Your debt-to-income ratio—the total of all your monthly expenses divided by your gross monthly income—is one of several factors that impact your mortgage rate, our experts say. Your debt-to-income ratio (DTI) determines the loans you can get and a higher DTI generally means you won’t get access to loans with lower mortgage rates.
“The better programs have thresholds with lower debt-to-income ratios. And better programs translate into better rates,” says Kevin Leibowitz, a mortgage broker at Grayton Mortgage.
Impact of DTI on buying choices
In New York City, co-op boards have their own DTI requirements for buyers, usually 22 to 24 percent. “Co-ops are usually stricter than banks when looking at DTI,” says Deanna Kory, a leading agent at Corcoran.
Of course lenders are also assessing your financial viability. “Every bank has guidelines with regard to the maximum debt-to-income they allow in order to approve a loan,” says Melissa Cohn, regional vice president at William Raveis Mortgage.
When you’re shopping for a mortgage, a loan officer or mortgage broker will offer you a rate based on your borrowing profile. This includes your credit score, your down payment, whether you’re buying a condo, second home, or investment property, and whether the mortgage is a cash-out refinance. “All these factors are layered on top of each other and it becomes a decision-tree matrix,” Leibowitz says.
Many lenders will allow for DTI ratios up to 50 percent but the terms available for the loans with a higher DTI are typically worse than those with lower DTI ratios. “Many adjustable and most jumbo lenders cap the maximum DTI at 43 percent in order to qualify,” Cohn says. If you are financing more than 80 percent and applying for private mortgage insurance (PMI), Cohn says the cost of the PMI increases with a higher DTI.
Put another way—if you have a small down payment, a low credit score, and a high DTI, Leibowitz says, “either the programs are going to disappear or the programs that are available come with worse terms.”
For example, let’s say a condo buyer has a low credit score and a high DTI and they are putting 50 percent down on a $500,000 apartment. That’s not necessarily a bad loan for a lender, Leibowitz says. A buyer is unlikely to default on $250,000 of equity or cash they’ve just put down.
However a higher DTI might rule out access to a loan with a better rate, Leibowitz says.
How to improve your DTI
One of the best ways to improve your DTI ratio is to limit or pay down any consumer-related debt. This might mean paying off your credit card debt, delaying a big purchase, holding off on a leasing arrangement for a new car, or setting up a loan repayment program for any student debt.
If you own a second home or hold a high balance loan amount, you may want to refinance sooner rather than later. That’s assuming you were thinking of refinancing.
The same goes for those planning to purchase a second home or take out a mortgage with a high balance, which is a loan amount above the baseline conforming limit.
The conforming limit for 2022 is $647,200, so if your loan amount will be north of that, take note.
Fannie Mae and Freddie Mac are raising loan-level price adjustments (LLPAs) for both types of transactions come April 1st.
Depending on the details of your loan scenario, this could drastically increase your closing costs and/or mortgage rate.
Second Home Mortgages and High Balance Loans Going Up in Price
In an effort to bolster its support for affordable housing and sustain equitable access to homeownership, the Federal Housing Finance Agency (FHFA) will be raising (LLPAs) for certain transactions.
These LLPAs get passed onto consumers in the form of either more expensive closing costs or higher mortgage rates.
As noted, they pertain to the financing of second homes, whether a purchase or refinance, and high-balance loans, those which exceed the conforming limit.
The idea here is that these types of home loans go toward more affluent individuals. And they also create more risk for Fannie Mae and Freddie Mac, which are backed by taxpayers.
After all, large loan amounts and vacation properties are more likely to default and/or create larger losses for the Enterprises.
And that could jeopardize the mission of Fannie and Freddie, which is mainly to provide affordable financing to first-time home buyers, as well as low- and moderate-income borrowers.
Looked at another way, these new fees will subsidize programs like HomeReady, Home Possible, HFA Preferred, and HFA Advantage, which provide cheaper financing to lower-income borrowers.
Speaking of, fees won’t be going up on those programs, or for first time home buyers in high-cost areas with incomes at/below 100 percent of area median income.
How Much More Expensive Will Mortgage Rates Be in April?
Before you get too worried, the cost of these changes may be minimal, depending on the loan scenario in question.
For example, upfront fees for high balance loans will increase anywhere from 0.25% to 0.75%, depending on the loan-to-value (LTV) ratio.
If we’re talking about a loan amount of $750,000 on a primary residence, another .25% in fee is roughly $1,875.
This might move the dial on your 30-year fixed mortgage from 3.25% to 3.375%, or simply increase closing costs.
If that fee is .75% higher due to an LTV of 80%, we’re talking $5,625 in cost, which will more than likely increase your mortgage rate an eighth of a percent or more.
It’s not the end of the world, but it’s yet another thing working against homeowners and home buyers as mortgage rates have started off 2022 higher.
And they tend to peak during spring and early summer, which means financing will be that much more expensive.
The situation is even worse for second home buyers or owners, where pricing adjustments will increase anywhere from 1.125% to a staggering 3.875%.
Using our same loan amount of $750,000, even at a low LTV ratio, the increase in upfront costs could equate to around $10,300.
If we’re talking a high balance loan on a second home at 80% LTV, which isn’t out of the question, it’s an additional cost of about $31,000.
Again, depending on if you let the rate absorb these additional costs, you could be looking at a rate that’s .25% to .50% higher, or more.
Second Home Owners and Those with Large Loan Amounts Should Review Their Mortgages Now
If you believe these changes may affect you, it could be a good time to review your outstanding home loans.
The same goes for prospective home buyers thinking about purchasing an expensive property or a vacation home, which are en vogue due to COVID.
As illustrated above, these higher pricing adjustments have the ability to raise mortgage rates considerably. Or at the very least bump up your closing costs.
With home prices and mortgage rates also seemingly headed higher by spring, it could make sense to accelerate any refinance or home purchase plans to avoid these looming fees.
The FHFA said the new fees won’t go into effect until April 1, 2022 to “minimize market and pipeline disruption,” aka higher pricing for confused customers.
But watch out for mortgage lenders beginning to price in changes earlier on. Simply put, this is yet another reason to make any planned move sooner rather than later.
If you own an investment property, the same types of pricing changes might be on the horizon. So if you’re looking for better terms or cash out, now might be the time.
When most people talk about money management, they discuss tactics. Occasionally, you’ll encounter someone who elevates the discussion to strategy, rather than simply scattershot tactics.
But what’s missing from both conversations — both tactics and strategy — is a wider-lens look at how to become a better thinker; how to become a crisp, clear decision-maker.
How to think from first principles. How to better your brain. How to cultivate the wisdom to know the next move.
This series is an attempt to bring first principles thinking into the conversation around money. Welcome to the inaugural post.
[Quick recap] If you read the first issue of this series, you know I’m hyped about rethinking the FIRE philosophy into four pillars:
Financial psychology — This is the foundation of everything.
Investing — Let’s be honest: technically, you don’t need the “RE.” You can stop at “FI.” If you master your inner psychology and invest in your 401k, IRA and other brokerage accounts, you can live a wealthy and wonderful life. The “FI” is mandatory for everyone; the “RE” is optional.
Real estate — It’s a hybrid between owning an investment and running a business, so the “R” fits perfectly between “I” and “E.” Did someone say “mashup?”
Entrepreneurship — The last on the list because it’s the toughest, but this is where near-infinite potential lives. You’ll want to focus on F, I, and mayyyybe R first, before you tackle this tough cookie.
Financial Psychology
We recently re-ran one of my favorite episodes on the podcast: an interview with behavioral economist Kristen Berman, who states – among other things – that habits are overrated.
Wait … what? Habits are overrated? But … but … aren’t habits the cornerstone of, like, everything?
Nope, according to Berman. Habits are an excellent second choice.
