up giving up a lot of money that you potentially cant afford.
As a final note, earnest money isnt required. If youre buying in a market thats not very competitive, you may not need to worry about it. Its instead a good way to beef up an offer, especially if youre worried there could be multiple offers on the house you want.
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