House may now fit your budget
With home values in Imperial County areas declining, the market is providing an opportunity for many local residents to become homeowners, meaning they can now purchase homes that previously may have been out of reach. With this increased affordability, Imperial Valley families can now purchase homes with more square footage, buy in desirable neighborhoods, and be closer to amenities important to them.
In Imperial County, California, the media price of an existing home declined to $175,000 in December 2008, down 28.6% from December 2007 when the median price of an existing home was $245,000.
The average interest rate for 30-year, fixed rate mortgages was 5.01% for the weekend ending January 8, 2009 according to Freddie-Mac. Lower interest rates together with lower home prices can lead to more affordable mortgage payments, which allow some home buyers to move up, and it allows first-time buyers to get into the market.
To qualify for record low interest rates, borrowers will need at down payment of 3.50% if utilizing an FHA loan or 20% for a conventional loan. A strong FICO score is required for conventional lending however FHA government loans also want a better credit score than in previous years. The difference between down payments for the two loan programs can definately stifle the decision to buy a home. An FHA loan requires $6,125 down payment for the median price home in Imperial County, while the conventional loan requires $35,000, making cash resources a must in todays environment for many home buyers. Additionally, home buyers may have to pay for closing costs not paid for by the seller.
The large number of foreclosures in Imperial County is also providing an opportunity to purchase a home a very good price. However, some foreclosed homes may be in disrepair and require additional work to make the property livable. A program offered by the Federal Housing Administration (FHA), the 203(k) loan allows home buyers to borrower as much as $35,000 more than the mortgage to pay for certain renovations and upgrades, such as new carpet, paint, and appliances that a foreclosed home may need.
To calculate how much house is affordable, consider the following basic calculations. Remember, these are only guidelines to use in helping you determine how much home you can afford to buy. Te general rule is not to use more than 28% to 30% of your monthly GROSS income to cover the monthly mortgage payment, including property taxes and homeowners insurance. All debts combined, including the mortgage, credit cards, car payments, student loans, personal loans, etc should be less than 41% of your gross income.
How much would your monthly payment be and how much income do you need to qualify to buy a single family home in Imperial County California with a median price of $175,000? Let's break it down...please note these calculations are examples only and your situation may be different
Determining Loan Amount
A home with a sales price of $175,000 would require a down payment of 3.50% or a total of $6,125 using an FHA loan. Assuming you have good credit, your Upfront Mortgage Insurance Premium or UFMIP would be 1.50% which can be financed and is added to the loan amount. Calculate $175,000 minus $6,125 = $168,875. Add the UFMIP of $2,533 to $168,875 for a total LOAN AMOUNT of $171,408. Are you with me so far? Don't worry if you aren't, your mortgage professional or loan officer will guide you through all of these details.
Monthly Loan Payment
Now that we have calculated our LOAN AMOUNT of $171,408, lets determine our monthly mortgage payment. To keep things simple, we'll use a mortgage interest rate of 5.50%. By using a mortgage calculator for a 30-year fixed rate mortgage, the monthly payment is $973.23 without including property taxes or insurance.
Monthly Property Taxes
Property taxes are estimated at 1.25/thousand so if you multiply the sales price of $175,000 by 1.25%, you will calculate $2,187.50 for this estimate or $182.29 per month.
The Imperial County Assessors office will provide you with the adjusted property taxes based on their estimate of value, which may be different than your sales price or appraisal. In reality, property taxes are typically lower than this rate, however if you live in an area with a Community Facility District (CFD) or Mello-Roos, you will pay an additional amount for your property taxes. Check with the Imperial County Assessors office to determine if the home you are buying is located in one of these special assessment areas.
Monthly Homeowners Insurance
Homeowners Insurance is what protects your home against loss or damage. Since you don't technically own the home, the bank does, they are the beneficiary since you owe the bank money for the home in the form of a mortgage called a "note". Homeowners insurance premiums vary by insurance company provider however for our example we will say our insurance costs are $600 per year, or $50.00 per month.
Monthly Mortgage Insurance (MIP)
Lastly since you only put 3.50% down and the bank is taking on a much larger risk, there is another form of insurance associated with an FHA loan. The insurance is called the Monthly Mortgage Insurance Premium or MMIP and some often refer to the insurance is PMI, however PMI is a company brand name which means Private Mortgage Insurance, commonly used with conventional loan financing. The calculation will take the LOAN AMOUNT and multiply it by a factor which is determined by different criteria. For this example, we'll use an MMIP of .55% or a total of $942.74 or $78.56 per month.
Total Mortgage Payment - Putting it all together
To figure out your total monthly mortgage payment including the loan, taxes and insurances, you will have to add up the numbers in bold in the previous sections. Luckily for you, I added them up for you here:
$972.23 Principal & Interest
$182.29 Property Tax
$ 50.00 Homeowners Insurance
$ 78.56 Mortgage Insurance Premium
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$1,283.08 TOTAL
Affordability?
Applying our rules we learned earlier in this article where our mortgage payment should not go over 28% to 30% of our gross income means we would need to have an income of $4,276.93 per month and we would need to keep our other debts at no more than about $450.00 per month to keep within these guidelines. The annual gross income required would be approximately $51,323 per year in order to qualify for the home and existing debts.
By becoming educated in the process, learning how to correct wrong items on your credit report can go a long way to helping you get the home you want and need. Ask me about affordable legal credit report repair for about $1.30 a day or learn how get your FICO score up by as much as 75 points or more in a short time, usually within 30 to 45 days.
How about taking a look at some of the houses for sale in todays market? I can show you the way home. Ask me for details today.
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