Automation is more powerful than habits. The best upfront use of your time is to set up systems — e.g. automatic transfers and deposits. Habits are a fallback option for anything that can’t be automated.
Systems are likely to stick longer. Your automations don’t crack when you take a two-week beach vacation. Your habits, by contrast, might take the holidays off.
Systems rely on software. Habits depend on humans.
And in the end, the robots always win.
Investing
Successful investors tend to fall into two camps: those who are great at making returns, and those who are great at keeping their returns.
Those who are great at making huge returns are the ones who risk it all; they bet big on a handful of individual stocks, or they bought crypto in huge quantities during the early days, and their speculation paid off.
Our collective sense of survivorship bias applauds them.
But their risky behavior doesn’t stop. They double down again and again, until eventually they lose much of their returns.
Easy come, easy go.
By contrast, the investors who are great at keeping their returns often invest with a methodical, long-term, wide-lens approach.
It takes them decades, rather than mere years, to build their wealth. But once built, they tend to be more adept at keeping it.
SPOTLIGHT ON…
What tools are kick-ass at financial automation?
One of my favorites is Acorns, which automatically rounds up your purchases and invests the difference.
If you spend $1.73 on a coffee (wait, can you still get coffee for $1.73?? okay fine, if you spend $1.73 on … um … a bag of peanut M&M’s?), the tiny robots will round your purchase up to $2 and invest the difference, $0.27, into your Acorns account.
You can choose your favorite investing style (aggressive, moderate, conservative), or double the round-ups if you’re feeling spicy.
My personal tally? Welp, here it is:
So if I’m spending too much, or too often … at least I’m investing, too.
Check out Acorns here (you’ll also get a $5 bonus).
Real Estate
Many people have some variation of the following question:
“I’d like to buy an investment property. And I’d like to _____ [insert personal use here] _____ when it’s not rented out.”
For example, “I’d like to …”:
… use it as a summer/winter home.
… use it for a month or two every year.
… have my aging grandparents or parents live there.
… turn it into a home office temporarily or seasonally, like during the summers.
… let my kids live there after they move out.
… provide a home to my brother or sister while they’re getting back on their feet.
That’s fantastic. But that’s not an investment property.
There’s a difference between buying an investment property vs. monetizing a property while it’s not in use.
The former requires cold, hard math. Your personal preferences don’t enter the picture. You make spreadsheet-based decisions with Spock-like reason.
The latter’s existence is based on your personal preferences. Every decision, from location to layout to square footage, is influenced by your homeownership ideals.
On the surface you’re performing the same act. You’re purchasing a property, and then renting out said property. You’re advertising the vacancy, collecting rent checks, performing routine maintenance and repairs, and paying taxes as a landlord.
But there’s a huuuuge difference between the decisions you make when you’re selecting each type of property.
Many homebuyers get smacked upside the head with problems when they don’t understand which set of objectives they’re chasing.
They take their cues from the wrong group. They use the wrong formulas. They play the wrong game, follow the wrong rules, track the wrong scoreboard.
The home they purchase ends up being the wrong candidate for the job.
And that’s a six-figure mistake.
In our course, Your First Rental Property, we teach our students how to clarify exactly what they want in an ideal property, so that they never take cues from the wrong voices.
Entrepreneurship
Let’s keep this simple:
“Do I need business cards?”
No.
“Do I need a business plan?”
Meh. Maybe something that’s simple enough to scrawl on a napkin.
“Do I need a suit?”
Why, are you a funeral director?
Stop playing business. You’re not a little kid on a playground; starting a business by printing business cards is a grown-up version of make believe.
No matter what type of business you’re running — whether you’re dog-walking for extra income or freelance coding for the local university — you need two things:
Either a product or service
Someone who thinks your product or service is valuable enough to purchase
That’s it. Forget the business cards. Focus on (1) figuring out what product or service you can offer the world, and (2) telling the world* about it.
*You’ll want to narrow down “the world” into something more targeted. Like, tell Bob. Especially if Bob has a dog that needs walking, or if Bob hires freelance coders for the local university.
Wahoo!! You’ve finished reading Issue #2 of the First Principles series!
I hope this series inspires you to think, learn and take massive action.
Click here if you want future posts like this straight to your inbox with more thoughts, ideas and insights on a new take on FIRE.
The home-buying process can seem daunting for first-time homebuyers. The good news is there are some mortgage lenders that offer home loan products designed to provide more ease with the process, which can be very appealing to many first-time future homeowners.
To help you get started, CNBC Select rounded up a list of the best mortgage lenders first-time homebuyers should consider. We evaluated home loan lenders based on the types of loans offered, customer support, credit score requirements and minimum down payment amount, among others (see our methodology below.)
Beyond just the lowest rates, it’s important to go with the lender that offers the best loan terms to suit your needs. There’s a learning curve when it comes to homeownership, but we’ve included an FAQs section below to help you get a better understanding of some aspects of the process.
The best mortgage lenders for first-time homebuyers
Best for loan variety
PNC Bank
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
Terms
10 – 30 years
Credit needed
Minimum down payment
0% if moving forward with a USDA loan
Pros
Offers a wide variety of loans to suit an array of customer needs
Available in all 50 states
Online and in-person service available
Cons
Doesn’t offer home renovation loans
Who’s this for? PNC Bank has a wide variety of home loan options, making it easy for first-time homebuyers to find a loan that suits their circumstances. This lender offers conventional loans, FHA loans, VA loans, jumbo loans and HELOCs. On top of that, PNC Bank offers USDA loans, which can be tougher to find among some lenders. PNC Bank also has some specialized loan options, like the Community Loan, which is meant for individuals with lower cash reserves and allows for a down payment as low as 3% and no PMI (private mortgage insurance).
It also offers a Medical Professional Loan for interns, residents, fellows or doctors who have completed their residency in the last five years. Eligible borrowers for this loan can borrow up to $1 million and won’t have to pay PMI, regardless of their down payment amount.
In addition to all these offerings, PNC Bank gives eligible borrowers the chance to qualify for a $5,000 grant to be used toward closing costs. Eligible borrowers must have an income at or below 80% of the median household income for the metropolitan statistical area (MSA), or their desired property must be located in a low- or moderate-income census tract as designated by the FFIEC, according to PNC’s website.
Best for educational offerings
Bank of America Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, jumbo loans, doctor loans and the Affordable Loan Solution mortgage
Terms
15 – 30 years
Credit needed
Not disclosed
Minimum down payment
0% if moving forward with a VA loan; 3% if moving forward with the Affordable Loan Solution mortgage
Pros
Offers a wide variety of loans to suit an array of customer needs
Offers an Edu-Series for educating first-time homebuyers as well as other learning resources and materials
Online and in-person service available
Fixed-rate and adjustable-rate mortgages offered
Reduced cost of mortgage insurance
Cons
Doesn’t offer USDA loans
Who’s this for? Bank of America stands out for its first-time homebuyer educational resources. Aside from home loan calculators, which are typical for mortgage lenders to provide on their websites, Bank of America has an online “Edu-Series” for first-time home buyers. There are also guides on its website that break down key terms and a list of FAQs geared toward first-time home buyers.
Bank of America also offers a variety of loan options, including a home loan for medical professionals. With this loan, doctors, dentists, residents and fellows can make down payment minimums that are tiered based on the size of the loan they’re applying for. They’ll put down at least 3% on mortgages up to $850,000, at least 5% on mortgages up to $1 million, at least 10% down on mortgages up to $1.5 million and at least 15% down on mortgages to $2 million. If you’re a medical professional, Bank of America will also exclude your student loan debt from your total debt when you’re applying for the loan. This could bring down your debt-to-income ratio for the purposes of applying for the loan and make it easier for you to qualify.
