topic Re: Critique my current mortgage situation. Chances? in Mortgage Loans

Critique my current mortgage situation. Chances?

cartwrna — Sat, 13 Dec 2014 22:15:36 GMT

Credit. Me current mid score is 626, Wife current mid score is 643, me I have 1 collection from May 2013 for $1100 (will pay off this month if necessary, Dk how it would effect score) and one charge off from July 2013 $0 balance. One 30-60-90 day late on current credit card for Jul-Aug-Sep 2013 but in process of having removed. Wife 3 collections amounting around $1500 from 2012 (can pay off anytime) and one charge off from July 2013 $0. As far as our reports I have 4 credit cards in good standing, 1 student loan opened in 2007 always on time with a $1100 balance I will pay off next month. I have 2 good car loans one from Sep 2013 and one from May 2014. My Wife has 5 good standing credit cards, same car loans as me, and a student loan about to go into repayment.

Income- Me salary of 50k with guaranteed overtime monthly (can get it in writing, I'm non-exempt salary which means I get my OT @ a rate of $34.68 an hour) that puts my yearly gross at or above 63k I work full-time have been in current position for a year and a half came from previous job of 3 years with no lapse in employment. Wife grosses 10k a year on a part time hourly job she has been at for a year, she was at previous employer a little over a year with no lapse between job changes so our combined income yearly is around 70-75k.

Monthly debt payments- car loan #1 $350 monthly, Car loan #2 $550 monthly, SL $150 monthly, CCs minimums come to around $200 monthly (may close a few if needed)

Assets/Reserves- Will have potentially 10-15k in savings, have employer retirement account (unsure on amount currently). Looking to put 3.5% down FHA possibly?

Location- Iowa

Property- Single family

Value- 150-175k range, but flexible.

Occupancy. Primary residence

Transaction Type-purchase

We are not looking to start process until May 2015 so our scores will fluctuate hopefully going up. Our credit cards currently carry balances at or around 50% of the limits so paying those down will give us score increases, which we plan on paying to $0 balance prior to applications but will carry a 10% balance on one of each of our cards to maximize our scores. By May all of our inquiries will fall off of our reports besides 2 on each one. Where do I currently stand? Is 150-175k range reasonable with current dti? I'm not that wise into mortgages mainly just lurking around the rebuilding pages but want to get a head start on tweaking our profiles for a home loan.

Thank you for any and all input, I appreciate all advice!

Re: Critique my current mortgage situation. Chances?

StartingOver10 — Sun, 14 Dec 2014 22:37:04 GMT

It is a good idea to do exactly what you are doing - checking out your potential before you make application.

Once you pay down the cc's your scores ought to increase. You will have a chance to go conventional once your lowest mid-score reaches 680. You can do conventional at a lower mid-score, but the MI is much higher. The benefit to you occurs at about 680.

Do you know how much your real estate taxes and insurance would be for a property in your area priced at $150k to $175k? That is critical to the approval process. If you end up with an FHA mortgage (which is probable with the info you posted) you will have to accomodate the monthly mortgage insurance in your payment.

So, this is what I see (and I'm a Realtor, not a lender):

Gross Income: $70k to $75k. Lets use $72.5k average (you will have to see what this year's income is) $6041.67/month approx

Debt: $350 (Car 1); $550 (Car 2); $150 (SL); $200 (cc) = $1250/month min payments for back end debt

Potential new house payment (with some broad assumptions! ) Assume mortgage is $175k, rate is 4%, FHA loan, monthly PI=$836 + MI= $254.21 + HOI $ 84 (straight out guess) + $ 250/mth for real estate taxes (wild A** guess) = $1424.21 which is 23.57% of your gross

Naturally, it can vary widely by your actual real estate taxes and actual insurance. So make sure those are the figures you use.

If you add in your back end debt you have $1424.21 (front end) plus the $1250 is a total debt of $2674.21 which is a back end ratio of 44.26%

You can see if your taxes and homeowners insurance are much higher it could be very tight depending upon the maximum ratios that the lender you use allows.

The lenders I use have a max back end ratio of 56.99% for FHA and about 49% for conventional (back end). For the front end the max for FHA is 44.99% I don't remember what the front end max ratio is for conventional right at the moment. I know it is much lower for conventional but I don't want to tell you a wrong figure.

Each lender has their own criteria. Some are more strict than others in their ratios, You have to ask the lender you are using what their max ratios are for both the front end and the back end so you know where you stand.

Bottom line: you are okay right now for FHA. If you are looking to tweak your numbers to go for conventional, get your lowest mid-score (between the two of you) up over 680 and it will be well worth it. The mortgage insurance is much less over 680 and very cheap if you get your lowest mid-score over 720. Some lenders prefer over 740.

Re: Critique my current mortgage situation. Chances?

cartwrna — Mon, 15 Dec 2014 08:26:58 GMT

Thanks for the reply! I didn't think anyone would leave a reply lol. I like the answer you gave as it gives us something to work towards. We are wanting to start the process around June it is looking like. But in no means are we in a huge hurry. We currently live comfortably in a 3 room 2 bath rental for $300 a month (cheap I know, it's my wives Aunts home). We are also still plenty young with me being 25 and wife 24, but would love to be working towards some equity in a home. We also have one child and are planning a second so an upgrade would be nice in the near future. I think we will try to work our scores up as you said in order to attain better terms :-)

Re: Critique my current mortgage situation. Chances?

