@StartingOver10 wrote:
@Anonymous wrote:
Don't forget that the payment is much higher on a 15 year, and that makes it harder to qualify DTI. But if you have it, great!
^^^^This is a common misconception. It isn't "much higher" with a 15 yr loan. For example if you borrow $200k on a 30 yr with 3.625% interest your monthly P&I payment is $912.10; if you borrow the same $200k on a 15 yr amortization, you will have a lower rate, say 2.95%, and your payment will be $1376.36 As you can see, the payment is about 50% higher, but it is for half the time period. So you save big over the long term. (These payments don't include anything other than the P&I so you can compare apples to apples.)
You save 180 mths x 912.10/mth = $164,178 in interest. That's a lot of interest that you don't have to pay on a 15 yr that you would be paying on a 30 yr.
The 15 yr rate is lower than the 30 yr rate almost always.
If you can do it, it is well worth it so you end up actually owning your home or having lots of equity by the time you sell.
I think you missed my point. The payment on a 15 yr is (as you mention in the example you gave) about 50% higher. If you are AT ALL tight on DTI (either front-end or even back-end) you might not qualify for the 15 year mortgage. Using your example, if the borrower's income is $50,000 gross annually, the maximum house payment (including insurance, taxes, etc.) allowed would be $1166 (or 28% DTI, i.e. monthly house payment to monthly gross income).
They would not qualify for the house (in your example) in a 15 year term because their front end DTI is 33%, but they WOULD for a 30 year term. In fact, the max allowable TOTAL (or back-end) DTI in a conventional mortgage is 36%, so even if you made a bit more money and your front-end DTI was right at 28%, that leaves you only 8% of your monthly income for any other bills, like student loans, car payments, child support payments, etc.
Of course, it's always better to pay off your debt at a lower rate and as quickly as possible, but if your DTI is too high on a 15 year, you might still qualify at 30 year. You can still try to pay off early.
In fact, if I were the borrower in your example and I wanted that house, I would take the 30 year and make sure there isn't a prepayment penalty, then make higher payments needed to fully payoff in 15 years. The added benefit to that is if anything bad should happen, like losing my job, I would still have a minimum payment under $1000 a month, rather than one closer to $1400 a month.
If you don't understand DTI and you are going through the process of buying a house, Bankrate.com has an easy to understand example in its "Mortgage Basics": http://www.bankrate.com/finance/mortgages/how-much-house-can-you-buy--1.aspx
Note, these DTI percentages are for conventional. For FHA, it looks like the DTI is 29% front end, and 41% back end.
