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Jay J. Spadinger, R

 #1 - Understanding the “CMA”, aka the Comparative Market Analysis

    You’ll hear a lot of REALTORS talk about a property’s value based on the “CMA”. What exactly is a “CMA”, and how do you go about compiling one? The CMA, also known as a “Comparative Market Analysis”, is a report based on the current sales data from the local Multiple Listing Service (MLS). It factors in what other similar properties are currently listed for, and have sold for, in the same area where a particular property is located.

    Many REALTORS will take it upon themselves to recommend a price to offer for a property to their Buyer clients, or to recommend a listing price for their Seller clients based on the CMA data. In my opinion, this is a very bad idea for both the Agent and their clients.


    An Agent’s responsibility is to provide their clients with the most current, accurate, complete and timely information for the client to utilize in order to make their own decisions. If an Agent makes a price recommendation based on their opinion of the CMA, are you as the client someday going to regret it if you didn’t get the price you wanted for your property? Or maybe you’ll regret it if you didn’t get the property you wanted - because you based your offer on someone else’s opinion? Don’t be put in that position – make your own decisions!


    When you want to sell your property, and you have an accurate CMA, you can decide for yourself what makes the most sense for you. Do you need to sell quickly? You’ll want to price your property towards the bottom range of the CMA.  Are you in no hurry, and you can afford to wait to get a set price? You’ll want to price it toward the top of the CMA range.


    The same logic applies for buying property. Look at the CMA and compare it to the asking price. Do you need to have this property or you’ll never forgive yourself? You might want to offer full price or over. REMEMBER – you can offer full price for a property and still lose it if someone else offers more! On the other hand, maybe you could take or leave this particular piece of property because you’re only looking for an investment IF the price is right. In this case, it might make sense to make a “low-ball” offer and see what happens.


    Either way, buying or selling, you don’t want to look back years from now and wonder IF you were getting good advice at the time. You want to know that you made your OWN decisions based on reliable, solid information that you can refer back to and feel comfortable that you made smart choices.


I hope this information was helpful to you! Aloha and Take Good Care!


Jay J. Spadinger, REALTOR®, Broker-in-Charge, Accredited Buyers Representative, akahi@jayhawaii.com



Here’s How to Find Out

Purchasing a home, especially your first home, can be an experience loaded with frustrations and uncertainties.  One of the first steps in this often confusing process is to figure out how large of a home loan you can qualify for – realistically. The loan process is actually a fairly simple one, once you know what factors a lender will need to consider in order to calculate your loan. These are:
1. Your total GROSS monthly income.

2. Your total current, monthly long-term debt payments (for example, car payments)

3. Current interest rate for the type of loan desired, for example, a “30 year fixed rate loan.”

    The lender will need to know your GROSS Monthly Income, or GMI - not the amount of “take-home pay” in your paycheck.  The reason the GMI is required instead of your paycheck amount is because the lender’s qualifying ratios already take into account the amount deducted for federal taxes, state taxes, etc.

    The next thing your lender will need to know is your total LONG TERM monthly debt.  This amount would include any car payments, personal loans or student loans, credit card payments, etc. - anything with pay off dates longer than 10 months in the future.  To get a ballpark figure of your long-term credit card debt, you can either add up the minimum payment amount on each credit card’s monthly statement, or calculate an estimate by taking 5% of the total outstanding credit card debt.

    If you use a lender in your local area, they would probably be more willing to provide the FACTOR necessary to calculate the largest home mortgage available to you - based on the current market interest rate. In other words, the factor for a 6.5 % fixed rate 30 year mortgage is 6.33.  What that figure means is, for each $1000 you borrow every month, you’ll have to pay the mortgage company $6.33. So, the principal and interest payment for a $100,000 mortgage would be $633.00 (100 x $6.33) per month if the current interest rate was 6.5 %.

    Now that you know what a lender will look for when they try to figure out how much house you can afford, you can identify the “Qualifying Ratios” the lender will use in approving your mortgage.  “The Standard Qualifying Ratio for Conventional Loans” is 28/36. This means that the lender will limit your monthly Housing Expense to 28% of your Gross Monthly Income, and your Total Monthly Debt (Housing + Long-term Debt) to 36% of your Gross Monthly Income. “Housing Expense” is considered to include:  Loan Principal & Interest, Property Taxes and Homeowner’s Insurance, also known as “PITI.”

    Because housing is more expensive in Hawaii, it typically takes more of your overall monthly budget than most housing on the mainland. Consequently, a local lender will typically ignore the more restrictive 28% Housing Expense Ratio and only look at a potential buyer’s Total Debt Ratio.  Also, the lender will most likely use a 40% Total Debt Ratio figure as opposed to the more restrictive 36%.   For example, a couple earning a total Gross Monthly Income of $5,000 will have $2,000 allocated for Total Debt ($5,000 x 40%). This means that, if they have less long-term debt, they’ll have more money available for Housing Expense, and therefore the larger home loan they can qualify for.

    To illustrate the above, and using the $5,000 total monthly Gross Income figure, a couple with $400 per month long-term debt and $400 per month of Taxes & Insurance would qualify for a mortgage of approximately $190,000 ($2000 - $400 - $400 Taxes & Insurance = $1200 divided by the 6.33 factor). 

    The same couple with zero monthly debt, on the other hand, would qualify for a mortgage of approximately $252,800 ($2000 – $400 T&I = $1600 divided by the 6.33 factor) - a significantly higher loan amount.  Another way to look at the above figures, given a 6.5% interest rate and a 30 year fixed rate loan is that, for every $100 of monthly long-term debt you have, you lose approximately $16,000 of “mortgage-ability”, aka; how large a loan you can qualify for.

    So, for every $100 of credit card debt you have at 18% interest (which is NOT a tax write off) you lose out on approximately $16,000 of potential mortgage at 6.5% (which IS a tax write off)! This is a no-brainer – pay down those credit cards! It’s also a good idea to get rid of the car payments if possible. Get a more affordable car that you can pay off completely instead of making those monthly payments.

    Considering the example given above, think about how much that $350 per month auto loan or credit card debt payment is costing you. You could have an additional $55,300 mortgage benefit towards buying your own home. Add that to the amount you can qualify for with your income level, any savings you may have for a down payment, and home ownership may start making a lot more sense for your future.

    Too many people in the U.S today pay rent, which is in effect - paying their landlord’s mortgage, PITI, etc. The landlord gets to enjoy the benefits of tax write-offs, ownership equity and price appreciation. Your rent money is gone every month into the landlord’s pocket while they build equity in their own property. Doesn’t it make more sense to check out the how you could be applying that same rent money towards your own home?

    Do the math for yourself, and decide if the time is right for you to take the first step towards your own home. If you have any additional questions or concerns that we can assist you with, please feel free to contact us – we can help!

I hope this information was helpful to you! Aloha and Take Good Care!

Jay J. Spadinger, REALTOR®, Broker-in-Charge, Accredited Buyers Representative, akahi@jayhawaii.com

In the next post, we’ll be going over a few additional things that can affect your ability to get approved for a loan, specifically:

1. Your Employment History

2. Your Credit History