Archive for April 15th, 2012

How to Purchase 20% more Home while Keeping your Budget in Check

Posted on April 15, 2012. Filed under: First Time Buyer help |

In Today’s market environment rates are at an all time low, but the problem is they are not so easy to qualify for. In addition to needing great credit, solid income, and work history, you’ll also need to bring in up to 20% down in order to avoid paying mortgage insurance.

What happens generally is when mortgage insurance is introduced the buyer will lose a lot of their ability to qualify because the “added,” monthly payment robs your opportunity to have purchased the “extra home.”

At 5% down payment, 700 FICO credit score, single family home the rates are below for mortgage insurance options.

The monthly insurance quote returned 4 other options also to compare, along with the priciest, FHA financing. We’ll discuss the other options soon.

FHA is a great option to achieve home ownership, although for most, the standard conventional financing with mortgage insurance option will be better. For in depth information about the in’s and out’s of FHA financing contact me, Click Here or contact me below.

The above estimate shows monthly mortgage insurance to be $260 a month which represents approximately $45,000 in terms of sales price that a buyer can qualify for. A buyer who elects for the monthly MI route will have to lower their qualification letter by $45,000 which could mean less bedrooms, bathrooms, or a completely different neighborhood!

Using a well structured offer, great advice, hard work, and dedication from your real estate professional you’ll be able to instead qualify for up to $45,000 more in home while keeping your monthly budget the same. For a referral of a real estate professional who is well versed in these strategies contact me, Click Here or contact me below.

One of the best options is the use of Single Premium Mortgage (option #2 above in chart) insurance which is quoted above at $9600. Instead of paying monthly mortgage insurance companies allow a premium that is front loaded or up front at the time of the transaction. This can be very expensive because $9600 is a large up front cash out lay to pay in order to get rid of the $260 monthly payment. A quick analysis suggests that $9600 single premium divided by $260 monthly premium would break even in about 37 months or 3 years. So if you’re going to live in the home for 3 years or longer then you’ll be better off going with the single premium if the funds can be acquired at the time of purchase. The money per month that would have been used to pay MI monthly would then be used to purchase more home, up to $45,000 more in sales price.

The main problem I encounter is just that, finding the cash needed.

Solution #1 is structuring the offer to include a concession from the seller for the amount of money needed to cover the single premium. This would allow a buyer to put 5% down, eliminate the monthly MI, obtain about $45,000 more in home and still keep the budget where it would have been if they had monthly MI.

Solution #2 is structuring the financing to side with an increased rate to pay for the $9600 single premium. By increasing the rate a credit or rebate is generated and its this “money,” that is used to pay for the single premium which is sent to a third party mortgage insurance company who insures the loan up to a specified amount of loss. The downside with this strategy is that yes, you’ll get rid of the $260 dollar a month payment, but the higher rate causes the payment to go up and offsets your full potential gain of $260 so as a result instead of qualifying for an additional $45,000 you may only get a fraction of this, 25,000-30,000 more home as an example.

There are many more ways to help you efficiently structure the financing to accomplish a great home buying experience.

Contact me HERE (or look below) and I’d be happy to provide a free consultation.

Albert Bui

Mortgage Planning Specialist

New American Funding – NMLS#345453

Direct – 949-514-5106

Email – Albert@Albertbui.com