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New Contributor
Wonderyears
Posts: 68
Registered: ‎12-08-2012
0

A new home in 6 months?



Well, as the topic states, I would like to buy a home in the next calender year.

I have no idea where to begin.

I am self employed, and as I lurk these threads, it seems to only make it that much tougher. What do I need (documentation, PL statements, etc) to make the buying process smoother?

Any idea on what a lender thinks I can afford?

Over the past 5 years of self emplyment my income has ranged between 60k to 35k, as I have hired an accountant to be more tax savvy, which may now bite me as I enter this process (even as the business gross revenue has grown, my tax accountability has decreased).

My myFico scores as of 12/8/12 are 715(TU), 768(Equifax) and fako Experian of 743 through CreditCheckTotal.

TU is reporting a legit unpaid judgement from Mar 2010 which I will thread for advice in another forum - In one way this will be satisfied, just hoping there is a way to satisfy it and have it vacated.

Otherwise, there are no negs as most dropped off last year, outside of a few inquiries a few months back as I started to rebuild my credit obtaining CCs.

I am carefully keeping my utilization at 10% and paying in full each month.

My wife and I hope to buy in the 200-250k range and have a min of 10% (25k) down, with a good shot of 20%. We will also have a reserve for a min of 6the months.

My wife has a steady income each year same job for the past 5 yrs from 50-65k, increasing each year. BUT had a bankruptcy in 2010. This was from a home in which we were never were late for a payment, but was losing value faster than we could gain equity, in a terrible school district, as our first child was entering school. We just let it go, it was in her name, and have been renting since(in a great school district - this is my attempt at justification) with no late payments. Rent and old mortgage are both at about $1300.

I'm not sure what is needed here, but myFico shows my oldest accct at 13years/4mo, average acct at 9yrs.

The only neg showing is the TU judgement from 2010.

I did have an ignorent period between 2002-04 but none of this is present on my CR anymore.

After I attack this judgement, where do I begin? Contact a broker? Thoughts?

I know I have thrown around a bit of random info, but if anyone can help, I will answer any questions you have.

Thanks, such an awesome community here! Wish I started sooner!
myFico TU-715 EQ-778 (01.14.2013) WalmartTU-664 (12.12.12))

LENDER PULL EQ-766 EX-779 TU-713 (12.20.2012)
Valued Contributor
JM-AM
Posts: 3,303
Registered: ‎06-09-2010
0

Re: A new home in 6 months?

Just a few things to keep in mind. 

 

1- Self employment is more complicated for approval but it is done all the time. Proper record keeping, tax statements, bank statements, etc etc  are some of the documents that may be needed. 

 

2- Your scores are fine, but the judgment may give you a hiccup for approval. It would increase your odds for approval if judgemnt is satisfied, and even better if you can have it vacated. But you knew that already.

 

3- Your self employed income will be averaged over the last 2 years. Based on the numbers you provided in my opinion you by yourself on loan will not qualify for the amount you are seeking.  In my opinion you will need your wife to be on the loan to help with income for approval, so you may want to start on the process of rebuilding her credit also. 

 

4- In your situation in my opinion I would speak to a few brokers and see what their opinions are based on their expertise. Do not fill out any applications! Not yet anyway. Once you feel comfortable with the information you receive ( can even come back here to forum and ask for advive and opinions ) then you continue your steps to home ownership again. When you are ready to try and purchase then go back to the broker you were most comfortable with and do business with them. Any broker who was not willing to give you any time or advice in my opinion is not worth your business when you are ready to purchase. 

 

5- Good Luck!!!

Good Luck
May all your dreams and wishes become a reality!
Moderator Emeritus
llecs
Posts: 32,881
Registered: ‎08-04-2007
0

Re: A new home in 6 months?

Welcome!

 

DW and I purchased our first home 2 years ago come next month. We are employed and self-employed. My lender looked at my net income only (not gross) and they averaged out the past two years. The net income they looked at was the net income reported at the bottom of Sch. C (I am a 1099er). Because I am also employed, they added the net biz income to my gross W-2 income and averaged both when considering DTI. In those two years, I also showed a small loss. That was a concern. As a condition, I was able to demonstrate on a P&L that the current year would not result in a loss. It's not a fixed rule I don't think but you'll find that others will scrutinize the net income.

