10-20-2012 09:41 AM
I will be purchasing a home soon. I live in Rhode Island and the housing market pretty much stinks so homes are going to a decent price. The home we are looking at is 162,500. My income is around 40,000/yr. My wife's income is about 30,000 but her credit isnt the greatest at the moment so we will be using just me as an income. I have about 6 credit cards which have nothing on them. My only debt is 437/mo car payment. I just got it in May and is my 4th car loan. All the rest were payed off and never late. I have saved 33,000 which is 20% of the 162,500 to place as a down payment but I am wondering which situation is better seeing the debt to income ratio.
Is paying 33,000 as the down payment the best choice? The other choice is paying off 25,000 for the car and only using 8,000 for the down payment, which would cause PMI but that doesnt worry me to much.
Any feedback helps! Thanks!
10-20-2012 12:40 PM
It is important to have money set aside for a contingency plan encase of emergencies. When I purchased my home I didn't have that much saved but I am striving towards having 6-9 months of income set aside for (life's little hiccups). I like the 20% down payment in which you could avoid the PMI and bring down your monthly payments. With my USDA my PMI is only about $30 per month. I make around what you make and had very low DTI and was pre-qualified for $150,000. I would suggest you find out what the Lender/MB will qualify you first before you make any financial decisions.
10-20-2012 02:30 PM
Thank you for both suggestions. Let me give some more info.
I have a total of 43K saved up. 10k is get aside for some closing costs and the safety net as suggested. The property is priced at 162,500 which is the cheaper end of my area. It is a fixer upper but as a starter home (this will be my and my wife's first home) is perfect. Were both 30 so this will be a great home for us to text the water, especially on the cheaper side. If I pay off the car, my DTI will be ZERO. The owner of the house has agreed to pay some of the closing costs so that helps greatly also. I would think we could get the house for about 155,000 so I assume that the mortgage at 3.5%, .5% PMI, 2000 taxes (its what the house was in 2011)... its about 30-31% of my DTI. I assume the loan for this priced house wont be hard to get with either of the down payments.
10-20-2012 04:05 PM
10-20-2012 05:04 PM
10-21-2012 08:28 PM - edited 10-21-2012 08:40 PM
Conventional mortgages can either be held by the bank as a "portfolio mortgage" or they can be packaged and sold to the secondary market which is Freddie Mac or fannie mae. Low down payment mortgages come with something called mortgage insurance which pays the first 20% of the loss; and then Freddie or fannie absorbs the rest of the loss if a borrower were to default. During the housing bust; many mortgage insurers went bankrupt as they did not have sufficient reserves to cover the losses sustained. That caused a freeze in lending until mortgage insurers and Freddie Mac and fannie mae rewrote their guidelines to become more conservative. Freddie and fannie were propped up by the government to avoid a complete meltdown of the secondary conventional mortgage market. Most of the subprime mortgage insurers went bankrupt; as did the banks who were issuing those mortgages and keeping them in their portfolio. Some banks packaged mortgages into bundles and sold shares of these bundles (aka mortgage backed securities) to investment banks such as Merrill lynch and Goldman Sachs. Many of the investment banks sustained huge losses as the security value dropped substantially once the individual mortgages in the bundle stopped performing (mortgage default / foreclosures)
After the debacle that was the 2008-2009 total mortgage meltdown it would be very wise for each citizen of this country to know exactly what went on; since so many of our tax dollars were used to patch the leaky holes created by greed.
The banks were writing these portfolio subprime mortgages with dollar signs in their mind due to the high interest rates they would gain once the ARMs reached the point where they readjusted and due to the higher interest rates people were paying who were in these loans at a fixed rate. They never considered the many layers of risk they were adding to their investments when you consider that humans are human and unavoidable things like a job loss or bad health could make people.stop paying off their house.
Also a lot of banks thought that the house would be worth more when the borrower defaulted than it was worth when it was bought due to all of the crazy inflation and the rise of the housing bubble.
Government loans such as va loans; Fha loans; and Usda loans are sold to an entity called ginnie mae. Ginnie mae is goverment owned and ginnie mae puts up the funds for Fha and va and Usda to insure those loans. If a borrower defaults; the bank who originated the mortgage will be investigated to make sure.that they are.following the established underwriting guidelines and aren't just fudging their way through. If they are found to be fudging; then they lose the ability to originate loans and they are forced to buy back the defaulted loan. This measure was put in place after the meltdown because ginnie mae was also losing a ton of money.
10-21-2012 08:30 PM - edited 10-21-2012 08:31 PM
We posted at the same time.
Conventional loans conform to the freddie and Fannie guidlines. Banks can sell the loans to them, and they sell the loans on the open market.
FHA loans are government insured.
It is much easier to get an FHA loan, but it comes at a cost of high PMI fees.
Conventional you need higher scores, but you can do neat things with PMI. Like lender paid MI with an upfront fee or take a higher rate. And its alwasy cheaper then FHA.
FHA is good is you have average credit and the home you want is within the loan limits.
Conventional is good if you score high and if you want a more expensive home.