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Morgage Payment Question - Convincing the bank I can pay more

Posted by TheCatsMeowth (My Page) on
Wed, Jun 20, 12 at 0:52

Many of the house calculator sites online say that based on my income I only qualify for a $700 morgage, giving me about $150k for a custom built house. While I'm still working out house costs/plans, I'd like to be able to qualify for around $300k or more (approx. cost of the house will likely be around $250k, but I'd like to have some extra just in case I go over budget).

I'm currently paying off the land (which is just under $700 a month). However, most months I find that I'm able to make payments around $2k after expenses. How do I get the bank to see that I can comfortably make a larger payment? Even $1500 a month would give me a significantly larger loan.


Follow-Up Postings:

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RE: Morgage Payment Question - Convincing the bank I can pay more

Not gonna happen. Save the extra money and have more to put down. That alone will allow you to build a more expensive house. No bank will EVER lend you more money than their guidelines say that you can afford. And if you were really thinking in your right mind here, you wouldn't want them to.


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RE: Morgage Payment Question - Convincing the bank I can pay more

You will have cost overruns on building...that's a given. Going in over your head is NOT a good idea. Just ask all the people who are currently underwater on their mortgages or are losing their homes to foreclosure.

Using that extra money to pay down the loan on the property will also reduce your interest costs, then you will soon have enough additional credit to build your house.

Live Wire Oak is exactly correct.


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RE: Morgage Payment Question - Convincing the bank I can pay more

TheCatsMeowth - Are you basing what you expect to be approved by the bank on online calculators, or on a preapproval by the bank?

Instead of asking us I would go to the bank and get a preapproval so you have a better idea where you stand.


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RE: Morgage Payment Question - Convincing the bank I can pay more

I've found that the online calculators vary from site to site and aren't very accurate. Most lenders can run the numbers pretty quickly if you have all your information readily available.


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RE: Morgage Payment Question - Convincing the bank I can pay more

I'm basing this on bank online calculators, not a preapproval. A few friends of mine have gone to various banks to see how much they would qualify for, only to find out a few months later their the credit score went down because while they went through the preapproval steps, they didn't go through with the loan. I don't know what causes this, but it's some sort of screening effect.


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RE: Morgage Payment Question - Convincing the bank I can pay more

live_wire_oak and AnnieDeighnaugh:

This is my point, I'm no where near over my head. The calculator guidelines don't match my lifestyle/income. I can comfortably afford 3x what the calculators are saying I can afford. Is it unreasonable to believe that I can still afford 2x the calculators estimations and still have plenty of leftover as backup?

Perhaps the better question is how accurate are these online estimators? Done_again says no, but are there any others who have any experiences with these estimators.


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RE: Morgage Payment Question - Convincing the bank I can pay more

TheCatsMeowth to qualify for a loan, total debt including housing payments will generally have to be between 40 percent of income. If you have less other debt, you may be able to get a slightly larger mortgage than you otherwise would but no one is going to lend you money for a mortgage that exceeds 40 percent of your income, regardless of whether you are confident you can pay it.

The only way around this, and it is probably a REALYL bad idea, is to get a co-signer w/ more income (and good credit) to add to the total income available for the bank's calculations.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Perhaps this link will help

Here is a link that might be useful: Mortgage/Income


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RE: Morgage Payment Question - Convincing the bank I can pay more

You might have been able to do that years ago, before the housing crisis, when they would even make "stated income loans" which required no documentation - but no longer. Maybe stop making the extra 2K a month on the property and start saving that for a bigger down? Not sure which would be more advantageous - the lower debt on the land or the higher down on the house.

The banks want you to think about saving for retirement and such also. They just won't let you be "house poor" any more.

Your credit score goes down slightly every time someone makes an inquiry. But, I was told by a lending agency that for screening they could do a "soft" credit check with doesn't do anything to your credit. Not sure whether or not that was true. Lending agents are salespeople after all, and I have an inherent distrust of them.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Doing a pre-approval does not affect your credit score (it does show on your score that you did it though, so best to just pick one bank for now). If that happened to anyone you know, there were also other extenuating factors that led to them not being able to get the loan.

That said, for a construction loan, the bank I am working with does an appraisal on your plans (and thus the lot as well) showing what the value of the house will be once it is constructed. Assuming that your total appraised value is the price of the land + cost to build then whatever equity you have in the land will be considered as part of your downpayment.

Some questions to consider regarding your downpayment (which affects your monthly payments and what the bank will approve you for)
- When do you plan on paying off the lot altogether?
- What do you expect the value of your home to be once it is complete? (Compare to all sales in your area including short sales)
- Is the final payment 40% of your income or less?
- Are you self employed as that gets a bit trickier!


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RE: Morgage Payment Question - Convincing the bank I can pay more

beaglesdoitbetter - 40% of my income would be somewhat of an improvement from the online calculators which I think are calculating 28%.
For construction/morgage loans, is that how a co-signer works? Their income is added into mine to calculate the monthly payment/total loan amount? I have 3 family members that have already volunteered to be co-signers. I know this is typically not recommended to sustain relationships, but I've had excellent experiences with them in the past. One family member helped me pay my way through college and I paid her back immediately after graduation. The others I've loaned money to and had it back within a few months.

beeps - At the moment I'm not actually paying the extra 2k a month on the land, it's just being saved. That way I can collect interest on it until I'm ready to pay it off completely. The loan isn't one that would save interest if I paid more per month, the interest has been added in a flat number for the extent of the loan, so as long as I pay it off early, I still save the interest, but it doesn't make a difference whether I do it in one lump sum or over several months.

