08-23-2013 06:20 AM
Hi Folks. I realize this a long post, but I sure would appreciate your time and any feedback you have to offer.
I am a first time homebuyer and have been pre-approved for an FHA mortgage with a mid score of 659 with a BK >2 yrs ago. I am leary b/c when I declared BK I never dreamed I could rebound this fast. It's a long story, but the BK had to do with circumstances beyond my control that lead to a true financial hardship (medical bills, funeral expenses, ect).
Anyway, I have had no late payments since and have no collections. I have a low debt to income ratio and I have a solid income with 12yrs with the same employer. My score was 686 but it dropped a while after I paid off my vehicle loan, which I am assuming b/c it changed my mix of credit. Now I only have 4 student loan accounts and 2 credit card accounts. In addition I have found my dream home.
Here are my concerns....
1) I have only 3.5% saved for down payment, which will actually be closer to 5% before closing. Anyway, I am currently planning on 6% seller concession, which has been agreed to. My LO says this will not be a problem, but I am afraid an underwritter may think otherwise.
2) The seller is a realative, which I have disclosed to my LO. He said this would be no problem as long as his latest mortgage statement was forwarded and is current. This is not a short sale and his mortgage is current. In addition it has been his primary residence for years. Could this later become a problem despite what my LO is telling me?
3) I will likely not close on this house before the expiration of my pre-approval, which my LO is aware of. I understand I will have to be pre-approved again and would like to boost my score. My one CC has a $300 limit which last reported with $59 on it, which I have paid off. My other CC has a $4000 limit which last reported with $2200. I told my LO I wanted to pay this down to around $350 and he told me that I only should need to get it down to $1200. From what I have read here the best way to boost my credit is to keep one card reporting with a 0 bal and another at <10%. I am not sure which way to go b/c obviously padding my savings more wouldn't hurt, but I would also like a decent boost on my credit score. I wonder if I do boost my score if it will it be enough to improve my interest rate.
4) I am so nervous about the appraisal of the home. The seller had previously spoken with a local realator that knows the home and he said he would list it for about $40k higher than what I am buying it for, but the realator didn't actually do a market analysis. The home has a shared well and I am worried about how this could affect the value.
5) How solid are pre-approvals? Prior to receiving it I sent in all financial info, bank statements, taxes, ect. The lender has an A+ BBB rating. As I understand it ,this is pretty solid as long as I don't do anything drastic; damage my credit, max out credit cards, change jobs, and there are no issues with the home such as the appraisal. Or is this too good to be true?
6) How does my spouse affect the loan process? I am soley applying for the mortgage, but want to be prepared if they are going to consider his financial responsibilities, income, and credit. They hadn't asked for any of his info for the pre-approval, but should I expect this with the actual loan application or prior to closing?
08-23-2013 06:45 AM - edited 08-23-2013 06:46 AM
Welcome to the mortgage forum!
Sounds like you are well on your way to owning your first home! Congrats.
1) Since you are going FHA 6% for seller concession is allowed (3% max for conventional). The u/w won't change the rules on you
2) It's perfectly fine to buy a relatives home as long as it is not a short sale.
3) Since you are going FHA, there really is no tiered rate with FHA. It's approved or not. You have an approval. Paying down your debt is a good idea, but you have flexibility here. It's also a good idea to have cash saved. Maximizing your score is actually more important if you are going with a conventional loan where you do have tiered rates (better the score, the less you pay in interest). Since you are getting an FHA loan, it is less important to maximize your score once you are above the score needed to qualify. So really, it's up to you as to how far down you want to pay your debt once you get to less than $1200 owed and how much you want to put into savings.
4) You should be fine on the appraisal based on your comment. But naturally the appraiser will determine value. How is the condition of the property overall (paint, electrical, plumbing, roof etc)?
5) Are you in a community property state? If so, your spouses' debt and credit will be taken into account. If not, then it is just your credit, debt and income.
08-24-2013 05:49 AM
I really appreciate the response StartingOver. I feel so much better! To answer your question, the house was a complete re-model 6 years ago. It was taken down to the frame so everything is new. New roof, siding, walls, floors, furnace, electric, plumbing, foundation fixed and repoured. ect. The only thing I can see is that the house needs to be weather proofed again (pine siding) but there is no chipping paint or anything like that. In addition the carpet is worn, but not filthy. Again, thank you for all the info!