Buying a Home in 2011, Looking for Advice

[Anonymous]

Hi. 

I'm hoping to buy a new home next year and looking for some advice.  Here is my current situation.

I'm currently enrolled at the University of Washington.  I'm a senior and will graduate this coming June, 2011.

I'm currently renting a house and the lease ends on August 31st, 2011 and hopefully will have a home

to move into.

If all goes to plan, I want to close on the home sometime in early August, 2011.

I want to apply for a FHA Loan for the home.  The total amount of the loan I'm hoping for is 250-300k. 

So here are the numbers.

Currently, I have a 750 Fico Score Avg from the 3 Major Companies.

I have just bought a new Honda Fit in May.  The payoff on the car is 15k ATM.  I did a zero down, 1.9% loan on the car.

I have little to no balance on my 3 credit cards I have.  I got them when I was 18.  I'm 21 right now.   I use them a lot, but always pay off 2

of them before the statement date, while revolving a small balance on the one I did not pay off before statement date, to show I'm using

the cards.

I will owe about 12k in student loans when I graduate in June.  My income from work is 45K a year.

Now here are the questions.

I will have about 30k saved up when I graduate in June.  Should I use that money as a downpayment on the house, or should I pay off

my loans?  If I should pay off my loans, which ones should I do?  If I pay off both the car and the Student loan, I should still have

enough to pay a 3.5% downpayment on an FHA loan.

Or should I just pay off the car, or just the student loan?  The APR on the car is very low at 1.9%.

Also my father will be cosigning on the loan.  He has good credit, and owns our home.  We have a lot of equity in our home.  About 100k.

He makes about 70K a year.

Thanks for reading my post, and thanks in advance for the advice and help.

[chasmith]

Your credit scores are great, and you're managing them well.  The scores will get you in the door.  In today's climate uderwriting is tighter.

In addition to the score, your DTI needs to be 41% or less (all your payments plus mortgage payment), and the mortgage payment max at 31%.  So your maximum payment would be about $1,160.  That means a mortgage amount of just under $200K for a 30 year loan at 5%.  So you'll have trouble getting to a $250-$300K purchase.

With your good credit you may not need a cosignor, and the cosignor isn't going to change the DTI numbers.  I know your area is a high real estate cost area, there might be assistance programs for first time buyers that you'll want toi look at, there might (but I'm doubtful) also be more room on the DTI.  You may also need to hold off buying to build up more savings and also increase your income.

[Anonymous]

If we applied for the loan (Father and I) as joint, wouldn't it affect the DTI ratio?

So should I pay off my loans then, or try for the max down payment.

[Anonymous]

Actually your best option is to pay the normal monthly payments on both the student loan and car payment.  If you really want to purchase a home in the $250k - $300k range then you will need to "buy down" the rate at the MAX possible.  This could potentially cost 2 points (2%) of your loan amount; you may be able to get down to 3.75%.  This would probably allow you to get to a purchase price of around $285k and you would use approximately $15k for closing costs (including discount points and prepaids).

Bottom Line:

Pay off and keep $0 balance on statement for revolving credit card.

DO NOT pay off student loan. Pay normal monthly payments. (interest is tax deductible)

DO NOT pay off the auto loan early; pay the normal monthly payments.

Keep your savings as high as possible as you will need approximately $15k for closing; the remaining $15k should be saved for an emergency fund.

If you follow the above items you should have no trouble getting approved for an FHA mortgage with a purchase price of around $285k.  The most important thing to keep an eye on how far you can buy the rate down.  You need to tell the loan officer when you apply that you want to buy the rate down as far as possible in order to get approved for a higher mortgage.  The points are deductible on your tax return so this is favorable.

Good luck and remember owning a home has a ton of hidden maintenance costs so keep your savings as high as possible!

[vanillabean]

I have found this thread highly educational and noted this prediction.

[smallfry]

---

@Anonymous wrote:

Hi. 

I'm hoping to buy a new home next year and looking for some advice.  Here is my current situation.

I'm currently enrolled at the University of Washington.  I'm a senior and will graduate this coming June, 2011.

I'm currently renting a house and the lease ends on August 31st, 2011 and hopefully will have a home

to move into.

If all goes to plan, I want to close on the home sometime in early August, 2011.

I want to apply for a FHA Loan for the home.  The total amount of the loan I'm hoping for is 250-300k. 

So here are the numbers.

Currently, I have a 750 Fico Score Avg from the 3 Major Companies.

I have just bought a new Honda Fit in May.  The payoff on the car is 15k ATM.  I did a zero down, 1.9% loan on the car.

I have little to no balance on my 3 credit cards I have.  I got them when I was 18.  I'm 21 right now.   I use them a lot, but always pay off 2

of them before the statement date, while revolving a small balance on the one I did not pay off before statement date, to show I'm using

the cards.

I will owe about 12k in student loans when I graduate in June.  My income from work is 45K a year.

Now here are the questions.

I will have about 30k saved up when I graduate in June.  Should I use that money as a downpayment on the house, or should I pay off

my loans?  If I should pay off my loans, which ones should I do?  If I pay off both the car and the Student loan, I should still have

enough to pay a 3.5% downpayment on an FHA loan.

Or should I just pay off the car, or just the student loan?  The APR on the car is very low at 1.9%.

Also my father will be cosigning on the loan.  He has good credit, and owns our home.  We have a lot of equity in our home.  About 100k.

He makes about 70K a year.

Thanks for reading my post, and thanks in advance for the advice and help.

---

That prediction won't do much for housing. That's a pretty healthy monthly knot OP. Sure you can afford it?

[Anonymous]

Appreciate the response rstang90.

My payments for my student loan won't start until 2012.

So I guess the plan right now is to just keep saving money.   =]

[mkm77]

Actually, a 41% ratio is conservative even in today's times. We can get approvals on FHA's up to 50% and sometimes higher and even Freddie Mac loans to 49%. The issue is mortgage insurance if you do not have 20% down but even they can be persuaded to 49%.

Rates may be 5% next year who knows but we routinely are qualifying customers at 4% in current markets for a 30 year fixed loan and 3.5% on a 15 year fixed.

[Anonymous]

Would opening up a new credit card hurt my chances in about 10 months?  There are some good promos I wanted to take advantage of, but

if the inquiry hurts the chance, I won't take it.  

Searching around I read that they stay on for 1-2 years but they only affect the score for 6 months?

[Anonymous]

That is true. You will get your initial ding of 20 points, but after 6 months of on time payments your score will readjust itself and you will see an  increase of close to 30 points. Keep in mind that you should never open more than your average longevity. Meaning if you have two credit cards in the 5 year range don't open more than three new cards because the algorithm will change and you will lose around 70 points. Your score will be calculated on your new average which would be three recent and new accounts pulling your scores down again.