StartingOver10 — Mon, 15 Dec 2014 13:46:51 GMT

The quickest way to increase your score is to pay down your revolving debt (credit card balances). It takes 30 to 60 days for some of the cards to report the lower balances so take that into account.

One more thing: because your rent is so low you may run into a "payment shock" type situation. One of the LOs on here can answer the question as to the percentage, but if your new payment is more that X% above your current payment, it can restrict what you can purchase. You can overcome payment shock by putting down a larger down payment (10% or more rather than the min 3.5% on FHA loans).

You have another issue too: you are renting from a relative. You will need to show proof of rental payments for 12 months (canceled checks are good for this).

Re: Critique my current mortgage situation. Chances?

cartwrna — Mon, 15 Dec 2014 14:34:24 GMT

The relative we rent from has different last name than me and my wife, so we would go by the don't ask don't tell policy. As far as rental goes we do have a contract which states our rent is $600 a month, but she gave us leeway due to we pay all the utilities which are in her name.We pay in cash and she gives us a receipt. If need be we can start paying her the full $600 and her take care of some of the utilities. That way there is a paper trail of $600 instead of $300. I will do a quote for insurance on a $175k home and see what I'm offered. I believe I can do that anyhow?

Re: Critique my current mortgage situation. Chances?

cartwrna — Mon, 15 Dec 2014 14:36:14 GMT

Also, should we start paying by check so that it shows the withdrawals from our bank account, not sure if "cash" is frowned upon in the mortgage world. And as far as down payment we could swing 10-15k if need be.

Re: Critique my current mortgage situation. Chances?

StartingOver10 — Mon, 15 Dec 2014 16:23:28 GMT

@cartwrna wrote:
Also, should we start paying by check so that it shows the withdrawals from our bank account, not sure if "cash" is frowned upon in the mortgage world. And as far as down payment we could swing 10-15k if need be.

Yes, in the mortgage world cash is a no-no. If you can't prove it, then it doesn't exist. So definately increase your payments to $600 per the lease and use checks so you can show you paid the full amount of rent.

Re: Critique my current mortgage situation. Chances?

cartwrna — Tue, 16 Dec 2014 04:45:43 GMT

Well I did a insurance quote on a home I found listed for 160k, quote came in at $367 a month. The coverage for the dwelling they listed was 367k though! Why so high when the home is only worth 160k?!

Re: Critique my current mortgage situation. Chances?

Anonymous — Tue, 16 Dec 2014 10:26:35 GMT

The reason the coverage shows 367k is because that is the cost to rebuild should something happen to your home. It is based on the type of home, style, rooms, upgrades, etc.

Re: Critique my current mortgage situation. Chances?

StartingOver10 — Tue, 16 Dec 2014 12:38:04 GMT

@cartwrna wrote:
Well I did a insurance quote on a home I found listed for 160k, quote came in at $367 a month. The coverage for the dwelling they listed was 367k though! Why so high when the home is only worth 160k?!

Are you sure that is a monthly quote? Most of the quotes I see are annual quotes and not monthly.

Re: Critique my current mortgage situation. Chances?

cartwrna — Tue, 16 Dec 2014 16:43:04 GMT

That showed as per month payment. It would just be an estimate as I didn't put my social or anything in (didn't want a HP on credit). It was also through an insurer I've never used. I'm with allstate for all my insurance but they didn't offer a quote online. I'm assuming they would be cheaper for me as I have several vehicles covered with them as well.

Re: Critique my current mortgage situation. Chances?

cartwrna — Tue, 16 Dec 2014 16:43:53 GMT

That quote was through "Farmers"

Re: Critique my current mortgage situation. Chances?

Glenn_S — Tue, 16 Dec 2014 18:40:29 GMT

Steer clear of Farmers. After 15 years, they jacked my rates up more than double, with no Renters, boat or vehicle claims. I went back to Allstate and saved over 1200 annually on my lines of business. Since we are in the process of buying, I spoke with my Allstate agent and she quoted me $763 on a $170k home, without doing a credit pull. She stated it should be within about 10% of actual rate (we are in Minnesota). $367 a month is crazy, unless you are in an area known for hurricanes and flooding.

Re: Critique my current mortgage situation. Chances?

cartwrna — Tue, 16 Dec 2014 19:31:30 GMT

LOL I'm in Iowa so no hurricanes and flooding is possible due to the Des Moines River runs right through town but it's isolated flooding and doesn't happen often. Also contained to one rural area away from where I'd be buying.

Re: Critique my current mortgage situation. Chances?

Anonymous — Tue, 16 Dec 2014 23:24:52 GMT

"LOL I'm in Iowa so no hurricanes and flooding is possible"

Yeah but what about tornados?

Re: Critique my current mortgage situation. Chances?

cartwrna — Wed, 17 Dec 2014 01:25:47 GMT

We had an EF1 this year, previous tornado was in 1999. We're not a very high disaster area. My wife tells me that is why she doesn't want to leave this area :-p

Re: Critique my current mortgage situation. Chances?

wagsk1 — Wed, 17 Dec 2014 04:43:22 GMT

I live right on the Jersey shore and I don`t pay that much for 2 homes. Something does not sound right.