1st Home Loan Questions

[Anonymous]

My husband and i are interested in buying a condo within the next year but we are not sure if we would qualify. 

We live in los angeles, ca, I am a counselor in LAUSD for the past 2 years before that I was in school my husband works in customer service and has been there for about 7 months. 

I gross about 5,000/month FICO: 621  I have had late payments, one this year and alot about 3 years ago.  I paid off a collection debt about 4 months ago.  Currently no collection.  Previous collection about 6 years ago.  Everything is current.  I owe about 40,000 in stafford loans.  6,000 in perkins which is being deferred and cancelled due to service in the school district. 

My husband gross about 2,000/month .  NO late payments ever.  FICO: 735. He owes about 3,000 in stafford loans. 

MOnthly our bills including a car payment, credit cards and babysitting is about 1700

We hope to pay off some of our credit cards within the next 6 months. 

We were interested in purchasing a condo in an area where a 2 bedroom is between 350,000 and 400,000. 

We are currently living with my mother in law to pay off bills and save, first paying off the bills.

How much money do we need to put down. 

What should out debt to income ratio look like. 

Do we have a chance at getting a 30year fixed rate loan.  How can we make this happen?

[ShanetheMortgageMan]

My mom is a teacher in the LAUSD, up in the SFV... finally gets to retire in a couple years.

Babysitting isn't included in your debt to income ratio (unless it reports on your credit), but car payments and credit card payments would be... and deferred student loan payments as well (but not on FHA).  What are those payments without the babysitting? 

Does the car loan have 10 months of payments or less remaining?

Are just your Perkins loans being cancelled or are the Stafford loans too?  What about your husbands Stafford loans?  What are the payments on the student loans that are not going to be cancelled out?

What are the credit card balances & limits on the owing credit cards?  Are both them in your name & his?

When was the late payment this year?  What was it from?  When was the paid collection from?

100% financing is still available in Los Angeles, but quite a few lenders are requiring 5% down in some areas due to being in a "declining market".  FHA still is fine with 97% financing (which down payment assistance can be used for the 3%), but the current FHA loan limit is $362,900 in Los Angeles (increasing to $417k sometime in 2008).

Debt ratio should be in the 43-45% range, however higher debt ratios can be approved if there are compensating factors.  Compensating factors could be a significant down payment (starting at 5-10%), reserves/assets (savings, checking, 401k, IRA, stocks, bonds, CD's, face value of life insurance, etc.), or exceptionally strong credit (680+, clean credit 24 months).  With the $1,700/mo in debts you listed, yours is definitely a bit on the high side if you go for high LTV financing... but I also don't know how much you have in terms of down payment.

How long would you plan on living in the condo?

[Anonymous]

Shane,  your mom is so lucky I just got into this crazy system..   

What are those payments without the babysitting? 

$1200

Does the car loan have 10 months of payments or less remaining?

NO, we got a 66 month loan in april 07 we were planning on paying it off before we move out so we wont have so much debt.  but if you recommend we pay off something else first  then we would look at other alternatives.

Are just your Perkins loans being cancelled or are the Stafford loans too?  What about your husbands Stafford loans?  What are the payments on the student loans that are not going to be cancelled out?

NO just perkins, state congress hasnt passed anything cancelling stafford loans for social workers. 

I pay $105 a month and in feb 08 will begin paying $200.

My husbands isnt being cancelled either, were paying them.

He pays $100 a month

What are the credit card balances & limits on the owing credit cards?  Are both them in your name & his?

Chase-owe 7400/10,000 limit both names Im an authorized user NO LATE PAYMENTS

Citi     owe $500/6500 limit  his name NO LATE PAYMENTS

Amex    owe 1800/ 9000 limit  both names Im an authorized user NO LATE PAYMENTS

store credit card. owe $150/300 limit  my name ONE LATE PAYMENT 7/07

HH Bank- owe $400/$600 limit  my name NO LATE PAYMENTS. 

