Vail Daily column: New down payment and income rules may impact locals
If you are a local looking to buy a place soon, and are amongst the well-meaning but down-payment challenged group, then you might want to get busy and get going. The rules for many mortgage loan programs are changing Nov. 15 in regards to down payments.
And if you are amongst those hard-working folks who are slightly income impaired, you can score a two-for-one goal because income guidelines are about to get tighter on Jan. 1.
Currently, it is possible to get a conventional mortgage (meaning a Fannie Mae or Freddie Mac loan) with as little as 3 percent down. That means on a $300,000 house you can get in the door with as little as $9,000 down, plus your closing costs.
Come Nov. 15, you will have to put 5 percent down payment, meaning that on a $300,000 purchase you will have to put $15,000 down, plus your closing costs.
In addition, you can qualify with up to a 45-50 percent debt to income ratio. This means that your house payment, taxes, insurance, mortgage insurance and minimum monthly payments can add up to between 45 and 50 percent of your pre-tax gross income.
Starting Jan. 1, 2015, most loans will be limited to 43 percent debt to income, with no room for exceptions, period. If you are one penny over the 43% limit, your loan application is toast.
Here’s how this shakes out on a $300,000 purchase. (Assuming you have no other debts, and that your taxes, insurance and mortgage insurance totaled $500/month.)
If you get a loan approval by Nov. 15, you could borrow 97 percent of the price, or $291,000, and qualify with an income of about $3,942 per month if you have perfect credit, the day is sunny and the wind calm (well, not really, but it seems like that’s the criteria the lenders use some days, anyway).
If you get an approval after Nov. 15, you could only borrow $285,000, and it would take an income of about $4,520 per month to qualify. That’s $578 per month more income and $6,000 more on the down payment.
You only need to get a house under contract and your application approved by Nov. 15, but you don’t have to close by then.
There are other options out there if you can’t get something done by Nov. 15. FHA loans are still available and require 3.5 percent down. In this case, you would have to bring a $7,750 down payment, meaning you would borrow $292,500. We don’t know for sure what the debt-ratio limits will be, but expect 43 percent.
In addition, FHA also has monthly mortgage insurance that is about $40 per month higher than a conventional 97 percent loan, and a one-time, up-front fee that either costs you 1.75 percent of the loan amount ($5,118.75) or you can usually pay a quarter percent higher rate and get it rolled into the rate. The good news is that FHA rates are a bit lower than conventional rates but you would need to make about $4,646 per month to qualify. That makes this harder to qualify for than a conventional loan, but after Nov. 15, a 3 percent down conventional loan will not exist.
The last option for the down-payment impaired would be a USDA loan, which can go to 100 percent loan-to-value, but requires a debt ratio of 41 percent. There is an income cap on how much an applicant can make as well.
Both FHA and USDA loans have one important limitation as well if you are buying a condo. There are only a couple of condo projects in Eagle County that are approved for these loans, so check with your lender for the latest list as it does change occasionally.
Getting the right loan program is a complex path, and you will be well-served by making sure you are dealing with a qualified originator who knows the territory.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage inquiries from readers.
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