One of the issues covered last night on ABC’s “Unbroke” special was mortgages. This was an important issue to cover, since things got out of hand recently, and some of the crazy mortgages played a big role in the recent financial crisis and subsequent recession. However, I quibble with one bit of the advice Seth Green offered. (I also didn’t like the special’s focus on individual stocks .) He said that a general rule is to spend no more than 1/3 of your gross monthly income on housing expenses. Your gross monthly income is the amount you get before taxes. Personally, I think that to be safe you should keep it to 1/3 of your net — after tax — income .

Better yet, consider keeping it to 28% if your income. That way, you fall within the 28/36 qualifying ratio that is coming back into vogue amongst mortgage lenders. This is a number that expresses the preferred debt load you carry. 28% for your home, and 36% of your income for your total debt payments . This ratio is used mainly for seeing if you qualify for the best mortgage interest rates. And if you do qualify, you can save thousands over the life of you mortgage loan.

Did you watch Unbroke? What did you think?

Mortgage help is out there, exactly where is the question.  Obama may have signed a housing bill this week in Arizona but the details are not completely clear to most of us, yet. The old adage “patience is a virtue” just might come in handy.  The focus seems to be on those facing foreclosure but there are many other people wanting help.

House For Sale

There are a great deal of people out there who are still paying their mortgages but whose home values have dropped enough that they are unable to re-finance and acquire the low rates.  Mortgage companies simply don’t want to secure a new loan on a home that no longer has any equity.  What ensues is frustration on the part of the borrower.  If all this money has become available why can’t they get a piece of the pie too?  The answer has simply been “wait”.  Everyone has to wait and see what is going to happen with Obama’s plan, what money will be available and who will be able to have access to it.

Hopefully everyone who needs the help will truly be able to get the help.

Buying a home today is different than it was even a year ago.  Some things change and some things stay the same but in today’s market you are definitely better off preparing yourself before you find a home that you have your heart set on.  Her are a few important things to keep in mind when you are preparing to buy a home:

• Save. It is very important to save money for a down payment.  95-100% mortgages are much less common these days, if not a thing of the past.  Having a 20% down payment to put down will make securing a loan much easier.
• Stay within your budget.  Sit down and really look at your budget, picking a price point that won’t bankrupt you.  Don’t leverage yourself and get into a loan that you  can’t afford.  Analyze your income, your expenses and your savings and choose a dollar amount that will work for you not stress your financial situation to the hilt.
• Check your credit score.  Make sure your credit score is good enough to secure a loan, as well as good enough to acquire a decent interest rate.
• Know your bank.  If you intend on dealing directly with a bank, instead of a mortgage broker, make sure you pick a good bank with both a solid reputation and a solid foundation.  You don’t want to risk starting with a bank that is unstable, you may find yourself halfway through the loan process and the bank gets bought out, changes its policies or falls apart.
• Research.  Take time to do some research.  Research the area you want to find a home in and research what real estate company you want to work with.  A knowledgeable, well-reputed real estate broker can make all the difference in creating a successful transaction for you.

Purchasing real estate is a big decision and a big commitment, your due diligence will make your entire experience more worthwhile in the end.  Preparing yourself can only help you in the end

While it is true that for most parts of the country home sales are down, home sales for more expensive homes have had an even larger drop due to the higher interest rates for larger mortgages.  A Jumbo Loan was previously considered a loan of $729,000 or more.  The three main lending and home mortgage instutiions, FHA, Fannie Mae and Freddie Mac are considering lowering the Jumbo amount somewhere around $650,000.

A recent article by Walter Molony at realtor.org states that  “the latest existing-home sales data shows transactions under $400,000 are 3 percent below a year ago. However, sales of homes priced at $750,000 or more have declined a whopping 47 percent.”  This drop is attributed to the fact that mortgages for these larger homes are significantly more that a conforming mortgage, making it less enticing for people to move up into a larger home.  The article continues to illustrate this point further, “To illustrate in dollar terms, if mortgage limits are permanently raised to $729,750, the maximum limit that expired at the end of December, the mortgage payment on such a loan would drop by $942 per month by lowering interest rates 2 percentage points. Over the life of a 30-year loan, the homeowner would save $338,000.”

In any event the hope remains out there.  If Jumbo loans are available for the same interest rates as lower conforming conventional mortgages the real estate recovery may speed along faster as more people would be willing to purchase a more expensive home.