Rhonda Porter at the aptly named MortgagePorter.com, gives us some great advice on Debt To Income ratio or DTI.  She explains and lists some of the standard DTI ratios and then reminds us that, “Just because you qualify for a higher mortgage payment does not mean that you must have it.”  All too often the home that clients have to own is the one that is priced at the absolute maximum that they can qualify for.

While maximizing your DTI isn’t always the wrong move, it can be devastating. I work with several clients who have had their homes listed with another agent and had the listing expired because it was overpriced.  Often these clients purchased their home just in the last few years and even threw in a little refi when the rates looked good.  Now that the market has changed and values are being re-examined, they’re in trouble.  For whatever reason they have to move and need to sell their home, often because of other financial stressors, to reduce their monthly outlay.  Unless you absolutely have to, it is best to sell you home in favorable market conditions.

So, we have two issues, clients that are already facing unfortunate financial stressors and the need to sell in an unfavorable market.  These two combined can lead to financial ruin if not approached carefully.  I have had one client who, by a series of unforeseen incidences, fell behind on a payment or two and now are unable to refinance their ARM.  With high payments and other bills, they are over their heads and their home isn’t worth what they owe.  They have had to make the hard decision to cash out some of their retirement to hold on to their home until they have the ability to sell or Refi as it may be.  Caution: This solution isn’t right for every situation.  It is important to have advisors that are willing to give you the right advice even if it means they don’t make a commission.

Working with clients whose homes have expired, I have the unfortunate role of turning down business because I am unable to help.  I do my best to give them good advice on how to proceed, but the best possible advice to give is to not end up in that situation in the first place.  Find what you want in the price ranges that you can afford, not qualify for.

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Over at Issaquah Undressed, Larry Cragun give us a little encouragement to use the lender recommended by your real estate agent.  Time and time again I have found this to be true.  While there are some occasions in which a client had worked with a lender before and had a great experience, most of the time it has been a disaster.  Whether they have chosen a family member or friend and they are trying to do them a favor or they are going with the person who called them just after dinner asking about their Refi and ARM, you should use someone who has something at risk. 

Your agent will have a couple of lenders to recommend to you.  These lenders get referrals from your agent on a regular basis.  If they drop the ball and you have a rough experience they are not only losing out on your business but all the business that would come from your agent.  So instead of losing one loan they are potentially losing several.  They will pay close attention to how they can best serve you knowing that their relationship with the agent is on the line.

I use about three lenders on a regular basis, this way my clients have options and can choose who would work best for them.  One specializes in FHA, another in “Creative Financing”, and another in that personal touch.  They are all great people and work hard for their clients and me.  If you are thinking of making a purchase or refinancing your home and need a great referral, drop me a line.  206-579-5605

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