There are 10 mortgage questions that come up most frequently from my home buyer and home seller clients. I figured my blog audience must be equally curious about these questions as well. So, I sat down with a highly acclaimed mortgage specialist, Matthew Keane – Sr VP, Mortgage Lending at Guaranteed Rate, to get the top 10 mortgage questions answered.
Guaranteed Rate is a residential mortgage company founded in 2000 with headquarters in Chicago. It is currently the 10th largest mortgage company in the United States.
ME: When did you start your career as a mortgage broker?
Matt:I started in the mortgage business June of 1996 so I’ve been originating residential mortgage loans for just over 20 years.
ME: What drew you to it?
Matt: The day to day functions differ with each borrower based on credit, income and savings, this makes the job interesting. It’s also rewarding knowing you help people accomplish their goals by either buying a home or restructuring existing debt to lower the monthly obligation. Debt can be stressful, being able to relieve that stress is rewarding.
ME: What is the biggest misconception buyers have about obtaining a mortgage?
Matt: Needing to have 20% to put down to buy your 1st home would be the most common misconception. Prior to me getting into the industry I remember having a conversation with a person that said they finally saved enough money (20%) to put down on a house. He was buying a $350,000 home and I thought to myself to save $70,000 was such an impossible task that I would never get there.
Thankfully options exists in today’s lending markets that make obtaining a home with as little as a 3% down payment a possibility. By having a 3-5%
down payment, 1st time home buyers that could easily afford the monthly payment, have an opportunity to stop paying rent and start building equity in their own home
ME: Will college debt be considered in getting a pre-approval? If so, how does it impact it?
Matt: Yes college debt is considered when qualifying for a mortgage. Specifically the monthly payment regardless if the payment is deferred. When a lender reviews a borrowers income they look at the gross monthly income figure vs the monthly obligated debts for the new mortgage, car loans/leases, credit card payments and student loans. Basically any monthly debt that appears on a credit report will be considered.
For example – a borrower makes $75,000 a year- that monthly gross figure is $6,250. When I run the credit I see that they have $825 in monthly obligations between a car loan, student loan and a credit card bill that has a payment of $100 a month. The new mortgage payment would be $1500 a month with property taxes and insurance included. So we add the $825 + $1500 and come up with $2325 divided by the $6250- that figure puts them at a 37% debt ratio meaning 37% of the gross monthly income would be allocated towards their monthly obligations. Most lending programs allow a debt ratio up to 43-45%.
ME: In general, if a renter is spending the following amounts of money per month, how much mortgage could they afford and what would be the price of a house they could afford:
$2,200 per month –This would equate to purchase price of $350,000 with a 5% down payment and property taxes of $6500 and insurance of $720 a year
$2,500 per month– This would equate to a purchase price of $395,000 with a 5% down payment and property taxes of $8500 and insurance of $720 a year
$3,000 per month –This would apply to purchase price of $475,000 with 5% down and property taxes of $9200 and insurance of $800
$3,500 per month– This would apply to a purchase price of $500,000 with a 10% down payment and property taxes of $13,000 and homeowners insurance of $900 a year
$4,000 per month This would apply to a purchase price of $620,000 with a 10% down payment and property taxes of $16,000 and homeowners insurance of $900 a year
ME: When does it pay to refinance your mortgage?
MATT: When you can get a lower rate or shorten the term. One of the best strategies is to take a 30 year mortgage and after 5 years refinance to a 20 year mortgage. In most scenarios you can shave 5 years off the current mortgage and keep your payment the same. Saving 5 years of mortgage payments just by restructuring your debt is a substantial savings long term
ME: Is an ARM or fixed rate better?
MATT: No one product is better than the next, it all depends on your specific situation. Depending on your long term and short term goals of how long you will see yourself in a specific property will dictate if an ARM product may be better suited for you. Some buyers purchase a home knowing it’s a starter home that they most likely will be moving in 7 years or less. If this is the case looking at an ARM may make sense. Benefiting from a lower rate vs a higher rate that comes with a 30 year fixed rate mortgage will equate to a monthly savings that will add up over the 7 years..
ME: What are the newest products you have that are innovative?
We offer a low down payment program with no monthly PMI ( private mortgage insurance) payment required. This program applies best to loan amounts under $417,000 with a 5, 10 or 15% down payment option. By not having to pay a monthly PMI amount the borrowers monthly mortgage payment is lower and will either allow you to qualify for a higher purchase price or monthly savings by not having to pay the PMI
You can reach Matt at