Did you ever sit in front of a mortgage broker and listen to her ramble on endlessly about your ratios? Let’s see, your front ratio is Blah … your back end ratio is Blah … and based on Blah, I can qualify you for Blah, and Blah, Blah … Blah! Well, what on earth are they talking about? This ratio talk is all about assessing the lender’s potential risk BEFORE loaning YOU money. Essentially it’s one of the lender’s deciding factors in saying YES to your loan application.

The elements of risk in loan underwriting are items that assess whether or not 1) you CAN pay the lender back 2) you WILL pay the lender back, and 3) what happens if you DON’T pay your lender back. When factoring in these items, the underwriting team analyzes your debt ratios to make sure they conform to their ’standards’. This generally paints a picture for them … a pretty picture of you. OK Joe … what does this all mean?

What is a debt ratio? Well, in lending terms it expresses a percentage value of your monthly bills divided by your gross monthly income. There are specifically two distinct debt ratios. The first one is referred to as the housing or ‘front’ ratio, and the second total, back, or ‘back-end’ ratio. The front debt ratio is computed by dividing your house payment by your gross monthly income. Let me throw an example your way. If you have a house payment of $500 (we can dream, can’t we?) and your monthly income is $2,500 a month (back to reality!), your front ratio (or housing ratio) is 20.

Hey, but what about all my other debts?? Hold on, we’re getting there. Now it’s time to add up everything else for the second ratio. Simply stated, any other debts that in essence show up on your credit report, (added to your ‘front’ ratio) equals your ‘back end’ ratio. Debt such as minimum credit card payments, auto loans, education loans, and any other loan obligation that you are expected to pay back are combined to calculate the ‘back-end’. Oh, almost forgot … although items such as alimony do not show up on your credit report, that gets added in as well. Let’s throw a back-end example at you as well. Let’s say you have a auto payment of $350 and a minimum credit card payment of $75. Adding these figures gives you $425 which is added to the $500, giving you a grand total of $925 of total debt. If you divide your total of debt of $925 by your gross monthly income of $2500, you ‘back-end’ ratio is 37% … or simply 37. How does your lender translate all this? Simply stated, you ratios are 20/37.

I hope this all made sense. If you ever have any questions about your loan, especially during the application process, a good and responsible direct lender or mortgage broker should always be available to answer these questions for you. Knowledge is power, and it simply makes you more confident going forward in your real estate transaction. Enough debt talk. Blog-on my friends, blog-on!

Posted in: Debt, General, Mortgage Financing | Comments(0)

Joe DiMeo is on …

I just wanted to announce that I am now on LinkedIn! As I embark on my quest to expand my online presence, I figured I’d start with one of the basic social networking sites around. Click on the link above and join my community of friends and colleagues. Hope to see you there! Keep blogging!

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One of the most common questions I am asked by both buyers and sellers, is whether or not they “REALLY” need to use an attorney for their real estate transaction. My response is an affirmative “YES”. Now trust me, I understand we all want and need to save money, especially in the midst of the gargantuan debt load brought on by a home purchase, but don’t lose sight of the fact that making such a huge purchase is accompanied by potential risks, and one risk that hits home with buyers especially, is LOSING their deposit money.

You’re probably asking yourself, “Well, doesn’t my real estate agent look after me?”. Of course! Yes … well … maybe? If you’re working with a reputable agent, he or she will make sure you ‘generally’ understand everything you sign and that the deal is structured in such a way as to minimize any potential for risk, but your real estate agent is NOT the person to give you a final OK on what you are signing. Your agent is only a fraction of the team of professionals you should have working as part of your team. Your real estate agent cannot and should not make legal recommendations. Let’s look at that statement once again , change it to the first person, add a little bold type and an exclamation point for emphasis … repeat after me … My real estate agent cannot and should not make legal recommendations! All of the documents you sign are ‘legal’ documents. These documents require the careful review of an attorney.

Having an attorney who is aware of your situation from beginning to end can prove extremely useful for those deal-shattering issues that pop out of nowhere. I’ve had a few clients who specifically chose not to use an attorney, and on one occasion, something major happened and they turned to me for advice. There was not one thing I could do for them but direct them to an attorney. Of course the attorney got involved in the middle of the deal, not knowing the history of the transaction, and did the best he could to get the deal back together again. Luckily things worked out for them, but it doesn’t always happen that way.

Well, using the services of a real estate attorney is a VERY important aspect of the real estate transaction process. The attorney can be your legal safety net in a game that involves hundred of thousands of dollars. It’s really that simple!

Posted in: Buying a House, Real Estate Law | Comments(0)

If you are budget conscious and are always on the lookout for ways to save money, I have an article that may give you some good ideas:

Click Here to View Article

I appear 3-4 times in this article and the author, Elaine Appleton Grant, and she is quite a fun writer. I hope you enjoy it and find it helpful!

Chris Grande        www.chrisgrande.com

Posted in: Budgeting, Personal Finances | Comments(0)