Mortgage -How do we look?

[Lily]

First I'd like to say thank you to everybody that contributes to this forum - it has been a great help to me - I've sent out GW letters (nothing back yet), disputed bad info on my report, and decreased CC utilization down to practically nothing - all because of the info on this board -fico's went from low 600's to mid 600's in a few months- thank you!

My husband and I are looking at purchasing our first home, we recently had a baby - 5 months ago- and have out grown our apartment.  Our lease is up in February.  The home would be purchased utilizing my credit and employment (he's the stay at home dad- and a good one!) - although he helps with my father's business as well- but doesn't get paid.  We are looking at modest first time homes (possibly a HUD home - several almost new homes usually available at very reasonable prices).  Here are the stats:

I gross $2850/mo - up for a raise later this month- usually 5%

$335/mo revolving accounts - student loans (no other debt - no car loans or CC's etc - we usually just save up and buy what we can afford)

FICO's 664,665,634 (did have several lates on my student loans which is probably really hurting my scores - but they are now almost over a year old)

Will have at least 1k for downpayment from us (possibly more), but we also qualify for two first time homebuyer grants - one for $7500 and one for 5% of the cost of the mortgage (so around $12,500)

I've been employed with my company for 5 years now and we have been renting at the same complex for over 3 (never a late payment)

Do you think we would qualify under these terms for a 100k mortgage?   If so, what could we expect to look at for an interest rate under those kinds of ficos?    Even though I'm anxious to get the process started, I'm kind of fearful I'd be laughed out of a mortage companies office.  Any input would be considered and appreciated - thanks so much!

[ShanetheMortgageMan]

Honestly you should be fine.

Lenders are concerned with:  Credit, which if you have clean credit history for 12 months there are definitely loan programs (without outrageous interest rates) available for you.  Down payment, which if you qualify to use both grants, would be $12.5k down on a $100k sales price... or 12.5%, which is great, even on a $120k sales price, that would be 10% down, and again, you are looking good.  10% down or more speaks volumes.  Debt-to-income ratio (DTI), which is taking your total monthly obligations (the $335/mo + the new mortgage payment) divided by your total gross income (which is $2,992 after your 5% raise, or $2,850 currently), assuming a 6.5% rate (which could very well be on the high side), $1k/year in property taxes, and $600/year in homeowners insurance, and mortgage insurance, on the $100k sales price the DTI is about 35%, easily fitting within every lenders guideline... on a $120k sales price it'd be around 40%, still looking pretty good, anything below 45% usually has no problem qualifying.  Next are your reserves (assets), or the $1k you have... after the down payment & paying your closing costs, lenders generally like to see that you have 2 times your proposed housing payment, so $1k would be short of that.  If you are able to save another $1k, in addition to any closing costs (which I'm sure the grants could pay for as well), then you should be looking pretty good.

I'd recommend you look for a "community" loan program, such as Fannie Mae's MyCommunity Mortgage or Freddie Mac's HomePossible, both allow using grants... whereas normal conforming loan programs do not.  FHA also would permit you to use the grants, but it's credit requirements & DTI requirements are more strict than MyCommunity or HomePossible.

[Lily]

Ok great!  I have verified that we are eligible for both programs and that they will also allow each other on the same home purchase.  I'm fairly certain we could have another 1k saved - I don't know if it counts or not but I do have about $8k saved in a retirement fund (course I'm not planning on touching that) -and you are right the grants are for downpayments and closing cost coverage.

Thank you so much for the info - We have been dreaming about a house for a couple of years now and feel ready to make that commitment.

[ShanetheMortgageMan]

If the retirement funds aren't only permissable to be used upon termination or death, then 70% of the vested amount in your retirement funds can be used for those reserves... so you are looking good there actually.  Get in touch with a trusted broker who can run both types of approvals for you - Fannie Mae's MyCommunity & Freddie Mac's HomePossible.