[whartonjelly]

When you get qualified for a home loan ,do you then subtract the bond amount to be sure you can make payments?
Example. the house costs 200. the bond 20, down payment 40.

What would I be looking at. Does the bond have to be paid off immediatley or does it keep accumultating interest so that it is never reallly paid off?

[cherylncliff]

I'm sure others will reply more knowledgeably than I, but the short answer is that the bond is payed over 30 years at an interest rate of about 6%. The bond payment is made annually with the bills going out in May (I think) with an option to payoff or just make the annual payment. There are lots of discussions in TOTV about whether to pay off right away or payoff over time.

[skyguy79]

Originally Posted by whartonjelly

When you get qualified for a home loan ,do you then subtract the bond amount to be sure you can make payments?
Example. the house costs 200. the bond 20, down payment 40.

What would I be looking at. Does the bond have to be paid off immediatley or does it keep accumultating interest so that it is never reallly paid off?

The bond is not included in the down payment requirement. It has a schedule of payments similar to the mortgage itself and the escrow (if you have one) will include enough for the bond along with the insurance in your monthly payments. The bond will also depreciate each year just like the mortgage amount and you'll have the option to fully pay off the then current balance of the bond once a year. The bank will make the annual payments for both bond & insurance when they become due. Hope this helps!

[lincap]

Originally Posted by whartonjelly

When you get qualified for a home loan ,do you then subtract the bond amount to be sure you can make payments?
Example. the house costs 200. the bond 20, down payment 40.

What would I be looking at. Does the bond have to be paid off immediatley or does it keep accumultating interest so that it is never reallly paid off?

If one of your questions is will the bond payment be used in calculating how much of a mortgage you will qualify for the answer is yes. Just like your property taxes and insurance is used for the calculation so is the bond if you are not paying it off. Lots of info and suggestions on paying the bond off or not are on this web site.

[skyguy79]

Originally Posted by lincap

If one of your questions is will the bond payment be used in calculating how much of a mortgage you will qualify for the answer is yes. Just like your property taxes and insurance is used for the calculation so is the bond if you are not paying it off. Lots of info and suggestions on paying the bond off or not are on this web site.

Since what you've stated above is contrary to what I had stated prior to your post, I went and double checked my paperwork and found that I was correct in saying that the bond was not included in calculating how much of a mortgage I qualified for.

My mortgage is with Citizens First and I received my Pre-approval Certificate and Estimated Cash to Close Worksheet (had no mention of bonds) about a week before chosing our property and placing an offer on it. Therefore it was not possible for the bond to be included since bond requirements/amounts were yet to be known at the time of the qualification.

With that stated, I cannot say that you are wrong in what you stated since I don't know where you applied for a mortgage or how your process may have gone down. So could there be more than one correct answer? Don't know! Guess the prospective buyer needs to pose that question directly to their lending institution if they want to know for sure!

[Pookirgirl]

Another thing to keep in the back of your head......
IF you do get a mortgage, they will be paying your homeowner's insurance after the first year. We were "surprised" when the bank informed us of a deficit in our escrow account and our mortgage suddenly went up an additional $200 a month! That is a big jump for anyone on a truly "fixed income"....especially when you think you've got it all figured out!!
They did tell us that it would probably drop next year because they usually over estimate.

[aljetmet]

I'm just a wannabee, but this is my understanding.
The bond is charged at about 7% interest and is drawn down over 30 years.

If you are planning to have a mortgage, based on current rates, it seems to me that it would make sense to bump up the mortgage amount by the amount of the bond. This way you pay off the bond at a lower interest rate and the mortgage interest is tax deductible. If I remember correctly, you can pay off the outstanding balance on the bond once a year. So you pay it off when you can. The interest on the bond when paying it off in the conventional manner is not tax deductible.

[Bill-n-Brillo]

Originally Posted by Pookirgirl

Another thing to keep in the back of your head......
IF you do get a mortgage, they will be paying your homeowner's insurance after the first year. We were "surprised" when the bank informed us of a deficit in our escrow account and our mortgage suddenly went up an additional $200 a month! That is a big jump for anyone on a truly "fixed income"....especially when you think you've got it all figured out!!
They did tell us that it would probably drop next year because they usually over estimate.

Pookir, it might be worth a discussion with your bank (if you have good equity in your property) to see if they'll eliminate the escrow account and allow you to manage your own payments for taxes and insurance. What you describe is exactly what happened to us years ago with the bank carrying a mortgage we had. I went through their math and was able to demonstrate to them that their calculations were very much on the high side for what was necessary to cover taxes and insurance for many years into the future. I then proposed to them that the escrow account be dropped - we had sufficient equity in our place at the time so they were fine with that. Again, this was quite a number of years ago so maybe the prevailing mentality today regarding escrow accounts is different for some financial institutions.

Originally Posted by aljetmet

I'm just a wannabee, but this is my understanding.
The bond is charged at about 7% interest and is drawn down over 30 years.

