How much home can a buyer afford

Posted by Leslie Bauer on Tuesday, December 2nd, 2008 at 11:34pm.

Fixed and ARM rates for loans up to $625k are holding onto the 0.625% drops we saw last week after the Fed said they’d buy $500b in mortgage bonds, and rates on loans from $625k to $1m are down about 0.125%.

Now that it looks like rates might hold for longer than a few days and we know what 2009 loan limits are, let’s look at what this might mean for a borrower looking to buy a condo. (Note: if this was single family home, monthly costs would be lower because insurance replaces HOA dues)

If a borrower put 15% down with $625,500 loan amount, their purchase price could be $735,882. If they paid points to buy the rate down, total cash to close would be $130k, 30yr fixed rate would be 5.125%, and total pre-tax-benefit monthly costs would be $4630.

If a borrower put 20% down with a $625,500 loan amount, their purchase price could be $781,875. If they paid points to buy the rate down, total cash to close would be $176k, 30yr fixed rate would be 5.125%, and total pre-tax-benefit monthly costs would be $4349.

Consider that it’s also possible to get the seller to credit buyer to cover some or all of the points to by the rate down, which would reduce these cash to close estimates.

Right after Black Friday holiday shopping increased 3% over last year on deep discounts, the National Bureau of Economic Research declared that the economy has been in recession since December 2007. No big surprises here. Even Fed Chairman said in February that, although NBER is the official recession caller, recession definitions are “subjective” and recessions are often called “after the fact.” But making it official does have a psychological impact on a holiday shopping season that only has 21 days left.

The big economic news for the week is Friday’s jobs report for November. The economy has lost 1.2m jobs through October, and consensus estimates call for another 300k loss in November—also October and September could be revised.

Remember rates on loans above $1m are based on specific client profiles, and since we’re in the last days of super-conforming to $729k, those rates are also done case-by-case.

Conforming ($200,000 – $417,000) – NO POINTS

30 Year: 5.625%   (5.74% APR)

15 Year: 5.5%   (5.62% APR)

5/1 ARM: 6.375%  (6.49% APR)

Super-Conforming ($417,001 to $625,500 cap by county) – NO POINTS

30 Year: 5.75% (5.86% APR)

Jumbo ($625,500 – $1,000,000) – NO POINTS

30 Year: 7.25%   (7.36% APR)

10/1 ARM: 6.35%   (6.46% APR)

7/1 ARM: 6.05 %   (6.16% APR)

Loans shown have no points, no prepayment penalties.  Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity, and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves). Better rates available for select profiles. Better rates are also available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. Equal Housing Lender.

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