According to industry estimates, a home’s major fixtures and appliances have an average lifespan as follows: roof, 12-15 years; heating system, 15-20 years; refrigerator, 8-14 years; clothes dryer, 8-14 years; clothes washer, 7-12 years; range/oven, 8-12 years; hot water heater, 8-12 years; central air conditioner, 15-20 years; dishwasher, 7-12 years.

Treasury Bill (T-Bill) indexes are commonly used as adjustable rate mortgage indexes. T-Bill indexes are based on the results of U.S. Treasury auctions held for treasury bills, notes and bonds. The U.S. government issues treasury notes and bonds in order to pay for the national debt and other expenses.

Trading up refers to buyers who purchase a home that is more expensive than their current house. Trading down refers to buyers who purchase a home that is less expensive than their current house.

A debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer’s monthly gross income that goes toward paying debts. (Speaking precisely, DTIs often cover more than just debts; they can include certain taxes, fees, and insurance premiums as well. Nevertheless, the term is a set phrase that serves as convenient, well-understood shorthand.) There are two main kinds of DTI, as discussed below.

Two main kinds of DTI

The two main kinds of DTI are expressed as a pair using the notation x/y (for example, 28/36).The first DTI, known as the front ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (PITI includes mortgage principal and interest, mortgage insurance premium [when applicable], hazard insurance premium, property taxes, and homeowners association dues [when applicable]). The second DTI, known as the back ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.   ExampleIn order to qualify for a mortgage for which the lender requires a debt-to-income ratio of 28/36:

Yearly Gross Income = $45,000 / Divided by 12 = $3,750 per month income.

$3,750 Monthly Income x .28 = $1,050 allowed for housing expense.

$3,750 Monthly Income x .36 = $1,350 allowed for housing expense plus recurring debt.  What DTI limits are used in qualifying borrowers?Conforming loans

In the U.S., for conforming loans, the following limits are currently typical:Conventional financing limits are typically 28/36. FHA limits are typically 31/43. VA limits are only calculated with one DTI of 41. (This is effectively equal to 41/41, although VA does not use that notation.)

Nonconforming loans

Back ratio limits up to 55 have become common in recent years for nonconforming loans. The recent spate of defaults by subprime borrowers may produce a market correction that revises these limits downward again. However, how large the adjustment remains to be seen.Historical limits

The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances. Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today’s notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

An old tradition says home sellers should bury a statue of St. Joseph near their home to see a quicker sale of their home. St. Joseph is husband of Mary and patron saint of workers, families and household needs. Catholic legend has it that St. Joseph is a special friend to real estate agents.

The debt coverage ratio (DCR) of an income property measures its ability to cover monthly payments. It is defined as the ratio of net operating income over the loan payments. A DCR of less than 1.0, means that there is insufficient cash flow generated by the property to cover required debt payments.

According to industry sources, a kitchen is one the best remodeling investments you can make. You will recoup about 91 percent of your renovation investment. Other remodel investment returns: 85 percent of the cost of a new roof, 90 percent of the cost of new windows. The best remodeling investment is a bathroom renovation, which returns 102 percent of your investment.

Increasing numbers of towns and cities are taking exception to cul-de-sacs. Despite the popularity of cul-de-sac lots among home buyers, community leaders see cul-de-sacs as traffic-congesting roads that are tough to negotiate for emergency vehicles and time consuming for snow plowing and road maintenance. To this end, cities and towns across the U.S. are limiting, restricting, or even banning cul-de-sacs in new neighborhoods.

The real estate principle of regression is an appraisal term that states that the value of higher-end real estate can be brought down by the proximity of too many lower-end properties.

Todd Kreps, Realtor/Broker/ABR     704.564.6941     ToddKreps@StonePropertiesNC.com

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