Q & A with Dottie Herman

---

Q1 - My wife and I just saw a home in New Jersey that we are very fond of. We are unsure how to make the first offer. Do you have any suggestions? We are afraid to make an offer under the asking price as we do not want to insult the homeowner.

A -  As a prospective purchaser, you should have a good idea from the comparables you've seen and the data available to you on-line and from the real estate professional you are working with, if the asking price is in-line. If priced correctly, you may not want to risk losing it, if over-priced, submit your offer, in writing, and explain how you arrived at that number so that the Seller has a basis to counter. Also include in your offer you're the specifics of why you're a more qualified buyer than someone else. For example, you already have been pre-approved for a mortgage or you are willing to close as soon as possible on the property if that is a term and condition of the sale.

---

Q2 - I recently started a new job. I get paid on commissions and I am not a salaried employee. Although my wife is currently employed, I just started working after being unemployed for a few months. How long do I have to wait to qualify for a mortgage?
 
A - Lenders require a minimum of two years' history for variable income such as commission, bonus, and overtime. In addition they average the last two years to determine the allowable income for qualifying. This means that if you make $50,000 one year and $100,000 the next year the lender will use the average of $75,000 as your income. You must also be careful if the income goes down year over year as a lender will not include or reduce the allowable income further if they see it maybe less in the future. The exception to this is if you have changed jobs in the same field doing the same work and have a prior history of working on commission - in this case most lenders will consider this consistent and use the income from the prior employment as well. So this is a challenge if you have just started your job on commission. Let me remind you of one last item that often impacts those on commission when applying for a mortgage. Commission income often has expenses or "write offs" against it for business expenses, so please keep in mind that your income will be determined as the net amount listed as adjusted gross income on your income tax form - the average for two years. Unless your wife's' income is enough to qualify for the mortgage, you may need to wait until you have enough "usable" income from your job.

---

Q3 - My parents are thinking about a reverse mortgage - would they still pay taxes and insurance on their residence?

A - Yes, with a reverse mortgage the homeowner is still required to pay property taxes and insurance on the property.  In fact, these are the only items that can allow a reverse mortgage property to be foreclosed. Most who take a reverse mortgage will include these expenses as part of the decision, and in fact many seniors who take a reverse mortgage plan it so they have no mortgage payments, and the proceeds from the reverse mortgage pay at least the taxes and insurance - therefore putting them in a situation where they have no out of pocket expense for the home.  Have your parents explore the reverse mortgage as it can be a wonderful financial tool for many elderly homeowners.

---

Q4 - If I have credit card debt that I pay down each month will I be able to get a loan? When my husband and I bought our home we needed to charge a few large purchases on our credit card. We pay the amount due each month but we have about a $20,000 balance that we are paying off over time. We need to do some necessary home improvements, but we aren't sure if we have to pay the credit card bill fully first, or if we will be able to get a loan to complete the necessary work.

A - As long as you have been paying off your credit card debt in a timely manner and have not been late with any required payments, you are off to the right start. When considering your loan it is common for a lender to use 5% of the outstanding balance as a minimum payment for purposes of qualifying you for the new loan.  This means that they will consider this to be as much as a $1000 monthly payment that you need to be able to afford with you new loan payment and other debts. So it will not hinder you from getting a new loan as long as you have the income and credit history to show that it will not be too big a burden for with the potential new loan.

---

If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

---