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Hello All ,
My husband and I are looking to buy a home this October. We currently have $6000 saved up so far. My husbands salary is $43k and mines is $60k. (I just started a new job where I will receive my sign on bonus of $2500 in august so this may be added.)We have monthly debts that include 5 credit cards( 2 major and 3 retail), students loans and 2 car loans that add up to $1500 a month. We are looking for a home possibly below $215k. We are planning to save up at least $4k more. My husbands job covers closing cost. 1 card is almost maxed out due to a balance transfer I made so I could save on interest. One other is 64%.total credit card debt is $9k. So should we focus on paying down the balance on the cards or should we continue saving. Both of our credit scores are in the mid 600s (650-680) We have been in our apartment for 4 years with no missed payments no evictions. All of our bills have been paid on time over the last 5 years. Tips please.
Are those your actual mortgage scores you are referring to or your FICO scores? Lenders look at a different version of our scores when applying for a mortgage.
Paying down the credit cards will certainly give you a boost in your mortgage scores, so if you can, I would say pay those down. The ultimate goal would be to pay down all of your credit cards to a $0 balance except one. The one you have reporting a balance should be 9% or less of your limit. So if your limit is $1000, you want no more than a $90 balance reporting on your credit.
On another note, with the signing bonus, it won't be calculated unless you can prove that you've received a bonus like that for the past two years. Otherwise, it's not considered guaranteed income. I received a $5,000 signing bonus when I started my new job in December 2016 and we can't use it for DTI because that was my first time receiving it.
My feeling is that you should make sure that all of your cards are paid to < 49%. (47% may be better if you are paying interest each month.) This is the absolute minimum you should be doing. It will give you a definite score boost given what you have described. (Far better would be < 49% with a total utilization of < 29% and as many $0 balances as possible.)
Imagine that you do the minimal paydown of all cards at < 49%. Then project how much money you'd have available for a downpayment.
If you buy a house at $220, you will need $11k for a 5% downpayment in Sept. You can start talking to lenders and the folks here about whether a 5% DP is realistic.
You may discover after you do all the math that buying in the fall is unrealistic. That there is no way to pay down your CC debt and have money for the DP you will need. If so, you will need to rent for a year or two longer. But perhaps you will find a way to pay down your debt and get the loan.
Best wishes...
Hey CGID,
If OP goes FHA, the down payment is only 3.5%. There are also conventional programs out now where you can do a 3% down payment. Making a 5% down payment is not as common as it used to be.
With a 3.5% down payment, it's only $7,700. But I agree, paying off those credit cards will free up some extra money!
I have 3 cards that are below 30% its just 2 that are at 64% and 90% I believe I can get those to 50%. If I tried to bring all of them down to 30% I will feel like I will be throwing all of my down payment & savings at a few cards. We are stuck paying high rent in our city and with no family members to move in with we really don't have a choice. Its so discouraging b/c it feels like we are being priced out. Its a little frustrating b/c we have been working really hard on our credit over the last 5 years paying bills on time with no deliquencies. Its a little annoying that utilization alone can keep us out. Even when we have the income track record to prove it. Sorry for the rant I know you all are just trying to help.
No worries. You sound like me when I was beginning our mortgage process as I needed to pay off collections! I literally emailed our lender one day and said we may have to walk away from the house because there's no way I can handle paying the collections and helping to save for the down payment of our house.
It would really help if you give us all of your current balances and limits and we can go from there. It will help to calculate individual utilization and aggregate utilization.
Also, do you know your mortgage scores? The scores lenders look at are not your FICO scores.
This is a more clear breakdown of our situation.
Income: $103,000 Annually
Debts
Student Loan: $400
Car Loans $824 (2 auto loans one honda financial and the other credit union)
Capital One Venture One: $3700/5250 Monthly pmt: $80
Wells Fargo: $3700/4000 (new card due to loan balance transfer) Monthly Pmt: $40
Walmart: $700/3000 Monthly pmts: $25
Macys: $800/3300 $37
Best Buy: $600/3000 $25
I hope this makes sense.
@kjones2011 wrote:This is a more clear breakdown of our situation.
Income: $103,000 Annually
Debts
Student Loan: $400
Car Loans $824 (2 auto loans one honda financial and the other credit union)
Capital One Venture One: $3700/5250 Monthly pmt: $80
Wells Fargo: $3700/4000 (new card due to loan balance transfer) Monthly Pmt: $40
Walmart: $700/3000 Monthly pmts: $25
Macys: $800/3300 $37
Best Buy: $600/3000 $25
I hope this makes sense.
So here's what I come up with for your DTI. I'll let the actual lenders chime for confirmation.
With the amounts and monthly payments you listed, you are coming in at 16% DTI, which is good with your income. Expenses $1,431 / Monthly Income: $8,583
If you go FHA, there are some lenders who prefer to keep your DTI ratio no more than 43% including your mortgage payment, which means you would be able to afford a mortgage of $2,259. To get this math, 43% of your income is $3,690, subtract that from your monthly expenses of $1,431 and you get the $2,259 payment. There are some lenders that will go up to 55% on DTI, which for you is $4,720 of your income meaning you could afford a $3,289 mortgage payment.
Here's where it gets tricky...what is the balance of your student loans? Unless you are going Fannie Mae or Freddie Mac, lenders will use 1% of your student loan balance for calculation.
Also, some lenders use 5% of your credit card balance when calculating your DTI which adds to your debt. Your current credit card limit is $18,550 and you are using $9,500 of it which is 51% utilization. I would highly suggest working on paying down the Wells Fargo card. If you were to apply for a mortgage today, a lender would see that you are maxed out on that card. And for FICO scoring, anything above 89% utilization is considered "maxed out" so I'm sure that's holding down your scores.
Thanks for all of your help and the breakdown of this all.
The balance of my student loans are $46k and my husbands are $10k. Mine were consolidated last year so the monthly payment is $301 a month and my husband is $80 a month. I do have plans to paydown the wells fargo over the next few months along with getting the credit limit increase on it Also I plan to get the the credit limit increased on the capital one card also. We are definitly not looking to buy a home with a $2-$3k payment. We are just shooting for $1600 a month max. I'm not trying to be house poor.
@kjones2011 wrote:This is a more clear breakdown of our situation.
Income: $103,000 Annually
Debts
Student Loan: $400
Car Loans $824 (2 auto loans one honda financial and the other credit union)
Capital One Venture One: $3700/5250 Monthly pmt: $80
Wells Fargo: $3700/4000 (new card due to loan balance transfer) Monthly Pmt: $40
Walmart: $700/3000 Monthly pmts: $25
Macys: $800/3300 $37
Best Buy: $600/3000 $25
I hope this makes sense.
Yes, this makes sense. Based on what you have said so far, it looks like an FHA loan would be better for your circumstances based on your current debt and your current scores. A conventional loan with 3% down payment and your scores will have very high closing costs and very, very high PMI.
A good LO has a way to input your information and tell you what you need to do to boost your score.
I do think that you would be in better shape if you paid down the Wells Fargo card with your bonus funds. Pay it to less than 49% (or even less) - that is a payment of $1740 to bring it to $1960 (or less).
Then, if I were in your shoes, I would pay down the Cap one to $2500 or less (if possible). The alternative would be to pay off the Best Buy card to zero. I don't know which one will get you more points. Do you have any cards that are at zero balance now?