Mortgage for a 26 Year Old - $105k Salary

[HiFromSeattle]

Hi All,

I am trying to figure out what to do regarding a mortgage. I haven't attempted to get pre-approved or anything like that, but wanted to see how viable my options are. First time home buyer. So first some stats:

-$105k income (income has nearly doubled in a year and a half)

-Been at the same job over two years

-$750 in loans (car loan and student loan combined, $12/24k left on the car loan, $28/34k left on student loans)

-No CC debt

-$20k for down payment

I live in the Seattle area and the home prices here are just absurd and I don't see them dropping (in fact, I would be shocked if we aren't SF 2.0 in a decade). So I do have confidence in that risk. My down payment amount is very low, so I will be looking at either an FHA or loan with mortgage insurance (which is what I prefer because I think equity will come very fast). Based on these numbers...I am looking at a home in the $400-450k range. Does this seem reasonable?

[Anonymous]

I would assume you have an FHA-worthy credit score and having no CC debt is good in general but can be a slight hindrance when getting a mortgage since having a small balance on one card can actually boost your score. If you have a score in the 700s, you may want to consider conventional as it'll be a better loan in the long run the higher the score you have. Your DTI won't been an issue. Seattle home prices have been running up like crazy. As a matter of fact, the whole West Coast has been wild for a while. You look to be in good shape.

[tacpoly]

Can you find a place in Seattle for $400-450K nowadays?  I was there 10 years ago and my budget for condos when I was looking (mostly Belltown, Ballard, Wallingford, Lake Union, and a venture to Bainbridge) was $650-800K.  I thought most of the condos were overpriced for what I was getting -- and I was comfortable with the SF market so it wasn't sticker shock (turns out I was right as the US economy and housing market collapsed). 

[HiFromSeattle]

Yeah, you can still find some decent property in the area for that cost. I'm not trying to live in the city of Seattle, but somewhere like Woodinville, Bothell, issaquah, Edmonds, Mukilteo etc. I might have to push it up to $500k, but I really don't want to do that at all. However, I do feel pretty comfortable with the market growth here and I think we will see where people break away from Amazon/MSFT and continue to build more VC tech companies that will turn us into SF 2.0.

As far as my credit scores go, they are all around 720ish. I do want to go to the conventional loan route, but slightly confused how that works. Do I go into my credit union (BECU which is well known here in the state) and just apply for a pre-qual and they force me to get private mortgage insurance until I reach 20% equity? The APR is also higher too, which I can refinance later down the road. My understanding is that FHA loans cannot be refinanced and the fees are stuck on there.

Thanks for all of the info! Knowing this market, I'll be looking from this winter until next, probably.

[StartingOver10]

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@HiFromSeattle wrote:

Yeah, you can still find some decent property in the area for that cost. I'm not trying to live in the city of Seattle, but somewhere like Woodinville, Bothell, issaquah, Edmonds, Mukilteo etc. I might have to push it up to $500k, but I really don't want to do that at all. However, I do feel pretty comfortable with the market growth here and I think we will see where people break away from Amazon/MSFT and continue to build more VC tech companies that will turn us into SF 2.0.

As far as my credit scores go, they are all around 720ish. I do want to go to the conventional loan route, but slightly confused how that works. Do I go into my credit union (BECU which is well known here in the state) and just apply for a pre-qual and they force me to get private mortgage insurance until I reach 20% equity? The APR is also higher too, which I can refinance later down the road. My understanding is that FHA loans cannot be refinanced and the fees are stuck on there.

Thanks for all of the info! Knowing this market, I'll be looking from this winter until next, probably.

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No, that information you have is not correct.  You can refi an FHA loan just like any other mortgage.

The PMI requirement is based on your LTV. You can research a bit about the cost of PMI and how it relates to your credit score and LTV.  Here is a sample rate card from one of the national PMI companies for you to review,  There are only a few PMI companies. Most are similar in their costs.

https://www.mgic.com/quick-pick-rates/

[ezdriver]

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@HiFromSeattle wrote:

Yeah, you can still find some decent property in the area for that cost. I'm not trying to live in the city of Seattle, but somewhere like Woodinville, Bothell, issaquah, Edmonds, Mukilteo etc. I might have to push it up to $500k, but I really don't want to do that at all. However, I do feel pretty comfortable with the market growth here and I think we will see where people break away from Amazon/MSFT and continue to build more VC tech companies that will turn us into SF 2.0.

As far as my credit scores go, they are all around 720ish. I do want to go to the conventional loan route, but slightly confused how that works. Do I go into my credit union (BECU which is well known here in the state) and just apply for a pre-qual and they force me to get private mortgage insurance until I reach 20% equity? The APR is also higher too, which I can refinance later down the road. My understanding is that FHA loans cannot be refinanced and the fees are stuck on there.

Thanks for all of the info! Knowing this market, I'll be looking from this winter until next, probably.

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You can get a conventional loan without PMI with less than 20% down payment. The products vary among lenders. Start with your credit union.

With FHA loans, PMI goes away in year #10 if the down payment was at least 10%. You can in fact refinance FHA loans ... I did earlier this year.

[HiFromSeattle]

So my next question is about refinancing FHAs and mortgages in general.

As I mentioned above I live in the Seattle are where home prices are going up anywhere between 8-15% a year depending upon the exact area. if I put 3.5% down, what is to keep me from refinancing in 2-3 years, assuming the growth rate stays the same or goes higher? Of course the market is hard to predirect, but for this hypothetical let's assume. In 2 years I would have ~20% equity in the home, could I just refinance at that point?

[StartingOver10]

^^^Yes.