Getting prepared to purchase first home

lemasterb · ‎03-24-2015

Hello Everyone!

So, I am trying to get all my ducks in a row to make a home purchase next year! I am 23 and this would be my first home.

On my last credit statement I had 12,000 in credit debt that was bringing down my credit score, I have paid these cards down to $2000 now and expect my credit score to return to 740-760 next month. I will not be putting any more large purchases on my cards so credit score will be around 760 next year as well.

Credit. Equifax 691, Transunion 707, Experian 702.

4 paid/closed auto loans with no late payments, 2 current open autos.

3 Credit Cards:

WSECU $5000 limit, $0 balance,

CITI $2000 limit $200 balance

Chase Freedom $15000 limit $2000 balance (report shows $12,000 until next month)

Income. My gross for 2014 was 62k, and I am expecting 70k+ for 2015.

Source of income. Income is variable for me as I am in car sales, commission based income paid on W-2.

Monthly debt payments. I have two open auto payments. First is $15,700 @ 3.99% for 72, $250/mo and second is $44,500 @ 3.89 for 84, $640/mo.

Employment. Car Salesman, just over 1 year at this dealership. By the time I am ready for my purchase I will be at 2 years and 2 months.

Assets/Reserves. Currently have $10,500 at Motif Investing that is growing at the moment.

Location. Looking at purchasing withing Snohomish County, Washington State.

Property. Would like to purchase a single family home with a nice neighborhood. Don't plan on staying in this house for ever but want a nice, respectable house.

Value. House purchase price would ideally be between 275-325k due to the price of houses here.

Occupancy. Primary residence, would have at least one roommate.

Transaction Type. New home purchase, first time buyer.

I would assume that I am in a good financial position to purchase a home, but I want to make sure nothing unexpected comes up that I am not preparred for.

Thanks!

StartingOver10 · ‎03-24-2015

@lemasterb wrote:
Hello Everyone!

So, I am trying to get all my ducks in a row to make a home purchase next year! I am 23 and this would be my first home.
On my last credit statement I had 12,000 in credit debt that was bringing down my credit score, I have paid these cards down to $2000 now and expect my credit score to return to 740-760 next month. I will not be putting any more large purchases on my cards so credit score will be around 760 next year as well.

Credit. Equifax 691, Transunion 707, Experian 702.
4 paid/closed auto loans with no late payments, 2 current open autos.
3 Credit Cards:
WSECU $5000 limit, $0 balance,
CITI $2000 limit $200 balance
Chase Freedom $15000 limit $2000 balance (report shows $12,000 until next month)

Income. My gross for 2014 was 62k, and I am expecting 70k+ for 2015.
Source of income. Income is variable for me as I am in car sales, commission based income paid on W-2.
Monthly debt payments@. I have two open auto payments. First is $15,700 @ 3.99% for 72, $250/mo and second is $44,500 @ 3.89 for 84, $640/mo.
Employment. Car Salesman, just over 1 year at this dealership. By the time I am ready for my purchase I will be at 2 years and 2 months.
Assets/Reserves. Currently have $10,500 at Motif Investing that is growing at the moment.
Location. Looking at purchasing withing Snohomish County, Washington State.
Property. Would like to purchase a single family home with a nice neighborhood. Don't plan on staying in this house for ever but want a nice, respectable house.
Value. House purchase price would ideally be between 275-325k due to the price of houses here.
Occupancy. Primary residence, would have at least one roommate.
Transaction Type. New home purchase, first time buyer.

I would assume that I am in a good financial position to purchase a home, but I want to make sure nothing unexpected comes up that I am not preparred for.

Thanks!

Are these your mortgage scores or something else? Mortgage lenders don't look at the FICO 08 scores at all.

You can pull your mortgage scores here if you haven't done so already. Look at the products tab and select the 3B report.

Looks like you are in an affordable range - depending upon the real estate taxes, HOA fees (if any) and HOI. Your max amount you can spend on your mortgage is limited to a max $2000/month if you end up with an FHA loan and a lender that will go to a max 50% back end ratio. If you find a lender that will go higher than that (56.99% is absolute max back end per FHA guidelines), then you could go higher.

What is holding you back is your two car payments. The adjustment is made to the front end maximum mortgage amount if the debt is too heavy and right now you carry .$890 in car payments (not including your cc debt which also is added to the back end debt). Where this could get difficult is if you have high taxes in your county - to go along with high housing prices. Remember too, with FHA the MIP is added into the housing ratio reducing the amount you can purchase.

If you got rid of one of the vehicles it would free up your ability to finance a home. If you go conventional, you will need a larger down payment. There are 3% conventional loans available to first time homebuyers. Or regular 5% down for conventional loans. Conventional loan interest rates are more sensitive to your industry standard mortgage FICO scores so we really don't know much without knowing those scores.

lemasterb · ‎03-24-2015

Those scores are from the 3B Report. I anticipate my score being in the 740-760 range as my credit cards are now paid off, thats what they were before I added charges. Would it be beneficial to pay off the smaller auto loan of $15,000 or save that $15000 to bring my total downpayment to $30k?

Another option is make my monthly payments on the autos until next year and then refinance. If I refinanced them before I bought the house my payments would drop to $700 for both cars.

I planned on going with a conventional loan with 5% down.

StartingOver10 · ‎03-24-2015

@lemasterb wrote:
Those scores are from the 3B Report. I anticipate my score being in the 740-760 range as my credit cards are now paid off, thats what they were before I added charges. Would it be beneficial to pay off the smaller auto loan of $15,000 or save that $15000 to bring my total downpayment to $30k?

Another option is make my monthly payments on the autos until next year and then refinance. If I refinanced them before I bought the house my payments would drop to $700 for both cars.

I planned on going with a conventional loan with 5% down.

Good call on the conventional loan with your scores. Keep the cash available to use for down payment. The front end and back end ratios are much tighter for conventional loans than they are for FHA mortgages. You are going to be in the neighborhood of 45% for your back end ratio (including all your debt). Any drop in payment will help, but I don't know how much you need to drop your payments without knowing the details like property taxes, HOI, HOA fees (if any). Work your figures backward - if you are at $70k income (gross, W-2 type) then the max you can have for your backend is $2625/mth. Take out your debt and what remains is what you can have for a housing payment including mortgage insurance, HOI, HOA, property taxes and P&I.

lemasterb · ‎03-24-2015

Assuming $300k purchase price

I believe property tax here is .95% per year, so that would be around $240/month

30 year @ 3.6% with $20k down would put the payment at $1275/month

Estimated PMI cost at $150/month

There shouldn't be a HOA, but lets say $100 for arguements sake.

With that scenario, total house payment would be $1765

Plus $890 in auto loans and no credit card payments

Total back and front end at $2655

Quite literally right on the border if my assumptions are correct.

StartingOver10 · ‎03-24-2015

That's pretty close...that is why it is a good idea to keep cash on hand. You can use the cash for compensating factors or additional down payment or pay off the smaller loan to get your ratios in line if you need too. Can't have too much cash going into your purchase. But really you are in very good shape and are now aware of how even $50/mth can make or break your deal. Fortunately you built in an extra $100/month with the HOA fee that you don't think will be there....

The lender usually uses the last known tax bill to calculate your taxes, except in the case of new construction.

Edit: bunch of typos