Even if you aren’t a qualifying medical professional, you can still potentially take advantage of tiered down payment terms through the Affordable Loan Solution mortgage option. With this loan, eligible borrowers can make a down payment as low as 3% on loan amounts up to $726,200, and as low as 5% on mortgages up to $1,089,300. Mortgage insurance would be required if making down payments lower than 20%, but according to Bank of America’s website, the mortgage insurance would come at a reduced cost compared to that of other conventional loans.
Best for lower credit scores
Rocket Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
8 – 29 years, including 15-year and 30-year terms
Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
Minimum down payment
3.5% if moving forward with an FHA loan
Pros
Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
Can get pre-qualified in minutes
Rocket Mortgage app for easy access to your account
Cons
Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
Doesn’t offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
Doesn’t manage accounts for jumbo loans after closing
Who’s this for? First-time homebuyers tend to be younger and may not have a long credit history, which can make it harder to qualify for a good mortgage rate. Rocket Mortgage stands here because it accepts applicants with credit scores as low as 580. The lender also has a program called the Fresh Start program that’s aimed at helping potential applicants boost their credit score before applying.
Rocket Mortgage offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn’t offer construction loans (if you want to build a brand new custom home) or HELOCs, but if you’re a homebuyer who only plans to purchase a single-family home, a second home, or a condo that’s already on the market, this shouldn’t be a drawback for you.
This lender offers flexible loan repayment terms that range from 8 – 29 years in addition to standard 15-year and 30-year terms.
Best for no lender fees
Ally Bank Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, HomeReady loan and Jumbo loans
Terms
15 – 30 years
Credit needed
Minimum down payment
3% if moving forward with a HomeReady loan
Pros
Ally HomeReady loan allows for a slightly smaller downpayment at 3%
Pre-approval in just three minutes
Available in all 50 U.S. states
Online support available
Doesn’t charge lender fees
Cons
Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs
Who’s this for? Ally Bank doesn’t charge any application fee, origination fee, processing fee or underwriting fees. These are what’s collectively known as “lender fees” and they can cost you anywhere from a few hundred to a few thousand dollars, and eat into the money you put aside for buying your home. When you’re a first-time home buyer, going through the process as affordably as possible is often top-of-mind, so saving on these fees will let you keep more of your money for other things, like renovations or moving costs.
Keep in mind, though, that Ally Bank may still charge appraisal fees and recording fees and may charge for the title search and insurance. As long as you have all the necessary documents handy and submit complete and accurate information, you can get pre-approved for a loan in as little as three minutes online and submit your application in just 15 minutes.
Best for no PMI
CitiMortgage®
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
15 – 30 years
Credit needed
Minimum down payment
Terms apply.
Pros
Citi’s HomeRun Mortgage program allows for a downpayment as low as 3%
Citi’s Lender Assistance program gives eligible homebuyers a credit of up to $5,000 to use toward closing costs
Ability to choose between fixed-rate and adjustable-rate mortgages
New and existing Citi bank customers can qualify for closing cost discounts based on their account balance
HomeRun mortgage program allows for a downpayment of less than 20% without PMI
Provides homeownership education and counseling
Cons
No options for a 0% downpayment
Existing customers need high account balances to receive some of the highest interest rate discounts
Who’s this for? CitiMortgage gives homebuyers a chance to save big-time by waiving the PMI (private mortgage insurance) requirement on loans with down payments below 20%. This can be done by applying for a mortgage through Citi’s HomeRun program, which also allows for down payments as low as 3%.
PMI is typically a required monthly charge with other home loans if you make a down payment of 20% or less. But PMI can cost you tens of thousands of dollars extra over the entire life of the loan. The money you save from not paying PMI could potentially go towards saving for a second property, a home renovation, or any other financial goal you have. HomeRun mortgages also allow borrowers to lock in a fixed rate on their mortgage so they won’t have to worry about their rate increasing down the line.
FAQs
How do mortgages work?
A mortgage is a type of loan you can use to purchase a home. This agreement essentially says you can purchase a home without paying for it in full, upfront — you’ll just need to put some of the money down — usually between 3% and 20% of the home price — and pay smaller, fixed monthly payments over a certain number of years, plus interest and potentially other charges. Having a mortgage allows you to own the property even if you don’t have the hundreds of thousands of dollars in cash needed to purchase it outright.
What is a conventional loan?
A conventional loan is a home loan that’s funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s a very common loan type and some lenders may require a down payment as low as 3% or 5%.
What is an FHA loan?
A Federal Housing Administration loan, or FHA loan, is a loan program that has some slightly looser requirements. For example, this loan program may allow some borrowers to be approved for a loan with a lower credit score or be able to get away with having a higher debt-to-income ratio. You’ll typically only need to make a 3.5% down payment with this type of loan.
What is a USDA loan?
A USDA loan is offered through the United States Department of Agriculture and is aimed at borrowers who want to purchase a home in a qualifying rural area. USDA loans don’t require a minimum down payment, so borrowers can use this loan to purchase a home for almost no money upfront (you’ll still likely pay fees, though).
What is a VA loan?
VA mortgage loans are provided through the U.S. Department of Veterans Affairs and are meant for service members, veterans and their spouses. They typically require a 0% down payment and borrowers don’t have to pay private mortgage insurance.
What is a jumbo loan?
A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Jumbo loans usually have stricter credit score and debt-to-income ratio requirements, and they also typically require a larger minimum down payment.
How is my mortgage rate decided?
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. However, your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.
Be sure to submit the necessary information for more personalized rate estimates from your desired lender.
What is the difference between a 15- and 30-year term?
A 15-year mortgage gives homeowners 15 years to pay it off in fixed, equal amounts plus interest, while a 30-year mortgage gives homeowners 30 years to pay it off. Monthly payments are generally lower with a 30-year mortgage since you’ll have a longer period of time to pay off the loan. However, you’ll wind up paying more in interest over the life of the loan since it is charged on a monthly basis. A 15-year mortgage, on the other hand, lets you save on interest but you’ll likely have to make a higher monthly payment.
How does private mortgage insurance (PMI) work?
Lenders charge private mortgage insurance (PMI) to protect themselves in the event that a borrower defaults on their loan. PMI is assessed to your account if you choose to make a down payment of less than 20%. You’ll be responsible for paying this in addition to your monthly mortgage payments.
However, you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.
Bottom line
If you need to take out a mortgage to purchase your first home, you have options. Certain mortgage lenders stand out for first-time homebuyers by considering applicants with lower credit scores, offering lower down payments and providing useful educational resources.
Keep in mind that mortgage interest rates fluctuate often and the rate you receive will vary depending on your location, credit score and credit report. While lenders may post general interest rate ranges on their websites, the best way to get a more accurate estimate of your rate is to provide the necessary information to check your rate.
Our methodology
To determine which mortgage lenders are the best for first-time homebuyers, CNBC Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best mortgages, we focused on the following features:
Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property.
Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.
Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances in which a particular lender does.
Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early.
Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches.
Customer support: Every mortgage lender on our list provides customer service via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount.
After reviewing the above features, we sorted our recommendations by best for loan variety, educational offerings, lower redit scores, no lender fees and no PMI.
Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee the interest rate and monthly payment remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
The FHFA determines the conforming loan limit each year, basing it on the average U.S. home value over the past four quarters.
They utilize their own Federal Housing Finance Agency House Price Index (FHFA HPI®) to determine how much home prices have risen in the preceding 12 months.
This captures home price movement from the third quarter of 2021 to the third quarter of 2022.
Their latest HPI found that property values had risen 12.21% over the past four quarters, which allowed them to raise the conforming loan limit by the same amount.
As such, home buyers and those looking to refinance will be able to get a mortgage backed by Fannie Mae or Freddie Mac (conforming loan) as large as $726,200 for a one-unit property.
Typically, conforming loans are easier to qualify for than jumbo loans, those which exceed the conforming loan limits.