 

After opting out from each CR and being very careful as to which bank accounts we use, we jumped in and everything worked out. We took our time and the only hiccup were some bank accounts they found out about. We didn't claim some income on the app because we didn't want them digging through a couple of checking accounts. In the end that income helped our DTI and it worked out OK. We also started shopping about 9 months before buying to get a feel of the market, prices, etc. 

 

On your income, etc., bumping for others.

 

 

New Contributor
Wonderyears
Posts: 68
Registered: ‎12-08-2012
0

Re: A new home in 6 months?

Thanks for the input!

I think I will seek out a few brokers and discuss. Weird, I feel I need to return here for advice on their advice!

To be clear, the previous home we had was only in my wife's name. We have begun on her credit as well, with a couple CCs, 10% uti, etc. We have no other debt.

I am so nervous with the judgement. I have no issue satisfying it, I'm just afraid the new activity will drive my score down. Needless to say, of course, it needs to be done, if I am to own my first home.

Anyone have any info on getting a judgement vacated? Or direct me?

How do I figure what income is required for a 200-250k home?

Thanks again!
myFico TU-715 EQ-778 (01.14.2013) WalmartTU-664 (12.12.12))

LENDER PULL EQ-766 EX-779 TU-713 (12.20.2012)
Valued Contributor
tooleman694
Posts: 2,297
Registered: ‎08-25-2011
0

Re: A new home in 6 months?

to figure out the income required, you look at your front end ratio.

 

Right around 30 percent of you monthly gross income is used to calculate what you can afford. I would guess you would need to earn about 75k a year to get a 250k mortgage.

New Contributor
Wonderyears
Posts: 68
Registered: ‎12-08-2012
0

Re: A new home in 6 months?

I've read a bit about front end ratio at 28%. Is this concrete? I'm hoping to finance ~200k, and even with no other debt, 28% front end seems to be a hindrance. I've read some dated posts on here mentioning a front end as high as 44.99%. Not that I want to go that high. I have spoken to a lender that mentioned ~41%, but now that I think about it, I'm not clear if that was front or back. It's late so I figured I jump back on here!

Thanks!
myFico TU-715 EQ-778 (01.14.2013) WalmartTU-664 (12.12.12))

LENDER PULL EQ-766 EX-779 TU-713 (12.20.2012)
Valued Contributor
Mike_B03
Posts: 1,146
Registered: ‎11-30-2012
0

Re: A new home in 6 months?

Are you wanting to go FHA or Conventional? FHA will have more lenient credit requirements and will allow for higher debt-to-income ratios for both front and back end. 

Of course with FHA you have the required mortgage insurance which isn't fun, especially if you have the money to put down and can go Conventional.

 

Ok...I was responing as I was reading your original post and saw the bankruptcy in 2010 (when was it discharged? Ch. 7 or 13?). Conventional loan you have to wait 4 years from discharge, FHA you can get a loan after 2 years from discharge, so it sounds like you have to go with FHA.

 

What other monthly debts do you have (credit cards, car loans, etc)? 

 

For self employment, they are going to calculate your income by the last two years of filed taxes. Are you a Sole Prop., Corporation, S-Corp, or? It's actually good that you're deciding this at the end of the year as that will allow you to adjust your income (by taking less deductions if needed) if you need to.

 

New Contributor
Wonderyears
Posts: 68
Registered: ‎12-08-2012
0

Re: A new home in 6 months?

Thanks again Mike! Ignore my other thread. They seem to have both gone the same route. Guess I will adjust my taxable income as necessary. BK was my wife's only. Ch 7 early in 2010. Guess if approved I'll have to conform to FHA if needed. If I am in position for conventional, is 28% front end locked?
myFico TU-715 EQ-778 (01.14.2013) WalmartTU-664 (12.12.12))

LENDER PULL EQ-766 EX-779 TU-713 (12.20.2012)

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