300k-350k mortgage scenario

[Anonymous]

my wife and i are planning our next home.  we purchased our first home for 215k about 5 years ago.  we put down 20% and we have a mortgage balance now of 159k.  our rate was 4.2 five years ago.  we have a child now and we are planning more and we are basing our next move to a "forever" type of home in a with a great school system.  thats the current direction of how we are approaching our houseing model.

now we have better credit (we are both above 740 and moving higher month by month), we have better jobs and we have more in reserves. Conservatively, if we sell our home for what we paid for it, we will probably walk away with maybe 50k (eventhough we upgraded substatially, im being conservative for my discussion).if my wife and myself add another 50k from our savings, we will have a clean 100k down payment and mortgage 300k.  from my research, with good credit, i should expect 485-500/month per 100k borrowed.  im assuming a 1500 monthly mortgage payment on a 300k mortgage.  real estate taxes in new jersey will push close to 10k annually.  maybe 100-125 per month for home owners insurance coverage.

we are waiting until we have all debt paid and savings are ramped up before we sell our house now and buy.

we have a combined income of around 120k.  zero CC debt.  a car loan.  we have some real estate investments that will factor into our DTI. 

120k = 9k month gross.  assuming a 20% down payment and great credit and high reserves i would expect to get approved with a back end DTI of close to 43% or $3870 per month of total debt liabilities...

3800 should cover 1500/mortgage, 1000/taxes, 125/month homeowners, 400/car, and 400/month real estate investment factors

questions....sorry for the book

1.) what is the highest back end DTI you have seen with a conventional loan assuming great FICO, large downpayment and at least 9 months in reserves??

2.)  assuming you had the resources and credit and reserves, would you consider a different loan option other than conventional 20% down?  why? 

3.) if you had 100k available for a down payment, would you only offer 50k for a downpayment and invest the other 50k in something that would offset the PMI you would be charged for having less than 20%??  ( ahem....im in real estate.  there are rental homes you can buy for under 40k that will rent for 6-700 and clear almost 400/month which will cover the cost of the PMI that i would assume if i didnt have 20%.  but then again, if i buy another real estate investment, the investment's taxes and insurance will contribute to my DTI....dam!)

[iv]

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@Anonymous wrote:

now we have better credit (we are both above 740 and moving higher month by month), we have better jobs and we have more in reserves. Conservatively, if we sell our home for what we paid for it, we will probably walk away with maybe 50k (eventhough we upgraded substatially, im being conservative for my discussion).if my wife and myself add another 50k from our savings, we will have a clean 100k down payment and mortgage 300k.  from my research, with good credit, i should expect 485-500/month per 100k borrowed.  im assuming a 1500 monthly mortgage payment on a 300k mortgage.  real estate taxes in new jersey will push close to 10k annually.  maybe 100-125 per month for home owners insurance coverage. 

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Your numbers are in the right general ballpark for NJ.  Certain towns will be closer to 12k than 10k for a 400k property, through.

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@Anonymous wrote:

1.) what is the highest back end DTI you have seen with a conventional loan assuming great FICO, large downpayment and at least 9 months in reserves?? 

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For a conventional, just look at the Fannie/Freddie DTI rules, for example Fannie B3-6-02:

For manually underwritten loans, Fannie Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Eligibility Matrix. 

For loan casefiles underwritten through DU, DU determines the maximum allowable DTI ratio based on the overall risk assessment of the loan casefile. DU will apply a maximum allowable DTI of 45%, with flexibilities offered up to 50% for certain loan casefiles with strong compensating factors.

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@Anonymous wrote:

2.)  assuming you had the resources and credit and reserves, would you consider a different loan option other than conventional 20% down?  why? 

3.) if you had 100k available for a down payment, would you only offer 50k for a downpayment and invest the other 50k in something that would offset the PMI you would be charged for having less than 20%??  ( ahem....im in real estate.  there are rental homes you can buy for under 40k that will rent for 6-700 and clear almost 400/month which will cover the cost of the PMI that i would assume if i didnt have 20%.  but then again, if i buy another real estate investment, the investment's taxes and insurance will contribute to my DTI....dam!) 

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Do keep in mind that with the lower down payment and invest options, you would need to not just offset the PMI costs, but also the additional interest costs due to the higher loan balance (minus tax deductions).

Personally, I wouldn't choose to pay PMI just to free up more cash to invest (and I have NO interest in being a landlord!), I've always put down more than 20%.  But given current mortgage rates, and likely returns in even "boring", "safe" investments over the next 15-30 years, I've stopped my old habits of paying off mortgages early with extra monthly payments, and that cash is going directly to investments.

But that's just me... if you are already doing the real estate investment/landlord thing, and have carefully run the numbers on PMI vs rental income, go for it.