Additionally, mortgage rates are often lower on conforming loans, though lately it’s been a bit mixed due to adverse conditions in the secondary market.
We’re actually lucky the conforming loan limit for 2023 rose as much as it did, as home prices have decelerated immensely.
Despite experiencing positive annual appreciation each quarter since the start of 2012, home values were up just 0.1% in the third quarter from a quarter earlier.
That meant the 12.21% increase was significantly lower than the 18% increase in loan limits seen a year prior.
And the way things are going, we could see a negative number in the fourth quarter from the third.
As noted, the high-cost loan limits are, well, even higher, exceeding $1 million for the first time ever.
This means existing homeowners and prospective home buyers in places like Los Angeles, the Bay Area, New York City, and even Park City will be able to obtain Fannie/Freddie-backed mortgages for seven figures.
Specifically, the new ceiling loan limit for one-unit properties in these areas will be $1,089,300, which is 150 percent of the 2023 baseline limit of $726,200.
And if we’re talking about a four-unit investment property, loan amounts can exceed $2 million, which is bonkers.
Additionally, in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the baseline loan limit matches the high-cost loan limit of $1,089,300 for one-unit properties.
The FHFA noted that because of rising home values, the loan limits will be higher next year in all but two U.S. counties or county equivalents.
Prior to this announcement, several mortgage lenders increased their conforming loan limit in anticipation of the higher loan limits.
For example, the nation’s top mortgage lender, Rocket Mortgage, began accepting loan amounts as high as $715,000 back in September via their wholesale division Rocket Pro TPO.
And the nation’s new top mortgage lender (as of the third quarter of 2022), United Wholesale Mortgage, did the same shortly thereafter.
It appears they played it safe, knowing home price appreciation would be sufficient to keep their speculative loan limits below the official ones.
PacWest Bancorp agreed to sell its Civic Financial Services unit to real estate lending firm Roc360, as the regional bank seeks to bolster liquidity following turmoil among its peers.
Roc360 has purchased the origination assets of Civic Financial, the New York-based firm said in a statement Tuesday. Excluded from the sale are previously originated, loans and loan servicing operations.
Civic Financial, which PacWest acquired in early 2021, specializes in so-called residential business-purpose loans, or mortgages explicitly made for a borrower’s investment property. Civic has lent more than $9.4 billion through its borrower-direct, broker, and correspondent channels since 2014, according to the statement.
Representatives for Beverly Hills-based PacWest didn’t immediately respond to a request for comment placed outside business hours. The Wall Street Journal reported the news earlier, citing Maksim Stavinsky, Roc360’s co-founder and president.
PacWest rose as much as 9.8% in premarket trading on Wednesday. Shares of PacWest are up 29% this week through Tuesday after it agreed to sell a $2.6 billion portfolio of real estate construction loans although the stock is still down 68% so far this year.
Hello! Here’s an awesome post from my friend Emma. As you know, we recently downsized and we now live in our RV. Life is awesome!
In August of 2015, we returned from 15 months of travel through Mexico and Europe with our young son.
We saved hard throughout my pregnancy and were able to fund 15 months of travel with our savings.
However, eventually our savings ran out and we had to go home. Although the savings account was decimated, my attitude to life was completely altered.
I was hooked and wanted to make travel a core part of my everyday lifestyle. I came up with a slightly crazy goal of chasing the summer around the world, traveling for months at a time – between hemispheres, across oceans. Cruise ships. Train travel. Driving an RV across the US.
Wherever we wanted to go.
I knew we’d have to make huge changes to our life to pull it off but I was determined. Not only would we need to drastically reduce our expenses, we also had to build a business that was online so we could work on our own terms – and get paid regardless of where we were in the world. However, after time away from the workforce our retirement savings had suffered and we were moving back to a large mortgage which required a stable paycheck. Returning to an office job, whilst putting our son in daycare, in order to pay a large mortgage sounded like the complete opposite of my dream.
Not one to easily accept defeat, I kept thinking and reflecting. The solution came whilst my husband and I were discussing our return home over a cafe con leche in Spain. We always assumed we’d move back into the large bungalow we’d lived in before departing for our trip. The bungalow was rented out whilst we traveled and all of our belongings were in storage. However, after almost a year of living out of suitcases the thought of unpacking all of our stuff was overwhelming.
We knew that we could live a simpler life, as we’d been very happy traveling with minimal possessions.
We own a smaller, 2 bedroom 860 sq/ft townhouse that was purchased as a rental investment property. I suggested to my husband that we could move to the smaller property and keep the renters in the larger house. After all, the smaller house was still bigger than almost every hotel room and vacation rental we had stayed in.
After some number crunching, we decided to try living smaller and we’ve discovered it suits our lifestyle perfectly.
Here’s why:
Drastically reduced expenses
All of our core bills have been slashed – we now have a lower monthly mortgage payment, lower property taxes, and much lower utility bills.
This combined with increased income from rent on the larger house nets us over $1000 per month. That means we can afford to maintain our lifestyle on my husband’s income, allowing me the financial breathing room to build the business without the pressure of needing to bring in an income right away.
Related: How To Live On One Income
Potential Airbnb rental
One of the ways we plan to fund our travels is by renting out our house on Airbnb when we travel.
An older, larger house in the suburbs isn’t as appealing to guests as a more compact and well-serviced property, close to public transit and beaches. The house will need a full renovation – including a new kitchen, bathroom and dining room conversion – to be up to vacation rental standard but the work is not super-urgent. We can live with it until my business is bringing in more income.
Reduced cleaning time
Any person will tell you that trying to get stuff done – like build a business – with small children around is difficult. I want to spend nap time working on my business, not cleaning up.
Thankfully, I can now vacuum 80% of my house from one socket. We only have one (teeny tiny) bathroom to clean. Less time cleaning means more time working on my business. Saving time is as important as saving money for me right now.
Forced minimalism
We’ve actively decluttered by reducing our belongings down to the essentials and those which give us joy. It’s a work in progress but eventually, we hope to get to the stage where our personal belongings are able to be packed up in a day – and stored securely – so we could take off travelling and leave just the core essentials for Airbnb guests.
I’m committed to donating one bag of items to charity and listing one item of value for sale online each week. So far, I’ve made over $200 getting rid of stuff we don’t need.
Better neighborhood
Often smaller accommodation is found in more densely populated areas with better local services. This is certainly the case for us. We purchased the smaller property for $30,000 less than the cost of our larger suburban property.
Our new neighborhood is close to all amenities and is an employment centre with a lot of manufacturing and services. We have everything we need within walking distance which means we walk a lot. To the supermarket, the playground, preschool. This saves money on gas and other car expenses and is better for our health.
No long commute
We targeted the surrounding area when hunting for jobs for my husband and were successful in finding a position a ten minute bike ride away.
This is great because he gets home sooner which gives me more time to work on the business while he wrangles the boys. Plus, we can remain a one-car family which helps to keep our expenses down.
Our dream life is now within reach
I have a dream of chasing the sun around the world. That means we’d like to be able to travel internationally for at least three months of every year.
With two adults and two kids to pay for we require a travel fund of approximately $15,000 per year. To make that happen, we need to create a location-independent business and have our house generate income whilst we travel.
By downsizing our house and slashing our expenses, we’ve been able to align our financial reality with our dreams. I’m so excited to put this plan in motion and I’m hopeful a lifetime full of travel will be worth the tradeoff of having to share my (only) bathroom with three boys for the next 18 years.
Author bio: Emma Healey is a mother of two. She writes about living well in small spaces with kids on her blog Little House, Lovely Home.
Are you interested in downsizing? Why or why not? How much money could it save you?
I know there is something about a mosquito, an albino, and “feeling stupid” but, to be honest, I have no idea what the lyrics in “Smells Like Teen Spirit” even mean.
