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Docs You Need for A Mortgage

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photo by LaurMG

HSH.com quoted me in The Documents You Need To Apply for a Mortgage. It opens,

When it comes time to apply for a mortgage in 2016, you might be surprised at how much documentation you’ll need when applying for a home loan.

J.D. Crowe, president of Southeast Mortgage in Lawrenceville, Georgia, says most of the documentation should be familiar to you if you have applied for a mortgage loan in the last five years. If you’re new to the mortgage market this year, he says, this is all new.

The new Qualified Mortgage rules that took effect on January 10, 2014 make this paperwork even more important. To meet the new Qualified Mortgage rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments.

David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., says that while the documentation requirements under the new Qualified Mortgage rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements for the most part.

“These are really common-sense rules,” Reiss says. “The new rules say that mortgage lenders are no longer allowed to throw out the common-sense standards of lending money during boom times, when they might be tempted to overlook long-term financial goals for quick profits. If the rules help that happen, they’ll be a good thing.”

Best Time to Sign a Lease

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photo by Beth Kanter

The Allstate Blog quoted me in What’s the Best Time of Year to Sign a Lease? It opens,

There is no way around it — apartment hunting can be stressful. And the cost of rent can be quite expensive — even outpacing average U.S. salary increases. According to the National Association of Realtors, the cost of rent rose an average of 15 percent while renters’ income only rose 11 percent from 2009 to 2014. However with some planning and negotiating, you may be able to have some more money in your pocket at the end of each month.

Similar to how you can pay more for a winter jacket in October than May, rental rates often vary throughout the year. By planning your move and signing lease terms to help position your next move during the lower rental rate season, you may end up saving some money. 

Research the Demand in Your Area

Just like most things, supply and demand determines prices in the rental market. Not surprisingly, you may get a better deal on renting when demand for condos or apartments are at their lowest. However, if you live in a tight rental market, your choices could be very limited. “In most areas the slow rental season is typically late fall through winter since less people move during this time,” says Scot J. Haislip, vice president, national lease program at the National Apartment Association (NAA).

It is important to understand the rental market you’re looking to move into since rental patterns can vary based on where you live. David Reiss, director of Community Development Clinic in New York City and professor at Brooklyn Law School, specializing in real estate and community development recommends contacting several local brokers to get their perspective on the slower rental periods in your area of interest. He also cautions that some high demand areas, such as New York City or Chicago, currently do not have a slower period for rentals.

Smart Negotiation

Even during the winter months, most landlords are not going to simply hand over a discount — you have to work for it by negotiating with your prospective landlord. Before you broach the subject of price, do your homework by picking up the phone or researching online to compare similar units at the current time. Reiss suggests that you consider asking for a decrease in your monthly rent or a period of free rent.

Salary Needed for a House in 27 Cities

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HSH.com has posted a study to answer the question — How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area? The study opens,

HSH.com took the National Association of Realtors’ fourth-quarter data for median-home prices and HSH.com’s fourth-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home — the principal, interest, taxes and insurance — in 27 metro areas.

We used standard 28 percent “front-end” debt ratios and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. We’ve incorporated available information on property taxes and homeowner’s insurance costs to more accurately reflect the income needed in a given market. Read more about the methodology and inputs on the final slide of this slideshow.

The theme during the fourth quarter was increased affordability.

Home prices declined from the third to the fourth quarter in all of the metro areas on our list but one. But on a year-over-year basis, home prices have continued to trend upward.

“Home prices in metro areas throughout the country continue to show solid price growth, up 25 percent over the past three years on average,” said Lawrence Yun, NAR chief economist.

Along with affordable home prices, mortgage rates fell across the board which caused the required salaries for our metro areas to decline (again, except for one).

“Low interest rates helped preserve affordability last quarter, but it’ll take stronger income gains and more housing supply to help meet the pent-up demand for buying,” said Yun.

On a national scale, with 20 percent down, a buyer would need to earn a salary of $48,603.82 to afford the median-priced home. However, it’s possible to buy a home with less than a 20 percent down payment. Of course, the larger loan amount when financing 90 percent of the property price, plus the need for Private Mortgage Insurance (PMI), raises the income needed considerably. In the national example above, a purchase of a median-priced home with only 10 percent down (and including the cost of PMI) increases the income needed to $56,140.44 – just over $7,500 more.

This sounds like a pretty reasonable methodology, but there are a lot of assumptions built into the ultimate conclusions. They are generally conservative assumptions — buyers will get a 30 year fixed rate mortgage instead of an ARM, buyers will have 28% debt ratios. I would have liked to see some accounting for location affordability, because transportation costs can vary quite a bit among metro areas, but you can’t have everything.

As always, I am particularly interested in NYC, the 24th most expensive of the 27 cities.  NYC requires an income of $87,535.60 to buy a median home for  $390,000. By way of of contrast, the cheapest metro is Pittsburgh, which requires an income of $31,716.32 to buy a median home for $135,000 and the most expensive was San Francisco, which requires an income of $142,448.33 to buy a median home for $742,900.