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Old 01-06-2015, 10:46 AM
1 posts, read 1,206 times
Reputation: 14


Hi, I'm a first time homebuyer with some questions around the pre-approval process. I want to know how these two factors will count towards my DTI ratio.

1. My wife had about 100k in student loans which we have aggressively paid down to about 30k. As a result of our aggressive payment plan we don't actually owe a payment on this loan until 2023. How should this be factored into our DTI ratio?

2. I always read that credit card payments count towards your DTI ratio. Is this only for people who carry a balance though? We never carry a balance but at any given time there might be say $800 on our credit card which will be paid off in full once it is due. My guess is this amount doesn't count in the calculation of a DTI ratio but would just like to clarify.

Lastly when you go for the pre-approval do you specify the amount or % you plan to use as a down payment? At the moment we have more than 10% for the upper end of our budget but less than 20%. It could be possible that by the time we actually close on a house we do have 20% because we are able to save a lot each month.

If my wife and I both have credit scores over 720 and we are budgeting for a home based on only one of our incomes (in other words well within our price range) how much would you anticipate our loan terms being impacted by putting only 10% down as opposed to 20% down? My preference would be to put 10% down then use the excess cash we will have over 10% to close out my wifes student loan which has an interest rate of 6.8%. Then we will aggressively pay down our mortgage at least to the point to remove PMI. Worth noting that we have 20k (~ 6 months) as an emergency fund completely separate which I haven't included in any of the above calculations.

Again a first time homebuyer so I would appreciate any advice, criticism, etc.

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Old 01-06-2015, 12:49 PM
Location: Austin
7,077 posts, read 16,885,085 times
Reputation: 9479
I have no idea about #1.

On #2, they only count the minimum amount due, so even though you pay it off each month, there might be a minimum due of $20. Look at your statement.

I basically wanted to chime in about looking into an 80/10/10. The way your pay your debts down, why worry about whether or not the lender would agree to remove the PMI, as they don't have to if you're within a certain time frame. Instead, get a second lien, with a slightly higher interest rate (higher tax deduction) and then pay that off aggressively so you can still obtain the lower interest rate on the 80% first lien. When you have 20%, you get a lower interest rate, so if you put only 10% down and opted to pay down the dept to get rid of PMI, you would still have a higher rate unless you spent the $4-6k to refinance later. Take the lower interest rate now and get a second 10%.

Just food for thought...
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Old 01-07-2015, 04:54 AM
Location: Southern California
4,350 posts, read 4,929,984 times
Reputation: 2129
1) The minimum monthly will still be calculated against you. Ask your lender to recast the loan to reduce the minimum payment, they might charge you.
2) They'll look at the minimum monthly payment of the existing balance, prepay your credit cards so you don't have a balance, and it won't count against you, but even at $800 the impact is small.
3) Switching from 10-20% down while under contract is easy.
4) Your credit score will impact the cost of your mortgage insurance
5) The big difference between 10% and 20% down is you are 1) borrowing more money so you payment will be at least 10% more 2) You'll pay a little more for the monthly in terms of mortgage insurance or higher interest rate.
6) Most people pay for the higher rate 30year fixed rate loan when most people don't stay in the house for anywhere near that amount of time.
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Old 01-07-2015, 09:26 PM
7,598 posts, read 17,614,249 times
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Question #1: working for a portfolio lender, I think I could make a case of not counting the payment, provided it can be obtained in writing. Fannie Mae, ages ago had rules about deferred payments on bridge loans. The rule was the payment had to be deferred for a minimum of 5 years to not count the payment. If that still stands, it would not be a difficult argument. By any chance, have you inquired as to what the payment would be if it were recast?

Question #2: credit card balances are a constant moving target. Those balances will be used along with the correlating minimum monthly payment. You must be prepared for extreme restraint on the use of your cards during the loan process. If the pre-closing soft pull reflects increased balances that alter your ratios, your approval could be in jeopardy. (In plain English: don't let you debt be any higher than when your loan was approved).

Question #3: you can decide on your down payment up until a few weeks before closing - provided the funds are documented in time for underwriting and they were obtained from an acceptable source. Your rate is calculated based on your down payment, credit score, and type of loan. You can put 10% down and obtain a 2nd trust for the difference, to keep your first trust at 80%. Be careful, some lenders (most) will add a premium for the "combo" financing, some as much as 1.75 points (translates to about 3/8 in rate). There are some that do not (portfolio lenders, who are lenders that do not sell their loans)

With your ability and track record to pay down debt, DO NOT take the option for lender funded PMI, frequently referred to as LPMI. (The lender gives you a higher rate in lieu of charging PMI). The problem with that method is when you pay it down the 80%, you are still stuck with the higher rate. There's another plan called a "super single" (all paid up front) that would penalize a borrower that is disciplined to prepay their mortgage.

I do agree with your strategy to hang onto some cash. I also agree with Ms. Lopez about considering an ARM. A huge percentage (>70% or there about if I recall correctly - it's a huge #) of mortgages are paid off before 10 years, if not from a sale, from refinancing.

You are definitely on the right track. When you are ready to get out there and start looking at homes, that is when you want to contact a lender.

Good luck and keep us posted!
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Old 01-08-2015, 08:48 AM
28,383 posts, read 67,903,744 times
Reputation: 18188
Default What rock do some of you live under...

...the "savings" from ARMs are literally at the smallest differentials in history. Unless you have a real reason to believe you will be moving in less than 15 years there are just too small a differential not to go with fixed term loan.

Does no one remember the rapid rise that ARMs experienced back when things were in chaos with bubble collapse?

There are plenty of reasons to worry that stupid wanna be quick buck "investors" can and will get "cold feet" and / or start "profit taking" sales that could trigger a roller coaster in real estate values and subsequent rate spikes...

The stability of fixed rate loans is a good thing!
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