However, the nonsensical lyrics and simplistic melody didn’t stop Kurt Cobain and his grunge band Nirvana from creating one of the most memorable songs of the century, dominating the airwaves when it was released in 1991 and only increasing in popularity over the past twenty years. Wikipedia even calls the song “one of the greatest rock songs of all time.”
While I don’t understand the meaning of the song, every time I hear it I think of one thing: my retirement.
Let me explain.
Living Like A Rock Star
Immediately after marrying the girl of my dreams, I began looking to buy a home. Neither my wife nor I made a lot of money but we had decided that it would be cheaper for us to buy a home than to rent (and far better than living with family.) We began to look at our options and discovered a small duplex that was in our price range. This property consisted of two separate homes crammed onto one small lot. We bought the property, cleaned up both homes, moved into the small one-bedroom home in the back, and put a renter in the home in the front.
Soon after our tenants complained of “flashes of light” coming through their front windows. I thought nothing of it.
Several years went by and various tenants moved in and out. I heard the same story several times and assumed the flashes were the county or the city doing some kind of analysis. Finally one day the tenants got a knock at the door and opened it to several tall, blonde Swedish tourists.
They wanted a tour of Kurt Cobain’s house.
I knew Kurt Cobain was originally from my city (Aberdeen, Wa) but little did I know – my duplex was actually his first home. I discovered later that Cobain had actually lived in both homes, moving from one house to the other during the first year of his life. His parents moved again to a new location before Cobain was even two years old – but his brief residency at the two homes was enough to put my little duplex on the tourist route of those looking for a glimpse of Cobain’s past.
Despite the cool background story- the “Cobain connection” is not my favorite part about that duplex.
It get’s better.
“What could be better than a rock star living at your home?” you ask!
…well, a lot of things.
Jesus
A new Star Wars movie
“DoubleStuf” Oreos
Kittens
You get the point. It’s not that great compared to a lot of things.
However, what I’m talking about is the freedom that duplex provided.
Starting Out Is Hard
Life is expensive and your first few jobs probably don’t pay a lot. Sure, there are a lot of great tips for saving money, but most tips don’t make rent any cheaper or help you earn much more money.
However, buying that duplex did both.
The total cost of the duplex was $80,000.00. With a 3.5% down payment through the FHA loan program (well, it was 3% at the time) the total down payment was just under $3,000 and our monthly payment (including all expenses) was just $600.00 per month. The front home rented for $600.00 per month.
Free living!
My wife and I now lived in our own home for absolutely free. Granted, I needed to fix things when they broke and I had to learn the ins and outs of being a landlord – but we were living for free.
A year later we moved again to a different home (purchased a larger home just one block away) but we still owned the duplex. We simply rented the back house out for $500 per month and now that duplex creates positive income each and every month. Sure, there are maintenance issues that come up every so often (which I usually hire out) and I’m not going to say I always love being a landlord – but starting out with a duplex was one of the best decisions I have ever made.
The Benefits Of A Duplex
I’m not one of those gurus who is going to tell you buying a house is the best thing for you to do.
In reality – buying a home is not right for everyone.
I’ve purchased a lot of properties over the past several years (including single-family homes, multifamily properties, and even an apartment complex) and I spend a lot of time teaching people how to invest in real estate and buy their first home – I recognize that this isn’t the right path for all. I love real estate and especially in the financial leverage real estate has for investments – but others might hate the idea of investing in any type of real estate.
However, if you’ve weighed the options and believe that home ownership is a path you want to pursue, buying a duplex is an excellent option for your consideration. Let me explain a few reasons why:
Easy to Qualify For: Qualifying for a small multifamily property (duplex, triplex, and 4-plex) is exactly the same as trying to qualify for a single family home. You can often times get into a property like this for as little as 3.5% down payment using the FHA loan program. The FHA even has programs that will allow you include “rehab” money into the loan so you can fix it up nice. Additionally, some banks allow you to use the income you’ll be receiving from rent to help you qualify for the loan.
More Money: Obviously, if you “buy smart” – your duplex can provide extra cash to help pay the mortgage, cover you during hard times, or even live for free. This is also an excellent way to pay down your mortgage faster (by applying the rent payment toward paying down your loan.)
Less Risk: One of the most significant benefits of having multiple units is the decreased risk you have of losing your home if something bad happens to your income situation. This benefit increases if you buy a triplex or a four-plex, as the risk is more diversified.
On the Job Training: If you are considering using real estate as part of your future investment strategy, a duplex that you live in can be a great way to learn how to effectively manage rental property. Being a landlord is not always fun, but 80% of the hassle can be eliminated by simply buying smart and managing effectively. Most “burned out” landlords I know became so by treating their rentals as a relaxed hobby rather than a business. By starting small, you will learn how to grow your investment portfolio in a smart, scalable way that won’t make you hate your life as an investor.
Jump Start for your Financial Future: Chances are you don’t want to live in a duplex for very long. However, your first home is seldom the home you stay in. By purchasing a duplex with a long term, fixed rate mortgage (the only type of mortgage you should ever get) you are able to control that property for the rest of your life. Because the property is your personal home, you get to take advantage of the incredibly low interest rates for your primary residence – which translates to low monthly payments that stay the same while rent climbs higher year after year. Purchasing a duplex can be an excellent jump-start to your retirement planning, even if that event is years away.
You Don’t Need To Be A Rock Star To Buy A Duplex
As I said before, owning property is not for everyone. However, making your first home a duplex (or other small multifamily property) can be extremely advantageous for you and your financial future. Not every duplex (or even most) are worth buying, but finding a good deal using math that makes sense is the key to success in real estate. I highly encourage you to take a look at some duplexes if you are itching to buy a home. It might be the difference between success and just wishing for a home. The “Cobain Duplex” is not my favorite investment property because of it’s unique history – it’s my favorite because of the financial helping hand this home gave me when starting out and continues to give me every month.
Have you considered buying a duplex? I’d love to hear your thoughts (positive or negative) on making a duplex your first property or any other real estate questions or comments you might have. Please leave me a comment below and let’s talk about it!
Brandon Turner is an active Real Estate Investor, Entrepreneur, World Traveler, Guitar Player, and Husband. He is located in Grays Harbor, Washington and enjoys finding killer Real Estate deals, leading worship at his local Calvary Chapel, bonfires on the beach, backpacking Europe, and speaking in third person. If you’d like to get a free copy of “7 Years to 7 Figure Wealth,” Brandon’s first eBook and personal manifesto regarding the quickest and most stable way to financial freedom through real estate, please visit his website at www.RealEstateInYourTwenties.com.
Inside: This guide will teach you about the different factors you need to consider when purchasing a home with a 70k salary.
There are a lot of factors to consider when you’re trying to figure out how much house you can afford. Your income, your debts, your down payment, and the interest rate on your mortgage all play a role in determining how much house you can afford.
Your situation will be different than the person next-door or your co-coworker.
Making 70000 a year is a great salary. You are making the median salary in the United States.
It’s enough to comfortably afford most homes and gives you plenty of room to save money each month.
But how much house can you actually afford?
It depends on several factors, including your down payment, interest rate, income, and credit score.
In this ultimate guide, we’ll walk you through everything you need to know about how much house you can afford making 70000 a year.
how much house can i afford on 70k
In general, you can expect to spend 28-36% of your income on housing.
Generally speaking, if you make $70,000 a year, you can afford a house between $226,000 and $380,000.
How much mortgage on 70k salary?
In general, you should expect to spend no more than 28% of your monthly income on a mortgage payment.
Thus, you can spend approximately$1633-2100 a month on a mortgage.
Just remember this is relative to the interest rate, term length of the loan, down payment, and other factors.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
28/36 Rule
But there’s one factor that trumps all the others: The 28/36 rule.
Also known as the debt-to-income (DTI) ratio.