My retirement is already being taken care of through auto-deductions at work that I've set up. My payment calculations are based on what I bring home.

Laura12
When do you plan on paying off the lot altogether?
--In about a year (originally a 5 year loan).
What do you expect the value of your home to be once it is complete?
--250k - 300k, however, the area has a wide range and there are a few that are higher and lower, giving me room to work with
Is the final payment 40% of your income or less?
--Do you mean the $700 land payment? If so, it's less than 40% of my income.
Are you self employed?
--Mostly no. I make most of my income through 'normal' means, but do make some supplemental income through Adsense. It's my first year making anything significant through that though and from what I understand, I'll be sent a W-2 at the beginning of the year, so this probably doesn't count as self emplyed.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Given what you outlined I think you should go ahead and get a pre approval and see what they say.

When I asked about the final payment, I meant on the mortgage on the construction loan. If you assume that it will cost 250k to build, and it will be worth 250k when complete then when you will need 20-30% downpayment on the total cost to build, you won't get credit for any equity in your land. Just something to consider.

Also, if the land is paid off the bank will likely assume you can afford a higher payment as your debt to income ratio will go down. For example, if you are paying $700 lot loan now, and it looks like you can afford a $700 mortgage payments then they bank may think you can afford $1400 after it is paid off.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Given what you outlined I think you should go ahead and get a pre approval and see what they say.

When I asked about the final payment, I meant on the mortgage on the construction loan. If you assume that it will cost 250k to build, and it will be worth 250k when complete then when you will need 20-30% downpayment on the total cost to build, you won't get credit for any equity in your land. Just something to consider.

Also, if the land is paid off the bank will likely assume you can afford a higher payment as your debt to income ratio will go down. For example, if you are paying $700 lot loan now, and it looks like you can afford a $700 mortgage payments then they bank may think you can afford $1400 after it is paid off.


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RE: Morgage Payment Question - Convincing the bank I can pay more

If you are putting in your take home pay (minus your auto-paid retirement, etc), you are shorting yourself on the calculators, too... When they say take home pay, they mean take home pay; not what you put in your bank account to spend in a month, but what you could put into your bank account (what doesn't go to the gov't, etc).

That may be part of your problem.

I'd go to a bank/credit union and see what they say you'd qualify for.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Let me add my $.02... Im not a mortgage professional but I have gone through some of this numbers business recently.

If this is your first year to make a decent income, you arent going to qualify for what you think. They will want a 2 year average on tax returns and the current year to date. So, if you made $40k in 2010 and $60k in 2011, you will have an average income of $50k (add in your year to date to the average).

Take that average income and they want the house payment to be between 28-32% of your income. That is house payment ONLY. This usually doesnt include your property taxes. Property taxes will reduce your income that you qualify even more.

Also, your TOTAL monthly expenditures cant be more than 40% of your income. That includes your $700 property payment, car payments, student loan payments, credit card payments, etc.

The best thing you can do is pay off the land before you try and qualify. That will add the $700/month towards your available income. The land value can usually be counted as a downpayment on the land. So if you have $100k in land, then your build is $250k for a combined total of $350k, your land value could be used as 28% equity into the finished house and avoid PMI.

Im in your same type situation. Graduated college summer last year and finally have a decent income. Well, I will have to wait until after tax season next year to get the home loan I want. But by then, my property will be paid off and I will have 40% equity in the land.


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RE: Morgage Payment Question - Convincing the bank I can pay more

It's pretty simple, actually. The banks use specific calculations to determine your ability to pay back a loan. If you follow the directions properly, most of the better calculators online are pretty accurate. There's no way to get around this basic calculation...it is just the way the mortgages are underwritten, especially nowadays.

It's just an odd situation. Are you living off ramen noodles, driving a 1980 beater, and living with parents? The standard calculations for mortgage afford ability take into account other costs of living...I think that long term it would be unsustainable that your only bill is a mortgage?

If I were you I would save more for a down payment and enjoy the fact that you are not struggling and living paycheck to paycheck.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Thanks for all the great advice! I'll be calling a bank soon to get some numbers and find out how they deal with land (counting it as equity/downpayment or not) to determine what the best way to go about this would be. I still have at least year, possibly two years, before I'd like to start building, so I have a good amount of time to save and plan (and design of course)!


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RE: Morgage Payment Question - Convincing the bank I can pay more

Just keep in mind, a big part of whether the land will be considered equity is what the value of the house will be once it is built. If you spend $250,000 to build and it is appraised at $400,000 then you'll have $150,000 of equity in the land.


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RE: Morgage Payment Question - Convincing the bank I can pay more

all the mortgage calculators I've seen ask for you GROSS monthly wages BEFORE taxes are taken out. We just went thru the process and got preapproved and it was based on GROSS wages and we got a percentage of credit based on investments like 401K accounts, etc.... Bank of America and Chase Bank both have those. I'm in Texas so I'm not sure if those requirements are different from state to state though.


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RE: Morgage Payment Question - Convincing the bank I can pay more

Most mortgages end up sold into the secondary market, mainly Freddie and Fannie.

THEY set the underwriting rules.

Only a bank that plans on holding the note itself has any flexibility, and there are very few of those.


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