Know All the Pros and Cons Before Buying a Condo

If you are considering purchasing a townhome or condominium to call home, you already know they can be great if you’re looking for a low-maintenance property. However, there are pros and cons to this type of property, and you need to be aware of these before you seriously launch your home search.

Here’s a summary of some of the differences between townhomes, condos and single-family residences and what you need to consider before you buy:

When you purchase a single-family home or a townhome, you own the land underneath your home. In a condo, your condominium association owns the land underneath. In condos, and to some extent in townhomes, you pay association fees for landscaping, roof replacement, painting and other services that benefit the entire development. In most single-family homes, you don’t pay fees and are responsible for your own maintenance.

If you are looking at purchasing a condo and plan on financing it, you will need to find out if the development is on the Fannie Mae and/or Federal Housing Administration approved list. For a variety of reasons, some developments aren’t on the approved lists, meaning you may have challenges getting financing. Some developments may be able to be approved if their rules and regulations fall within lender-approvable guidelines.

With a condo in particular, you and your real estate attorney should understand the property’s rules and regulations before submitting an offer. If there are items that seem too restrictive, you may want to look elsewhere for a place to live.

Get an FHA Kiddie Condo With Your Student

As summer begins to wind down and your college student is starting to think about the new school year, it’s time to consider just where your school-bound offspring will live.

Luckily, the Federal Housing Administration (FHA) has a great idea for you.

For several years now, the FHA has been offering an excellent program nicknamed the “kiddie condo” program. This allows you and your college student to purchase a home as the student’s primary residence.

Typically if you were to buy a home for your student to live in while away at school, you would have to purchase it as an investment property, with a higher down payment and higher interest rate than if you’d purchased a principal residence.

The kiddie condo program allows you to buy a home for your student with a lower down payment and at a lower rate.

In order to qualify for the program, the parent’s and the student’s credit are both important, even when the parent is paying for it.

Whether or not the student has a job, he or she still needs to be able to demonstrate the ability to manage credit. So a student without credit will have to get a small loan or credit card and stay current with the payments.

The program can be very beneficial to all involved. Your student will have current mortgage payments on their credit report when they graduate, and you may be able to writeoff the interest and property taxes as long as you own the property.

You also may be able to offset the mortgage payment by subletting one or more of the rooms to other students; even a small amount of money each month multiplied over time can add up to big savings off the mortgage.

Take Control of Your Mortgage Approval Process

As a borrower, you have more control over the mortgage process than you might think. When you apply for a mortgage, you will be asked for documentation relating to income, assets and proof of residence, among others. If you can quickly supply your lender with complete documentation as requested, it will do wonders in getting your loan approved lickety-split. This article will describe some of the documentation your lender will require upon application.

Income Documentation should include the last 30 days of paystubs as well as the last two years of W-2 forms and tax returns, both with schedules attached. Lenders are scrutinizing income closely these days and are careful to ensure that every dollar of income you claim can be verified according to their guidelines. Ensure that everything they’ll need is included. Note also that if you changed employers in the last 24 months, you should attach contact information for previous employers.

Asset Documentation includes 60 days of the financial statements you plan to use (and be aware that you needn’t use all the assets you have available). You should include even blank pages in submitting your financial statements, as lenders need to ensure that they have the full picture and that nothing is missing from the statements. If you have large deposits other than your payroll checks, you may be asked for a letter explaining the origin of these funds. This is typical.

Residence documentation establishes where you have lived in the past two years. Include contact information related to your current residence, and if you have multiple landlords attach their contact information as well.

You should ensure that all the documentation requested by your lender is complete. And if you’re not sure what’s required, ask. It will pay off in a speedy mortgage approval.


How to Calculate Your Debt-to-Income Ratio

Before you embark on your home search, your first consideration should be how much you can afford to pay. You need to establish what your monthly payments should be and that means understanding how your usable income is calculated.

The starting point of any income calculation begins with gross, or before-tax, income. Regardless of what you take home each month, your lender will always want to know your salary before any withholdings.