The 28/36 rule is a guideline that says that your housing costs (mortgage payments, property taxes, homeowners insurance, and HOA fees) should not exceed 28% of your gross monthly income.
And your total debt (housing costs plus any other debts you have, like car payments or credit card bills) should not exceed 36% of your gross monthly income.
You must follow the 28/36 rule.
How to calculate how much mortgage you can afford?
If you’re like most people, you probably don’t know how to calculate how much mortgage you can afford.
This is actually a really important question that you need to ask yourself before beginning the home-buying process.
The answer will help determine the price range of homes you should be looking at. Plus know how much money you’ll need to save for a down payment.
Step #1: Check Interest Rates
Research current mortgage rates to get an accurate estimate. You can also check your credit score and search for average mortgage rates based on your credit score.
Right now, with sky-high inflation, you are unable to afford a bigger house when interest rates are hovering around 6% compared to ultra-low interest rates of 2.5%.
With a 70k salary, this can be the difference between $50-100k on the total mortgage amount you can afford.
Step #2: Use a Mortgage Calculator
Use a mortgage calculator to get an estimate of the home price you can afford based on your income, debt profile, and down payment.
Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the “Front-End” or “Housing Expense” ratio). Then, limit your total allowable debt-to-income ratio (called the “Back-End” ratio) to not more than 36%.
You can use a mortgage calculator to a ballpark range of what house you can afford.
Step #3: Taxes, Insurance, and PMI
When planning for a home purchase, it’s important to factor in all of your monthly expenses, including taxes, insurance, and PMI.
This will ensure that you get an accurate estimate of your home-buying budget based on your household annual income.
Don’t forget to include these payments to get a realistic understanding of your monthly budget.
Step #4: Remember your Living Expenses
When considering how much house you can afford based on your $70,000 salary, you must consider your lifestyle and current expenses.
It is important to factor in other monthly expenses such as cell phone and internet bills, utilities, insurance costs, and other bills.
More than likely, you will be approved for a higher mortgage amount than you would feel comfortable with. This is 100% what lenders will do.
They want to provide you with the most you can afford – not what you should afford.
Step #5: Get prequalified
Prequalifying for a mortgage is an important first step to take when estimating how much house you can afford.
It gives you a more precise figure to work with and helps you make a more informed decision based on your personal situation.
Remember that your final amount will vary depending on a number of factors, especially your interest rate, which will be based on your credit score.
Taking the time to research current mortgage rates helps you secure a better mortgage rate, giving you more buying power.
Home Buying by Down Payment
How much house can you afford?
It’s a common question among home buyers — especially first-time home buyers. Use this table to figure out how much house you can reasonably afford given your salary and other monthly obligations.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 4% interest rate.
Annual Income
Downpayment
Monthly Payment
How Much House Can I Afford?
$70,000
$9,552 (3%)
$1,750
$318,412
$70,000
$16,215 (5%)
$1,750
$324,316
$70,000
$34,058 (10%)
$1,750
$340,581
$70,000
$53,573 (15%)
$1,750
$357,152
$70,000
$75,094 (20%)
$1,750
$375,468
$70,000
$98,933 (25%)
$1,750
$395,731
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Mortgage on 70k Salary Based on Monthly Payment and Interest Rate
How much house can you afford on a $70,000 salary?
This largely depends on the current interest rate of the mortgage loan you’re considering. When interest rates are high, people aren’t actively buying as when interest rates are low.
By understanding these factors, you can better gauge how much house you can afford on a $70,000 salary.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 20% downpayment.
Annual Income
Monthly Payment
Interest Rate
How Much House Can I Afford?
$70,000
$1,750
3.25%
$406,796
$70,000
$1,750
3.5%
$396,231
$70,000
$1,750
3.75%
$386,101
$70,000
$1,750
4%
$375,994
$70,000
$1,750
4.5%
$357,554
$70,000
$1,750
5%
$339,954
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Home Affordability Calculator by Debt-to-Income Ratio
Around here at Money Bliss, we always stress that debt will hold you back.
In the case of buying a house, debt increases your DTI ratio.
Here is a glimpse at what monthly debt can cause your debt-to-income (DTI) ratio to increase. Thus, making the house you want to buy to be more difficult.
Annual Income
Monthly Payment
Monthly Debt
How Much House Can I Afford?
$70,000
$2,100
$0
$440,085
$70,000
$1,900
$200
$404,584
$70,000
$1,800
$300
$382,334
$70,000
$1,600
$500
$337,883
$70,000
$1,350
$750
$282,208
$70,000
$1,100
$1000
$226,582
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Increase your Home Buying Budget
Here are a few ways you can increase your home buying budget when buying a house on a $70k annual income.
By following these steps, you can increase your home buying budget and find a more suitable house for your income.
1. Pick a Cheaper Home
Home prices vary significantly in different parts of the country.
Moving out of a major metropolitan area with notoriously high housing costs can help you find more affordable homes.
There are plenty of ways to find a home that is cheaper than you would normally expect.
Look for homes that are for sale in less desirable neighborhoods.
Find homes that are for sale by owner or have not been listed yet.
Check for homes that are for sale outside of your usual price range and haven’t sold as they may drop their price.
Move to a lower cost of living area.
2. Increase Your Down Payment Savings
A larger down payment can reduce the amount you have to finance, which lowers your monthly payment.
Plus help you get a lower interest rate and avoid paying PMI.
Putting down at least 10-20 percent of the home sale price can help boost your home buying power. You can also take advantage of down payment assistance programs in your area.
3. Pay Down Your Existing Debt
Paying down your debts such as credit card debts or auto loans can help raise your maximum home loan.
Paying down your debts can help you qualify for a higher loan amount.
This is because when you have lower amounts of debt, your credit score is higher and your debt-to-income ratio is less. This means you are less likely to be rejected for a home loan.
4. Improve Your Credit Score
A higher credit score can lead to lower rates and more affordable payments.
You can improve your credit score by:
Paying your bills on time
Paying down your credit card balances
Avoiding opening new credit before applying for a mortgage
Disputing any errors on your credit report
This is very true! We had an unfortunate debt that wasn’t ours added to our credit report right before closing. While the debt was an error, it still cost us a higher interest rate and forced us to refinance once the credit report was fixed.
5. Increase Your Income
Asking for a raise, seeking a higher-paid position, or starting a side gig can help you increase the amount of home you can afford.
While you need two years of income from a side gig or your own online business to count as income, the extra cash earned helps you to increase the size of your downpayment. Plus it lowers your debt-to-income ratio with the savings you are setting aside.
What factors should you consider when deciding how much you can afford for a mortgage?
How much house can you afford on your current salary and with your current monthly debts?
This is a question that we are often asked, and it’s one that we love to answer.
We’ll walk you through all the different factors that go into this decision so that you can make an informed choice.
1. Loan amount
The loan amount is a key factor that affects the total cost of a mortgage.
If you have no outstanding debt, a 20% down payment, a high credit score, and a 3.5% interest rate from an FHA loan, you could be able to afford up to $508,000.
However, if you have debt, a smaller down payment, or a lower credit score, the loan amount you can qualify for will be lower.
Similarly, if you choose a 15-year fixed-rate loan, your monthly payments will be higher, but you will end up paying less in interest over the life of the loan than with a 30-year fixed-rate loan.
Ultimately, your loan amount will affect the total cost of your mortgage, so it’s important to consider all the factors when making your decision.
2. Mortgage Interest rate
Mortgage interest rates can have a significant impact on the cost of a mortgage. The higher the interest rate, the more expensive the loan will be.
For example, a difference between a 3% and 4% interest rate on a $300,000 mortgage is more than $150 on the monthly payment.
Remember, in the first few years of a mortgage, the majority of the payment goes toward interest rather than trying to reduce the principal amount.
