Category: Your Money

When a property is bought, financed or sold, a record of that transaction is generally filed in the public records. Likewise, records of other events that may affect the ownership of a property, such as liens or levies, are also recorded.

Title insurance is a type of insurance that covers potential damages from errors in public ownership records of your property.

Typically, title insurance is purchased when a property is financed. A title insurance policy covers either the property owner or mortgage lender, but you’ll usually need to pay for both types as part of your real estate closing costs.

Title insurance will protect you if someone tries to claim ownership of your property or seeks payment from an unpaid lien. The title insurer will be responsible for fighting that battle for you and paying any money that may be owed.

Title Insurance Protects You From:

• Previous unreported liens on the property
• Forged transfers of ownership rights in the property
• Unintentional errors in recording or filing of closing documents
• Any title defect that existed prior to the start of your policy

How Much Does Title Insurance Cost?

Mandatory lender’s title insurance will typically cost between $500 and $1,500, based on the state and the amount of your loan.

While optional, homeowner’s title insurance is generally more expensive than lender policies. It may range from $700 to $2,000 on title coverage for yourself. While you are not required to purchase homeowner’s title insurance, the policy never expires and can protect you from title issues that may arise long after you sell the property.

The smart way to shop for your new home! Learn how to calculate how much house you can afford before hitting that open house or applying for a mortgage.

If you’re ready to buy a new home, especially if it’s your first home, you are probably asking yourself- “How much house can I afford?” This probably the question at the top of your list.

I always suggest new buyers think of this question from two different perspectives.

The 1st is simple, “How high of a mortgage will you qualify?” The answer to this question depends on a lot of factors. Some of these factors include your income, existing debts, interest rates, credit history, and your credit score.

The 2nd perspective is a bit more subjective. “How much home do you really need?” Keep in mind that just because you qualify for a certain mortgage amount, doesn’t mean that you should max your home purchase at that amount.

Now, let’s start figuring out some numbers…

The 28% Front-End Ratio

When you submit your home loan application, the lender will look at one very important calculation in particular. This is known as your housing-expense-to-income ratio.

Also called the front-end ratio, your lender will take your projected housing expenses for the home you want to buy and divide by your total monthly income. Generally, mortgage companies are looking for a ratio of 28% or less.

As a basic guide– Let’s say that your income is $10,000 each month. Subject to other factors, you would qualify for a home loan as long as your monthly housing expenses doesn’t exceed $2,800 each month.

Your $2,800 monthly expenses would include your mortgage payment (principal and interest), property taxes, PMI* (if required), and homeowners insurance.

*More on PMI later.

On to the next hurdle…

The 36% Rule

Ok, even if your housing-expense-to-income ratio is 28% or less, you have one more hurdle to clear: the debt-to-income ratio.

This is referred to as the back-end ratio. The back-end ratio takes into account your total monthly minimum debt payments and then divides them by your gross income.

This ratio is used in conjunction with the front-end ratio above, to give lenders an entire view of your financial situation. With these two concepts in mind, they’ll be able to make a clearer determination as to whether or not you’ll be approved for your requested mortgage loan.

Lenders typically are looking for a back-end ratio of no more than 36%, although some will go a bit higher than this.

To relate both the 28% front-end and 36% back-end numbers, here is a chart showing the calculations for three different incomes:

Here’s some examples…

Let’s consider someone with a 150K annual income.

Here are a few condo examples using $400/month in HOA dues and a 3.875% interest rate conventional loan.

450K Condo

500K Condo

525K Condo

Here’s a row house example using a 2.875% interest rate conventional loan.

500K Row House

Questions

We will be happy to answer any questions and help you get started.