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New Member
BuyingAHouse311
Posts: 2
Registered: ‎11-29-2012

Found the perfect house, but question about our situation and loan

[ Edited ]

Hi all - my fiance and I have found the perfect house and our offer accepted so now we're doing the inspection/finance side of things.  She and I have a combined $50,000 (21k/29k) in savings.  House is around $315k and going for FHA.  Our credit scores are fantastic (both over 750) and our mortgage guy qualified us for much higher (though we all know to take that with a grain of salt).  Here's my worry though - we're both living at home with our respective family and have no rent, we own our cars, no car payments, etc., no debts or obligations.  I have been living like I don't have a mortgage/rent/obligations... because I don't.  I have no "obligations" at mid to late 20's years old and nor does she (no school loans, either).  I spend on hobbies liberally, going out, etc., new TV, computer, whichever because I can afford to given our situation.  We both make good money (Me over $60k her over $40k).  My concern is that they asked for checking statements but my checking account is pretty "busy" to me spending-wise.  For instance my direct deposit is there twice a month, no weird money in or deposits that don't fit my income, but I spend a lot and we eat out a bunch because I can.  I am carrying a $0 balance on my credit cards because I like to pay them off in full even if a large amount for any particular month.  Like I said I never buy something I can't afford; no late charges, no missed payments, nothing - fantastic credit... but I worry they're going to say "Wow, you spend a lot of money per month..." but the reasoning is simply because right now, and in the past, I can/could.  Its all optional spending.  Obviously once in a mortgage I do not plan on spending that way at all and we are mature people with prestine credit and value it.  We have our down payment moneys so I've been spending my money to do stuff or have items that we'd need/want but wouldn't be in position to do/have later once in a house.

 

Am I worrying over nothing?  Friends and relatives said I am since I have no "obligations" or "debts" and that they'd "give anything be in our situation."  I have no loans or anything and just don't want to look stupid when we turn our papers in.

 

Thanks!

Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: Found the perfect house, but question about our situation and loan

[ Edited ]

The mortgage lender won't comment on your bank statements except to make sure that you haven't been overdrawn.

 

Since your scores are so great, I would look at a conventional mortgage product... possibly a 20 year term.   With the money you'll be saving by going conventional, your payment might be close to the same as if you had gone FHA, since FHA has more fees...  Plus, the conventional mortgage underwriting process doesn't consider something called payment shock.

 

Many banks and mortgage lenders have a certain payment shock threshold that they allow, which can be dependent on things like documentation type and other compensating factors. Typically, max payment shock may be set at 200%, meaning your monthly mortgage payment can be no more than double your current housing payment. So if you currently pay $1,000 in rent each month, your max mortgage payment cannot exceed $2,000, or it may be subject to review or denial.

 

At the very least, talk to your loan officer about options before you lock into an FHA mortgage.   The down payment difference is only 1.5%,  which in your case would be an additional $3750 down payment.

 

I suggest that you talk to your mortgage officer and read this thread:  Evaluating Conventional vs FHA, VA, etc.

 

 


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BuyingAHouse311
Posts: 2
Registered: ‎11-29-2012

Re: Found the perfect house, but question about our situation and loan

Thanks Webhopper.

 

No, my checking account has never been overdrawn but that's because I know what's in there and don't have a mortgage.  I guess I worry that the finance company would say "If you had this mortgage you couldn't afford it today" based on the fact that I purchase stuff... but that's only whilst not having a mortgage.  I am likely thinking too much.

 

I did think about a conventional mortgage but the only problem is we would use up basically all of our liquid funds on a downpayment.  The mortgage would be lower month to month but we'd have nothing to lean on if we needed to repair or have something come up.  I would really only do a conventional to get out of PMI which would have us real thin on fall back money.  We have talked about refinancing later and so on.  To me, its sort of worth the mortgage insurance cost up front for a while until we're comfortable with everything.  The job market, though we are doing very well now, is very volatile.

Regular Contributor
nois
Posts: 120
Registered: ‎07-14-2009

Re: Found the perfect house, but question about our situation and loan


I did think about a conventional mortgage but the only problem is we would use up basically all of our liquid funds on a downpayment.  The mortgage would be lower month to month but we'd have nothing to lean on if we needed to repair or have something come up.  I would really only do a conventional to get out of PMI which would have us real thin on fall back money.  We have talked about refinancing later and so on.  To me, its sort of worth the mortgage insurance cost up front for a while until we're comfortable with everything.  The job market, though we are doing very well now, is very volatile.


A lender will allow as low as 5% downpayment with conventional mortgage if you have great credit and this is your first home purchase. This would only be $15,750 for a $315k house and would still leave you with a load of reserves. With 5% down, you would still need to pay PMI unitl you reach around 20% equity. Conventional would probably be cheaper than FHA - FHA requires up front mortgage insurance as well as monthly PMI payments.  Also, make sure your downpayment money has been seasoned for at least 60 days, better 90 days.  The underwriters won't care about your account withdrawals but will want details on any significant deposits not from wages/salary. They only factor your DTI ratio with debts/obligations not discretionary spending items.


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Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: Found the perfect house, but question about our situation and loan

I agree with nois.

 

Conventional requires a minumum of 5% down payment. Also, you aren't locked into paying PMI for 5 years like you are with FHA, so if you decide in 2 or 3 years that you want to pay down the principle on your mortgage to drop your PMI, its very doable.  Also, if your home appreciates and you can appraise it out at 80% LTV, you can drop PMI early.

 

With a 20 yr term, you'll be building equity fairly quickly and you may get a rate that is .5% cheaper than even a conventional 30 yr mortgage.

 

Definately look at keeping your cash reserves since it makes you comfortable, don't put 20% down...  but at least give yourself the option to drop PMI early if you and the spouse receive a windfall or decide to pay down principle very early in the amortization schedule.

 

Refinancing later will probably not save you any money...  as rates will likely be higher at that time, and there are added costs for refinancing that have to be either paid out of pocket, or rolled in as principle on the new mortgage.  


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Lasardo
Posts: 738
Registered: ‎04-26-2012

Re: Found the perfect house, but question about our situation and loan

Ok, I am panicking.

I have had my checking account with the same bank since 1998. I have NEVER overdrawn my account, now I am trying to get a mortgage and I accidentally overdrew it paying CCRDS off, they should have denied the w/d s but they paid them then  I was charged a fee BUT a supervisor waived the fees.  How is  this going to look? Did I mess up major?? 

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Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: Found the perfect house, but question about our situation and loan

No; lasardo... what you can do instead of providing bank statements is provide a verification of deposit and/or write a letter of explanation. If this is your only OD all year I think it will be easy to explain.

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Lasardo
Posts: 738
Registered: ‎04-26-2012

Re: Found the perfect house, but question about our situation and loan


Web hopper: I hope you are right, at least your response has me feeling a little hopeful, maybe I will sleep tonight! Thanks ! 

 

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