3. Type of Mortgage
The primary difference between a fixed and variable mortgage is the interest rate and the amount of your payment
Fixed-rate mortgages offer the stability of having the same interest rate for the life of the loan.
Adjustable-rate mortgages (ARMs) come with lower interest rates to start, but those rates can change over the life of the loan. ARMs are often a riskier choice, as if the economy falters, the interest rate can go up.
Fixed-rate loans are typically the most popular choice, as the monthly payment amount is more predictable and easier to budget for. The terms of a fixed-rate loan can range from 10 to 30 years, depending on the lender.
Adjustable-rate mortgages (ARMs) have interest rates that can increase or decrease annually based on an index plus a margin. ARMs are typically more attractive to borrowers who plan on staying in the home for a shorter period of time, as the lower initial interest rate can make the payments more manageable.
The Money Bliss recommendation is to choose a 15-year fixed-rate mortgage.
4. Property value
Property value can have a direct effect on how much you can afford for a mortgage.
As the value of the property increases, so does the amount of money you will need to borrow to purchase it. This, in turn, affects the monthly payments and the amount of interest you will pay over the life of the loan.
This is especially important as many people have been priced out of the market with the rising home prices.
Additionally, higher property values can mean higher taxes, which will add to the amount you need to budget for your mortgage payments.
5. Homeowner insurance
Homeowner’s insurance is a requirement when securing a loan and it can vary depending on the value and location of the home.
Additionally, certain areas that are prone to natural disasters or are located in densely populated areas may have higher premiums than other locations and may require additional insurance like flood insurance.
As a result, lenders typically require that you purchase homeowners insurance in order to secure a loan, and may have specific requirements for the type or amount of coverage that you need to purchase.
Before committing to a mortgage, it is important to consider the cost of homeowner’s insurance and make sure it fits into your budget.
This is something you do not want to skimp on as the cost to replace a home is very expensive.
6. Property taxes
Property taxes are calculated based on the value of a home and the tax rate of the city or county where the property resides.
The higher the property taxes, the more you will have to pay in your monthly mortgage payment.
In states with high property taxes, the property tax bill can be a large sum of the mortgage payment.
It is important to consider these costs when comparing different homes and locations to ensure you can afford the home without stretching your budget too thin.
7. Home repairs and maintenance
It’s important to also consider other factors such as the age of the house, since some properties may require renovation and repairs that can cost more than the house price itself.
Beyond the cost of purchasing a home, homeowners will likely have other expenses related to owning and maintaining the property.
Also, many homeowners prefer to do significant upgrades to the home before moving in, which comes at an additional expense.
These can include ordinary expenses such as painting, taking care of a lawn, fixing appliances, and cleaning living spaces, which can add up.
Additionally, it’s advisable to buy a home that falls in the middle of your price range to ensure you have some extra money for unexpected costs, such as repairs and maintenance.
8. HOA or Homeowners Association Maintenance
This is often an overlooked factor by many new homebuyers, but extremely important as some HOAs add $500-800 per month to the total housing budget.
The purpose of a homeowners association (HOA) is to establish a set of rules and regulations for residents to follow as well as maintain the community or building.
These fees are typically used to pay for maintenance, amenities, landscaping, and concierge services.
HOA fees are used to finance community upkeep, including landscaping and joint space development, and can range from $100 to over $1,000 per month, depending on the amenities in the association.
9. Utility bills
When switching from renting to buying a home, you will have to factor in the costs of your monthly utility bills such as electricity, natural gas, water, garbage and recycling, cable TV, internet, and cell phone when calculating how much mortgage you can afford.
In addition, the larger the home, the higher the costs to heat and cool your new home.
Make sure to ask your realtor for previous utility bills on the property you are interested in.
10. Private Mortgage Insurance
The purpose of private mortgage insurance (PMI) is to protect the lender in the event of foreclosure. It is typically required when a borrower is unable to make a 20% down payment on a home purchase.
PMI allows borrowers to purchase a home with less upfront capital, but also comes with additional monthly costs that are added to the mortgage payment. These fees range from 0.5% to 2.5% of the loan’s value annually and are based on the amount of money put down.
PMI can also be canceled or refinanced once the borrower has achieved 20% equity in the home or when the outstanding loan amount reaches 80% of the home’s purchase price.
11. Moving costs
Moving is expensive, but also a pain to do. So, consider the moving costs associated with relocating from one location to another.
Typically fees for packing, transportation, and possibly storage, and can vary depending on the size of the move and the distance the move needs to cover.
Also, consider if by buying a home, you will stop having moving costs associated with moving from rental to rental.
FAQ
When determining how much house you can afford, it’s important to consider several factors.
These include your income, existing debts, interest rates, credit history, credit score, monthly debt, monthly expenses, utilities, groceries, down payment, loan options (such as FHA or VA loans), and location (which affects the interest rate and property tax). Also, think about the costs of maintaining or renovating a home.
Additionally, you should also evaluate your own budget and assess whether now is the right time to purchase a home. Taking all of these factors into account can help you set the maximum limit on what you can realistically afford.
A mortgage calculator can help you determine your home affordability by providing an estimate of the home price you can afford based on your income, debt profile, and down payment.
It works by inputting your annual income and estimated mortgage rate, which then calculates the maximum amount of money you’re able to spend on a house and the expected monthly payment.
Additionally, different methods are available to factor in your debt-to-income ratio or your proposed housing budget, allowing you to get a more accurate estimate of your home buying budget.
The debt-to-income ratio or DTI is used by lenders to assess a borrower’s ability to make mortgage payments.
This ratio is calculated by taking the total of all of a borrower’s monthly recurring debts (including mortgage payments) and dividing it by the borrower’s monthly pre-tax household income.
A high DTI ratio indicates that the borrower’s debt is high relative to income, and could reduce the amount of loan they are qualified to receive.
Generally, lenders prefer a DTI of 36% or less, which allows borrowers to qualify for better interest rates on their mortgages.
To calculate their DTI, borrowers should include debt such as credit card payments, car loans, student and other loans, along with housing expenses. It is important to note that the DTI does not include other monthly expenses such as groceries, gas, or current rent payments.
Closing costs can have an enormous impact on how much home you’re able to afford.
From application fees and down payments to attorney costs and credit report fees, these costs can add up quickly and affect your overall budget. Unfortunately, most of these closing costs are non-negotiable, but you can ask the seller to pay them.
When buying a house, it is important to research the different mortgage options available to you.
You can typically choose between a conventional loan that is guaranteed by a private lender or banking institution, or a government-backed loan. Depending on your monthly payment and down payment availability, you may be able to select between a 15-year or a 30-year loan.
A conventional loan typically offers better interest rates and payment flexibility.
While a government-backed loan may be more lenient with its credit and down payment requirements.
For veterans or first-time home buyers, there may be special mortgage options available to them.
Ultimately, it is important to talk to a lender to see which loan type is best for your personal circumstances.
When it comes to saving for a down payment, it’s important to understand how much you’ll need and how much it will affect your budget.
Generally, you’ll need 20% of the cost of the home for a conventional mortgage and 25% for an investment property. When you put down more money, it gives you more buying power and may help you negotiate a lower interest rate.
For example, if you’re buying a $300,000 house, you’ll need a down payment of $60,000 for a conventional mortgage. On the other hand, if you put down 10%, you can still afford a $395,557 house. But, you will have to pay for private mortgage insurance.
In addition, there are other ways to help you cover these upfront costs. You can look into down payment assistance programs.
Ultimately, the size of your down payment will depend on your budget and financial goals. You should never deplete your savings account just to make a larger down payment. It’s important to factor in emergency funds and other expenses when deciding on the best option.
Eligibility requirements for loan lenders can vary, but in general, lenders are looking for borrowers with a good credit score, a reliable income, and a history of employment or income stability.