Debt-to-Income Ratio

After your gross income is calculated, monthly debt is subtracted. This debt includes rent or mortgage payments, car payments, credit card debt, student loans and other kinds of loans. Many people ask if debt includes other monthly expenses such as utility bills or gas for the car, and the answer is no – these are not included in your ratios.

While your mortgage professional will give you the exact numbers you will use to qualify, a good rule of thumb is to keep your payments between 40% and 45% of your gross income, less expenses.

For example, if your gross income is $3,000 a month and you have car payments and credit card balances for a total debt of $500 a month, your usable income is $3,000 minus $500, or $2,500 a month. Taking $2,500 x 40% and 45%, you arrive at a total mortgage payment between $1,000 and $1,125 per month.

If you keep these figures front and center during your home search, you won’t fall for a home that’s beyond your means.

Mortgage Insurance Questions Answered

Homeowners and prospective homeowners probably have more questions about mortgage insurance than any other area of home finance. Here we discuss what constitutes mortgage insurance and how it works.

Your lender takes out mortgage insurance to provide for the possibility that you, the homeowner, will default on your mortgage. There is no connection between mortgage insurance and property or hazard insurance, which is used to insure the property itself against damage from a variety of potential hazards. Nevertheless, many people do tend to use the terms interchangeably. There are two basic types of mortgage loans, and each has its own type of mortgage insurance.


Conventional mortgages are what most people think of when they think of mortgage insurance. They are insured by Fannie Mae or Freddie Mac and are required when there is less than 20% equity in the property. The rate of the mortgage insurance will be based on your level of equity, meaning that your rate will be higher if you have 10% equity than if you have 15% equity. This mortgage insurance can be removed if your equity reaches a certain level.


There are actually two types of mortgage insurance you may have when you obtain an FHA mortgage. The first is called “upfront mortgage insurance,” or, often, “upfront MI.”.

This upfront MI is a percentage of your loan amount and can be financed into your mortgage.

The second type of mortgage insurance is called “monthly mortgage insurance.” Unlike conventional mortgage insurance, it charges the same monthly rate regardless of your down payment.  Also unlike conventional MI, monthly mortgage insurance must be in place for at least five years, regardless of the value of the property.

If you’re wondering which type of mortgage insurance applies to you, contact your mortgage professional for details.

With a 203k Rehab Loan You Can Buy a Fixer-Upper

For homebuyers looking to renovate their properties, a 203k Rehab loan can be a great option. A 203k Rehab loan is a traditional FHA mortgage and a rehab loan rolled into one.  It allows you to have work done on a property and roll the cost into the purchase price at the same time.

In today’s market, opportunities abound in both traditional and foreclosure/short sales.

In the case of foreclosures and short sales, you may find properties in your target neighborhood in need of repair. These may unable to be financed by traditional means and this gives you leverage at the negotiating table.

For you to be able to purchase a home using a 203k mortgage, three things need to happen.

First, you need to be prequalified by your lender, as you normally would.

Second, once you find a property that is in need of repair, you will need cost estimates. Note that all work needs to be overseen by licensed general contractors who have their own lines of credit and references.

Third, a special 203k appraisal is done to determine the value of the property after the work is complete. If you are still prepared to buy, you go to the closing table as you would with a traditional mortgage.  Escrow accounts, based on the initial estimates, are set up and the required work begins.

You could have exactly the home you want and save on renovation expenses. Your mortgage professional will have all the information on how this great program works.

What Lenders Look for in Your Credit Score

Credit is a significant component in enabling you to qualify for a mortgage, whether it’s a new purchase or a refinancing. Here are some of the basics you need to know about credit to help you become a more informed consumer.

Your credit score

Your lender will access your credit score to evaluate your creditworthiness. The term “credit score” refers to the middle of three scores, obtainable through three credit bureaus that provide scores: TransUnion, Experian and Equifax.

Several factors will affect your credit score, but there are two that play more significant roles than the others:

1. Revolving debt, such as credit cards that are over their limits, and

2. Recent late payments.

Pay down your cards

Credit cards that are over their limits, especially when you have several of them, indicate that you are overextended with the credit that you have available to you.  This weighs on your credit score in that lenders may be reluctant to give you more credit if you are having challenges with the debt that you currently have.

