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Old 06-30-2015, 04:16 PM
 
3 posts, read 3,822 times
Reputation: 15

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Hi Everyone,

My wife and I have listed our house for sale and are planning to move to the burbs. We will net a substantial amount off of the sale and utilize that as a down payment. I've owned two previous homes (2004 and 2009) and, based off what I'm learning from reading this forum, things have changed substantially in how mortgages are processed. I have been employed in my current role 3 years this fall with and she will be employed in her current role 2 years this fall. We're looking in the $600,000-$700,000 range for a house, which is on the lower end of the what all the "What can I afford" calculators indicate is an acceptable range. Payment calculators seem to put the mortgage, taxes, and insurance under the 25-28% gross income level that I read is a soft threshold. Given the following, what would be our chances of getting approval:

-Current base family income is $170,000, gross with bonuses will put us around $195,000 this year, similar in previous years
-We both have credit scores in the 750-820 range, never missed a payment type of people
-I have ~$40k in revolving debt out of ~$80k limits and it has been decreasing, leftover equity from house sale will be applied here
-I have grad school loans at $36k which I'm paying according to payment plan
-I have a car payment in the $700 range, paid off next year
-Wife has no revolving debt out of ~$35k limit
-Wife has a lease payment of $300 also expires next year where she'll begin driving my car (I have a company car as well)
-We both contribute 10% pre-tax to employer sponsored 401ks and our savings balances are ~$90k
-We plan to apply 20% down regardless of where in the price range we buy
-If our house doesn't sell, we're fine with taking it off the market and trying again next year

Given those factors and the assumptions that we sell our current house and approval will not be a problem, when should we reach out to a lender for approval? Houses in our area are known for selling in days and we have our eyes on several homes but will not begin looking formally until we have a contract in place. I've seen references on here about extended loan processing times. What are the chances we could get a contract on our house, place a contract on our next home, and process a loan seamlessly?

Sorry for the novel and thanks in advance for your responses! I appreciate the knowledge shared on this forum!

Last edited by Atlantamara; 06-30-2015 at 04:22 PM.. Reason: Grammar
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Old 06-30-2015, 05:15 PM
 
3,318 posts, read 7,255,247 times
Reputation: 4095
The picture you paint is a Lender's fantasy come true. And you should be able to close within 30 days of contract date, even if you go Jumbo, which it looks like may not be the case.

Based on the $170k base, your total monthly bills, including PITIH on the new home, can approach (even slightly exceed) $6000 per month. Lots of wiggle room at your price point.

What is your anticipated down payment position?
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Old 06-30-2015, 05:26 PM
 
Location: Port Charlotte
3,926 posts, read 4,396,537 times
Reputation: 3395
Whatever you do, plan of what would happen if one of you were laid off, bonuses don't come through, health issues happen, etc. yes, you want to hit the upper end, but give yourself plenty of SHTF room.
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Old 06-30-2015, 07:10 PM
 
109 posts, read 111,141 times
Reputation: 145
Quote:
Originally Posted by Atlantamara View Post
Hi Everyone,

My wife and I have listed our house for sale and are planning to move to the burbs. We will net a substantial amount off of the sale and utilize that as a down payment. I've owned two previous homes (2004 and 2009) and, based off what I'm learning from reading this forum, things have changed substantially in how mortgages are processed. I have been employed in my current role 3 years this fall with and she will be employed in her current role 2 years this fall. We're looking in the $600,000-$700,000 range for a house, which is on the lower end of the what all the "What can I afford" calculators indicate is an acceptable range. Payment calculators seem to put the mortgage, taxes, and insurance under the 25-28% gross income level that I read is a soft threshold. Given the following, what would be our chances of getting approval:

-Current base family income is $170,000, gross with bonuses will put us around $195,000 this year, similar in previous years
-We both have credit scores in the 750-820 range, never missed a payment type of people
-I have ~$40k in revolving debt out of ~$80k limits and it has been decreasing, leftover equity from house sale will be applied here
-I have grad school loans at $36k which I'm paying according to payment plan
-I have a car payment in the $700 range, paid off next year
-Wife has no revolving debt out of ~$35k limit
-Wife has a lease payment of $300 also expires next year where she'll begin driving my car (I have a company car as well)
-We both contribute 10% pre-tax to employer sponsored 401ks and our savings balances are ~$90k
-We plan to apply 20% down regardless of where in the price range we buy
-If our house doesn't sell, we're fine with taking it off the market and trying again next year

Given those factors and the assumptions that we sell our current house and approval will not be a problem, when should we reach out to a lender for approval? Houses in our area are known for selling in days and we have our eyes on several homes but will not begin looking formally until we have a contract in place. I've seen references on here about extended loan processing times. What are the chances we could get a contract on our house, place a contract on our next home, and process a loan seamlessly?

Sorry for the novel and thanks in advance for your responses! I appreciate the knowledge shared on this forum!
I generally tell people no more than 3x gross, so I would consider 600-700k to be high iMo. Also 40k in revolving debt is fairly high based on your income, I would definitely get that paid off If you make enough in your home sale.
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Old 06-30-2015, 09:12 PM
 
Location: MID ATLANTIC
7,598 posts, read 17,623,584 times
Reputation: 8083
You should be fine, and be able to command the best rates the market has to offer. You should easily be able to obtain an 80/10/10 to avoid PMI with little to no bump in your interest rate (at least the same rate as someone putting 20%. (Not everyone penalizes for a combo loan).

Shop it - in this loan range, an 1/8 in rate means thousands.

Good luck!
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Old 07-01-2015, 06:28 AM
 
Location: Phoenix, AZ > Raleigh, NC
14,301 posts, read 17,505,128 times
Reputation: 22132
Quote:
Originally Posted by Restrain View Post
Whatever you do, plan of what would happen if one of you were laid off, bonuses don't come through, health issues happen, etc. yes, you want to hit the upper end, but give yourself plenty of SHTF room.
Great advice that no one ever listens to. And having those kinds of credit card balances is crazy. Personally, I'd pay off the student loans ASAP, too. And increase the 401k contributions to 15%.
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Old 07-01-2015, 06:51 AM
 
3 posts, read 3,822 times
Reputation: 15
Thank you for the advice guys, I'm assuming PITIH is paid-in taxes insurance and HOA? Sorry I'm not up on the acronyms. We intend to put down 20%, so I don't think PMI will be a concern. Is there any advantage to breaking up the mortgage to avoid a jumbo? It seems like many jumbos are getting lower rates than regular mortgages, so what's the catch?

All of our budgeting is done using base income, the bonuses are exactly that, extra funds for vacations, furniture, home improvements, paying down short(er) term account balances, etc. we both have HSAs and decent health insurance. Company matches push our 401ks over the 15% mark, closer to 20%, and we have some savings on the side. Like most people I think we would need to find work quickly if one of us was laid off, we have a couple months of padding and a few other safety blankets that we'd rather not turn to; but losing an income is rarely a non-event for those of us that are not independently wealthy.

What drives the need to accelerate the payoff of the student loans? The interest rate is fixed fairly low and tax deductible. We try to maximize deductions so it seems like if one was going to pay things off, student loans would be toward the back of the line.
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Old 07-01-2015, 09:45 AM
 
3,318 posts, read 7,255,247 times
Reputation: 4095
You don't have to pay anything off in order to qualify. However, I'm a fan of placing the bulk of household debt into the mortgage and carrying small balances across the board on other items. So, 20% down, and then paying down balances as you see fit, would be advisable, but not mandatory.

School loans - - that might be the last stop on the payoff train, due to very good rates. Also, I tend to advise people that home mortgage interest is a tax write off, but you should check with your CPA/Tax Preparer regarding the specifics of your opportunity in that area.