For most loan types, borrowers will need to show a history of two consecutive years of employment in order to qualify. However, lenders may be more flexible if the borrower is just beginning their career or if they are self-employed and do not have W2 forms and official pay stubs.
Income verification also needs to be done “on paper”, meaning that cash tips that do not appear on pay stubs or W2s can not be used as income. The lender will look at the household’s average pre-tax income over a two-year period before determining the amount that can be borrowed.
In order to make sure that the borrower is financially secure, lenders will also pull the borrower’s credit report and base their pre-approval on the credit score and debt-to-income ratio. Employment verification may also be done.
For certain government-backed loan types, such as FHA, VA, and USDA loans, there may be additional or different requirements for eligibility. For instance, for FHA loans, the borrower must intend to use the home as a primary residence and live in it within two months after closing. VA loans are more lenient, and may not require a down payment.
The qualifications for VA loans vary based on the period and amount of time the borrower has served. There are many ways to qualify, whether the borrower is a veteran, active duty service member, reservist, or member of the National Guard. For more information on eligibility requirements for VA loans, borrowers can visit the U.S. Department of Veteran Affairs.
A good credit score will mean you have access to more lending options, better interest rates, and more purchasing power.
On the other hand, a poor credit score could mean you are approved for a loan, but at a higher interest rate and with a smaller house.
This means your budget will be more limited and you may not be able to buy as much home as you had hoped for. Additionally, lenders will also look at other factors, such as your debt-to-income ratio, employment history, and loan term, in order to determine your overall affordability.
What House Can I Afford on 70k a year?
As a borrower, you need to consider the interest rate, down payment, credit score, debt-to-income ratio, employment history, and loan term when determining how much house you can afford.
A higher credit score can often mean a lower interest rate, and a larger down payment can bring down the monthly payments.
All of these factors can have an effect on the amount of money you can borrow and the home you can afford.
Ultimately, understanding the impact of different factors can help borrowers make the best decisions when it comes to getting a mortgage.
Now that you know how much house you can afford, it’s time to start saving for a down payment.
The sooner you start saving, the sooner you’ll be able to move into your dream home. But you may have to wait if you are considering a mansion.
By taking into consideration this guide into account, you can make a more informed decision about the cost of a mortgage for your new home.
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The lack of housing inventory – a major pain point for real estate agents and loan officers – is an issue that Mark Cohen, principal owner of Cohen Financial Group, also sees in the upper end of the Southern California market.
The $1 million to $4 million homes market is very competitive, and qualified borrowers are having a hard time finding homes. However, there’s an oversupply of Inventory for homes priced $5 million plus, Cohen said in an interview with HousingWire.
“It’s a two-story housing market in Southern California,” Cohen said.
Cohen funded $751.4 million in loan volume in 2022, which led to him being the second-ranked loan originator of the year, Scotsman Guide’s rankings showed. Cohen trailed behind Guaranteed Rate‘s Shant Banosian, who originated $925 million during the same period. He was the number one mortgage broker and the loan officer with the most non-QM origination volume, according to Scotsman Guide.
Among mortgage brokers, Cohen ranked first.
While there are fewer move-up buyers now compared to the pandemic years, Cohen noted the uniqueness of the Southern California housing market, in that people tend to move more frequently compared to other states as they accumulate wealth.
“Here in LA, if you make money, you have your starter home, and if you make more money in the next few years, three, four or five years, you go to a bigger house. It’s not like in the Midwest or in other areas where you are in the house for the next 30 years. (…) There’s a lot of upward movement in LA. That’s why the market is so brisk,” Cohen said.
Read on to learn more about the two sides of the Southern California housing market and how Cohen stays competitive.
This interview has been condensed and lightly edited for clarity.
Connie Kim:California – as well as the rest of the country – is experiencing issues from a serious lack of inventory. I’m curious what the situation has been for the high-end markets you target.
Mark Cohen: I think inventories are improving a little bit just from what I’ve seen the last four, five, six days. But there are many clients, who are well qualified, trying to buy houses. For the most part, it’s the $3 million and under category. Anywhere from about $1 million to $4 million, the market is very, very competitive.
It’s a two-sided market here. Once you get over the $5 million threshold, there’s this oversupply, and the psychology of property tax is having a real negative effect on the market. I think there were only two or three sales last month in LA County over $5 million.
However, you’ll see isolated sales too. Beyonce and Jay Z bought a $200 million house in Malibu recently, so you’re going to see things like that. But as a general rule, the $5 million to $10 million market is off.
Kim: You also do a lot of non-QM loans. Who are your main borrowers?
Cohen: Executives, it’s probably a mix of 50/50. There’s a whole bevy of people here in Los Angeles that are self employed, who have good jobs, good businesses, but they don’t show everything they make on their tax returns. That’s where non-QM comes into play. The rates for those loans are pretty aggressively priced in comparison to the bank rates like JP Morgan Chase and Bank of America.
The rates – depending on the loan-to-value and credit score – are only about half to three-quarter points higher, which is really tangible. So it opens up a whole new avenue for people who fall within that category.
Half the clients go to the traditional banks where we can show tax returns.
Kim: If you have a lot of so-called wealthy borrowers, I would assume a lot would be interested in investment properties. How much of your sales is investment properties versus first-time homebuyers?
Cohen: I also do heavy work in the entertainment business in Southern California. I have several dozen business managers, money managers that I do work with. I would say maybe 10 to 15% of the deals are investment property deals.
A lot of first time buyers [actually], which is good because they’re not used to having 3% mortgages. They’re not going to be sensitive to the rate differentials.
Here in LA, if you make money, you have your starter home, and if you make more money in the next few years — three, four or five years — you go to a bigger house.
It’s not like in the Midwest or in other areas where you are in the house for the next 30 years. It doesn’t really work that way. In most situations, especially with young couples, they get married, have a kid and they need more rooms, assuming they’re doing well. So there’s a lot of upward movement in LA. That’s why the market is so brisk.
Kim: That’s really interesting. It’s quite the opposite from other areas, where people in different states are not moving, thus creating an inventory lock-down.
Cohen: It’s held back to a degree. I’m not saying it’s overly buoyant, but a lot of people really need more rooms when you have a kid. A lot of people I work with make money and there’s a lot of money in upward mobility.
Kim: So are they less impacted by the higher rates compared to about three years ago?
Cohen: Everybody is impacted. But we get the best deliverable rates – rates are in the 5s. So yeah, they’re less impacted. They’d rather pay more with the idea that at some point in time, which will occur in the next six to 12 months, rates will be lower. We’ll have the window to refinance the house.
Kim:What does your product mix look like?
Cohen: With the yield curve where it is, if you’re going to do a bank loan, it’s pretty much all 30-year fixed rate loans or 10-year adjustable-rate mortgages (ARMs).I’m doing a lot of HELOCs. Refinances are maybe 10% of business here from where it used to be at around 40, 50%.
I do have one brokerage house that if you have a million dollars net worth with them, rates are in the high 4s or low 5s. Lower loan-to-value, so I do have some good rates, but that’s going to be for more affluent people.
Kim: What helped you become the top producing broker in 2022? Does Cohen Financial Group have proprietary tech or are sales mostly coming from referrals?
Cohen: I’ve been in the business for 36 years, and it helps obviously knowing people and constantly following through. It’s the same thing in any business: doing the right things.
I’ve got very strong resources in banks and private banks, and on the non-QMs. I’m very picky with who I work with in terms of banks, because the worst thing to do is to get in situations where you don’t have control over the deals.
Kim: There’s a forecast that the 30-year fixed rates will drop lower in the second half of the year. Do you think it will be a better year for you compared to 2022?
Cohen: To maintain this to the best I can and hopefully achieve the same numbers. Obviously the more the better, but I’ve got no control. Just to do the right thing, get good execution and keep my relationships going with people, which I always work on.