Q. I am in my early 20s and have been at my current job for 3 years now. I make $57,500 a year plus bonuses (usually around $2,500 per year) and have $15,000 in savings for a down payment. I have young but good credit, in the low to mid 700s with oldest line of credit opened 3 years ago. My questions are: can I get approved for a home mortgage loan, how much would I likely be approved for, and how much is reasonable to spend on a property at this point in time? I work near the Spectrum mall in Orange County and would want to be located somewhere within a 20-minute drive.
Thank you for your feedback.
A. This is not a substitute for selecting a lender and getting them to get you a pre-approval letter. I will take a rough cut at it, however, making assumptions about Homeowners Association dues, taxes, and PMI. You are borderline qualified for a loan of about $265,000, which would mean that you could buy a home of about $280,000 in value. Again, you need to sit down with a professional with your documentation and run it through Fannie Mae’s Automated Underwriting System.
Your limiting factor is going to be cash as you are just a bit short. It will be important that you save all that you can to make sure that you have enough. Here’s a hint. Have the seller pay your non-recurring closing costs. Say that’s $5,000. He will want you to pay $5,000 more for the home but that is all perfectly legal and above-board. That way you can devote all your cash to down payment and reserves.
Q. I just bought a house in April. I got 5% fixed for 30 years with a Fannie Mae loan. Am I eligible to refinance to a lower rate? How much will it cost to switch? Is it worth it?
A . The measure of whether a refinance is worth it or not is how quickly you get back the costs of the refinance. That depends largely on the size of the loan. The fixed costs of title and escrow, processing, appraisal are almost the same regardless of loan size. If you have a $400,000 loan, it would make sense. But if it’s only $200,000, it would take longer to recoup the costs.
You need to contact a lender to see what the actual numbers might be in your case. If you can recoup all costs in less than four years, then it makes sense.