Principal
Interest
Taxes
Insurance
HOA (if one exists)

Breaking it up: Jumbo rates are just as good as non-jumbo right now, but you do have to get two appraisals and there is more scrutiny. If I were in your position, with 20% down, I would pursue one loan, but you will hear other, just-as-valid opinions regarding this.

Avoiding a Jumbo: If you are putting 20% down, with your credit profile, you'd want your first mortgage to be $417k (Conforming max) and then get your second mortgage for the remainder. But, second mortgages tend to be balloons that are due in 15 years, OR 20-year fixed notes, and the rates will be higher than the 3.75 - 4.25% range (your mileage may vary) on the first mortgage. An example Second mortgage would be something in the range of a 20 year fixed at 6%.

BTW, a helpful app is called Karl's Mortgage calculator. I have no affiliation with it, but I'm constantly using it.

As I mentioned, you have options, and it seems that your comfort zone will be the primary driver of terms.

Last edited by Pfhtex; 07-01-2015 at 11:07 AM..
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Old 07-03-2015, 02:06 AM
 
1,056 posts, read 871,008 times
Reputation: 2402
Quote:
Originally Posted by Dad0118 View Post
I generally tell people no more than 3x gross, so I would consider 600-700k to be high iMo. Also 40k in revolving debt is fairly high based on your income, I would definitely get that paid off If you make enough in your home sale.
The 3x gross calculation doesn't really apply at the OP's income level of $195k a year; I think that calculation is from the old days when a good mortgage interest rate was double or triple what it is today. The OP is looking at houses that are 600 to 700k which translates to a monthly payment (including taxes and insurance) of $3,000 to $3,500 a month at 4% interest. That's very comfortable for someone grossing at least $14,500 a month not counting bonuses. That's not more than a 24% debt to income ratio (this ratio includes house debt only), which is well below reasonable by even the most conservative bank standards. The OP has other debts so their ratio with the new mortgage would be quite a bit higher than 24% but should still be under 36%. If the OP didn't have all their other debt, they could go to an $900k+ purchase price and not be over 36%. I'm not saying the OP should go to that high of a purchase price but it wouldn't exactly be stretching them either if all their other debt was gone.

I do agree with you that the OP has too high of an income to still have 40k in revolving debt; that should be paid off before OP takes on a new mortgage.
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Old 07-03-2015, 07:46 AM
 
109 posts, read 111,141 times
Reputation: 145
Quote:
Originally Posted by patches403 View Post
The 3x gross calculation doesn't really apply at the OP's income level of $195k a year; I think that calculation is from the old days when a good mortgage interest rate was double or triple what it is today. The OP is looking at houses that are 600 to 700k which translates to a monthly payment (including taxes and insurance) of $3,000 to $3,500 a month at 4% interest. That's very comfortable for someone grossing at least $14,500 a month not counting bonuses. That's not more than a 24% debt to income ratio (this ratio includes house debt only), which is well below reasonable by even the most conservative bank standards. The OP has other debts so their ratio with the new mortgage would be quite a bit higher than 24% but should still be under 36%. If the OP didn't have all their other debt, they could go to an $900k+ purchase price and not be over 36%. I'm not saying the OP should go to that high of a purchase price but it wouldn't exactly be stretching them either if all their other debt was gone.

I do agree with you that the OP has too high of an income to still have 40k in revolving debt; that should be paid off before OP takes on a new mortgage.
The 3X rule can be applied to ANY income level. Can most afford more? Of course. But as a standard rule of conservatism this is generally what I see. Also, you are slightly off on your mortgage payment call as OP will likely have a payment in the $3800ish plus or minus a few hundred dollars.

Most smart high earning families I see who make between 200k-600k in HHI aren't buying homes over $500k in price (these are mostly fellow partners at my CPA firm). I would in no way be comfortable buying a home that price with less than $200k in income, but to each his own.
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