If you are planning to have a mortgage, based on current rates, it seems to me that it would make sense to bump up the mortgage amount by the amount of the bond. This way you pay off the bond at a lower interest rate and the mortgage interest is tax deductible. If I remember correctly, you can pay off the outstanding balance on the bond once a year. So you pay it off when you can. The interest on the bond when paying it off in the conventional manner is not tax deductible.

True.....but then this thought comes into play: You probably won't ever see the amount you have invested in paying off your bond if you were to sell within a few years. Some people believe that to be the case - others don't.

There's no "one size fits all" answer when it comes to how to deal with the bond, unfortunately. Choose the route that meshes best with your mindset!

Bill

[lincap]

Originally Posted by skyguy79

Since what you've stated above is contrary to what I had stated prior to your post, I went and double checked my paperwork and found that I was correct in saying that the bond was not included in calculating how much of a mortgage I qualified for.

My mortgage is with Citizens First and I received my Pre-approval Certificate and Estimated Cash to Close Worksheet (had no mention of bonds) about a week before chosing our property and placing an offer on it. Therefore it was not possible for the bond to be included since bond requirements/amounts were yet to be known at the time of the qualification.

With that stated, I cannot say that you are wrong in what you stated since I don't know where you applied for a mortgage or how your process may have gone down. So could there be more than one correct answer? Don't know! Guess the prospective buyer needs to pose that question directly to their lending institution if they want to know for sure!

I would also recommend speaking with your mortgage broker about any qualification process. However a borrowers ability to be approved by an underwriter for a mortgage takes the following into consideration. Credit history (credit score), acceptable verification of downpayment and remaining assets, and ability to repay the loan. The ability to repay the is based on the borrowers stable monthly income versus their total outstanding monthly debt. That debt would be principal and interest on the amount of money they are borrowing, 1/12 of the real estate taxes, 1/12 of the homeowners insurance (even if paid yearly) any required monthly fees and 1/12 of the yearly bond payment. Because the bond is a required payment I would think that a lender would be considering that amount in the qualifying process if it is not going to be paid in full. If a borrower has monthly credit card debt or a car payment, etc that monthly payment is also used in the calculation. For a pre approval or prequalification letter usually I will used an "estimate" for taxes, insurance, condo fee, etc since I do not have that exact figure prior to the borrower finding a home. Knowing that a bond payment could be necessary I would think that an "estimated" amount for that would be used in the calculation before issuing a prequalification letter. But the bottom line is that you will be paying these amounts and you have to be comfortable with the on going payments.

Increasing your mortgage amount by the bond payment and then paying off the bond might be a good option especially if the interest rate you are getting on money borrowed is less than the bond interest rate (a good point offered by someone else on the forum). I agree that the bottom line regarding paying off the bond may depend on how long you will be staying in that home. I have to admit when looking thru the resales and seeing that a bond is paid off makes me take a second look at that home. I am not saying that a seller can ask more for their home but just like other "amenities" in a home it can make it more attractive for sale when all else about two homes is basically equal.

[skyguy79]

Originally Posted by lincap

Knowing that a bond payment could be necessary I would think that an "estimated" amount for that would be used in the calculation before issuing a prequalification letter. But the bottom line is that you will be paying these amounts and you have to be comfortable with the on going payments.

Very nice, thoughtful and knowledgable post. I suspect you may have been involved in the business!

As I stated, my pre qualification amount was determined before they know if there would be any bond involvement. So the only things I can think of is that they either factored a possible bond in the determination, but don't do it transparently where I can see that they did, would or could have adjusted the amount if they later found out that there was a bond, or they could see that I was able to handle any bond with our stable income in any senario. What ever it was though, I have to believe you in that they somehow covered themselves in our ability to pay the bond... up front or in annual payments.

Anyway, I hope our discussion helps without presenting any confusion for the OP!

[lincap]

Originally Posted by skyguy79

Very nice, thoughtful and knowledgable post. I suspect you may have been involved in the business!

As I stated, my pre qualification amount was determined before they know if there would be any bond involvement. So the only things I can think of is that they either factored a possible bond in the determination, but don't do it transparently where I can see that they did, would or could have adjusted the amount if they later found out that there was a bond, or they could see that I was able to handle any bond with our stable income in any senario. What ever it was though, I have to believe you in that they somehow covered themselves in our ability to pay the bond... up front or in annual payments.

Anyway, I hope our discussion helps without presenting any confusion for the OP!

My guess is that is exactly what happened regarding your bond. Your qualification was fine when it was factored in. Yes, to confirm your statement, I have over 25 years experience in the residential mortgage business as a loan officer so I have pretty much seen it all. We have put a deposit on a lot in St. James and are excited to become a part of the Villages community later this year or early 2012 (have to sell our house first). Linda

[whartonjelly]

Thank you so much !

[Biker Dog]

Citizens First Bank is part by TV and they keep the mortgages they write in house, therefore they do not have to follow Fannie & Freddy guide lines. That is why they do not use the bond payment in the qualifying ratios.
Their main interest is helping TV sell homes, so they have been known to use higher qualifying ratios if the clents have 700 or higher credit scores.

I am a retired mortgage broker and have discussed this with one of their mortgage originators in the past.