Citibank loan owe $4500 on a loan, 24 month loan taken out in sept 07. both names. NO LATE PAYMENTS

MY BLEMISHES-ALL OF THESE ACCOUNTS HAVE NO BALANCE AND HAVE BEEN PAID. 

jcrew credit card late 3 times, 12/05,  6/06 and 7/06

paypal credit card,  late 3 months, april-june 2005

1st premiere late two months nov and dec 05

verizon sent my bill to collection for $560 in june of 2003.  i paid the collection agency this year on my credit report it doesnt say when i paid them it just says last activity was 6/03 and that i was 120 + days late. 

When was the late payment this year?  What was it from?  When was the paid collection from?

store credit card, 7/07.   collection was from a cell phone bill. 

 but I also don't know how much you have in terms of down payment.  We dont have really anything saved because most of it has been going to paying off credit cards.  but id like to know about how much should i be prepared to save for,  before we start looking.  i dont plan on doing this until we have a strong chance of getting a loan, so its at the mother in laws we shall stay til then. 

How long would you plan on living in the condo? 

until i could afford a house in the same community, i want my son to attend this particular school district.  hes not even one but im planning ahead.  

thanks !!!!

[ShanetheMortgageMan]

Well you should be prepared to put at most, 5% down.  FHA just requires 3%, but you can get assistance on that from down payment assistance companies (such as www.getdownpayment.com).  Conforming will require the 5% down if it's determined it's a declining market area.

To give you a FICO boost, I'd recommend paying HH Bank & the store credit card off completely, as it's over 50% utilization and that hurts your scores... as well as paying down Chase as much possible, preferably to less than $5k.

What caused the late payment in 7/07?  Looks like you have good payment history since then, have you looked into writing a goodwill letter asking them to remove the 7/07 payment since you've been making your payments on time then?  Was it just an oversight on your part and you quickly paid it once you noticed it was late?  I'd try that with the J Crew card, Paypal, and 1st Premiere too... never hurts.

If you can get the late payment from 7/07 removed then your credit history would be in good enough shape to qualify for FHA, and you'd look much better for a conforming loan option as well.  Or if you just wait until 7/08 then FHA would be fine, but I'd still suggest getting it removed in order to safely qualify for conforming.

I was asking how long you anticipate living in the condo for, because I think it'll be awhile before the Los Angeles market completely recovers from the down market we are in.. probably 2-3 years, some say up to 5 years though.  This means you'd want to buy with a 30-year fixed mortgage, in case you need to stay in the condo to "ride out" the market longer than the 3-5 year estimates going on now.

Last, your debt ratio is still kind of high for a $350k sales price with the $1,500/mo in debts ($1,200 + $200 on your SL's + $100 on your husbands SL's) and your guys current income.  Are either you or your husband anticipating an increase in your wages soon?  Being in LAUSD I know the increases aren't tremendous (but higher than other school districts), but not sure what your husband does.  Right now, it looks like the debt ratio would be around 62% on an FHA loan for a $350k loan amount, and 99% of the time that won't get approved.  50-55% can qualify for FHA if you have good compensating factors (clean credit, larger down payment, reserves/assets).  For conforming it will permit a debt ratio up to 64.99%, however you need excellent credit and/or a LOT of reserves in order to do 95-100% financing with a debt ratio that high.  For conforming, on $350k, your debt ratio would be barely below 65% (higher interest rates & higher mortgage insurance).  Either way, you'll need to reduce your debt load in order to be in an optimal position to qualify for either FHA or conforming... but it looks like you want to take your time, which I commend.. so at least you have a plan of attack now.

[Anonymous]

Thank you so much!

I can't wait to share this with my husband.  He gets so excited when I make responsible financial decisions, since i have made so many bad ones in the past.  Im going to clean up my debt then look where Im at around October-November.  Id like to have a my place as my Christmas present in 08!

[ShanetheMortgageMan]

Welcome, enjoy your holidays!