There is a solution to this. Often you can have a positive effect on your credit score simply by paying off or paying down credit card debt to show that the amount of credit available to you is much larger than what you owe.

Recent late payments are another flag for lenders who are looking at your credit profile and assessing your ability to pay back the loan.

Over time, many items on a credit report will either fall off or have a minimal impact on your score.  It is, however, the most recent items on the report that give lenders an idea of your payment habits.

If you have had a number of late payments in the past several months, you may be sending out signals that this will be your behavior after receiving a mortgage.

Hire a Real Estate Attorney – You’ll Be Glad You Did

In any real estate transaction, your money couldn’t be better spent than on the services of a real estate attorney. Here are some reasons why you need a real estate attorney and what he or she can do for you.

In the course of any real estate transaction, you will be presented with all types of documents, and it is very important that these  be examined by an attorney specializing in real estate. These include the purchase contract, the home inspection, the appraisal and the settlement documents when you get to closing.

As knowledgeable as your real estate and mortgage professionals are about the inner workings of a real estate transaction, questions may arise that are outside  their areas of expertise. They will be the first to tell you that their expertise is limited to their respective fields and that questions on contractual issues are best left to a good real estate attorney. They also will suggest that your attorney is the one to ensure that the other party in the transaction (buyer or seller) is complying with the terms of the contract.

A real estate attorney is totally neutral in your transaction.  He or she is paid the same regardless of how much your home costs and can bring an objective eye to all the documents and other elements involved in your sale or purchase. This is especially important when you are purchasing a short- sale or foreclosure property.

In looking for a real estate attorney, try to find one where real estate transactions represent a sizeable percentage of their business. Those who handle more than a few transactions a month will be more up-to-date on the legal aspects of real estate.

What Parents Need to Know About the FHA Condo Program

Parents whose children will be moving to attend school might want to consider the Federal Housing Administration (FHA) Kiddie Condo program.

In a nutshell, this program allows parents to buy a home that their child can live in and also collect rent from their child’s roommates.

The program is a Housing and Urban Development (HUD) program administered by the FHA. Students and their parents can purchase a home together as a primary residence.

Keep in mind that if this were to happen in a program other than the Kiddie Condo program, the property would be considered an investment property. Thus, it would involve much larger down payments and the interest rate would be much higher.

Many students have little or no income or assets to bring to the table. This is where the parents come in. The benefit to the student is that he or she can have a mortgage payment history by the time he or she graduates from college.

When qualifying for this program, keep in mind that the student by himself or herself may be unable to qualify from an income perspective.

He or she will have to demonstrate some type of minimal positive credit history. At a minimum, he or she needs to have no adverse items such as late cell phone or credit card payments and a student’s credit score must be high enough to qualify on his or her own.

Ask your mortgage professional for more details about this program.

What’s the Best Loan Program for You?

If you’re looking to purchase a home, the most traditional way to obtain financing is to use a Federal Housing Administration (FHA) mortgage or a conventional mortgage.

Each has its advantages and disadvantages.

FHA Mortgages

The FHA is a division of the U.S. Department of Housing and Urban Development.

These mortgages have become more popular over the last few years because the qualification guidelines are more relaxed than those for conventional mortgages, though they are a bit pricier to obtain.

To purchase a home with an FHA mortgage, you must put down at least 3.5% of the purchase price. This must come from your own documented funds or from those of a close relative.

You’ll pay two types of mortgage insurance. The first is called upfront mortgage insurance, which can be financed. The other is monthly and will last a minimum of five years into the loan.

Credit guidelines vary from lender to lender and you will likely need a credit score of around 640 to qualify. There are normally no asset reserves required with FHA mortgages.

Conventional Mortgages

If you want to go with a conventional mortgage, the requirements are a little steeper, but the overall cost is lower.

Minimum credit scores will be a bit higher, close to 720, without a premium attached.

Buyers must also be able to show two months in asset reserves. If you can meet these two requirements, you can bypass upfront mortgage insurance, which can be significant.

Monthly mortgage insurance applies only if you are putting less than 20% down.

For more details on each of these programs, contact your mortgage professional.