topic Re: A little nervous--Will I qualify for a mortgage? in Mortgage Loans

A little nervous--Will I qualify for a mortgage?

Anonymous — Tue, 05 May 2015 02:13:16 GMT

I've been working on my credit for some time in hopes of buying my first house. My family is ready to make a move, but is my credit? We recently came across a great house, but I'm nervous about approaching the bank. Any and all suggestions are appreciated.

Credit. FICO 8: Equifax 648; TransUnion 654; Experian 653. | FICO 4: TransUnion 647| FICO 2: Experian 621| FICO 5: Equifax 580.

Negatives:

Judgement (Paid/Satisfied) - Medical $1,326
9 Paid Medical Collections
9 "Unpaid" Medical Collections (Currently on payment plan with collection agency)

4 credit cards at zero balance (just increased a line of credit, which is not reflected in credit score)

1 credit card with one 30-day late from March 2010. (Card services will have rejected multiple requests for goodwill deletion).

1 car loan with 100% on time payments
$9,147 Student Loan (Deferred until June)

Income. $40,000
Source of income. Salaried Full-time Employment.
Monthly debt payments.

$275 Car Payment
$100 Student Loan (starting in June)

Employment (for those who are employed). Full-time employment at a 501c3 nonprofit. 7 months at current job, 3 years and 2 months at prior job.
Assets/Reserves. $3,500 IRA; $5,000 Cash
Location. Tulsa, Tulsa County, Oklahoma
Property. Single family home
Value. $100,000-$120,000
Occupancy. Primary residence
Transaction Type. Purchase

Re: A little nervous--Will I qualify for a mortgage?

frugalQ — Tue, 05 May 2015 02:41:23 GMT

Congrats on being ready to buy a home!!! Have you checked your DTI? You can one one of those 'how much home can I afford' calculated to get an idea.

Since you are on a payment plan, you may need to include the payment into your DTI calculation.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Tue, 05 May 2015 02:43:43 GMT

Thanks! My DTI came out to 3%-5% depending on the scenario.

Re: A little nervous--Will I qualify for a mortgage?

frugalQ — Tue, 05 May 2015 02:50:54 GMT

Did you include an estimated mortgage payment.

If you are ready emotionally and financially to purchase a home, go for it!!! It is definitely an intimidating process, but if you find a good LO, they will definitely help reduce the anxiety.

Good luck and keep us posted.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Tue, 05 May 2015 22:49:46 GMT

UPDATE: So, I applied for a loan today, but was told that I have 2 options:

1. Pay off my car ($4,900) and defer student loans for one more year to qualify for $120k

2. Only defer student loans to qualify for $70,000

Do nothing and qualify for $50,000

My financial advisor recommended that I not pay off the car because it helped my credit score.

Re: A little nervous--Will I qualify for a mortgage?

StartingOver10 — Tue, 05 May 2015 23:00:00 GMT

@Anonymous wrote:
UPDATE: So, I applied for a loan today, but was told that I have 2 options:
1. Pay off my car ($4,900) and defer student loans for one more year to qualify for $120k
OR
2. Only defer student loans to qualify for $70,000
OR
Do nothing and qualify for $50,000

My financial advisor recommended that I not pay off the car because it helped my credit score.

There is no one size fits all answer to this. I have seen many people run into road blocks with the vehicle payment. When going for a mortgage it is better to get your DTI in line - which usually means paying off the vehicle when possible.

You have student loans. They are installment loans so the pay off of your vehicle loan should only be a very short term hit and then you recover quickly. Installment loans are only 10% of your FICO score. I have seen scores in the 700s with no installment loans at all.

From your post above, your DTI is killing you. Are there $50k homes that you want to buy in your area? If there are, then it isn't an issue. If not, and you want a home, then pay off the vehicle and gain your points by reducing the balances on your revolving accounts. Or in your case, let $25 report to one of your accounts. If all of your cc balances are zero you take a point hit. You have to let one cc report a balance of 1% to 9% of the individual card limit to optimize your score.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Tue, 05 May 2015 23:00:33 GMT

@Anonymous wrote:
UPDATE: So, I applied for a loan today, but was told that I have 2 options:
1. Pay off my car ($4,900) and defer student loans for one more year to qualify for $120k
OR
2. Only defer student loans to qualify for $70,000
OR
Do nothing and qualify for $50,000

My financial advisor recommended that I not pay off the car because it helped my credit score.

The numbers don't make sense unless your payment plan monthly debt is huge. I'd see a new lender.

Re: A little nervous--Will I qualify for a mortgage?

StartingOver10 — Tue, 05 May 2015 23:02:38 GMT

OP, what are the real estate taxes and homeowners insurance in your area for the type of home you are looking to purchase?

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Tue, 05 May 2015 23:47:12 GMT

These numbers make absolutely no sense to me... Are you sure you're sharing your complete DTIR? I ran what you shared through a few calculators, and estimated ~ $800/year for homeowners insurance, and $2,500/year for property taxes, and I got qualifying amounts of $110,000 to $120,000 each time.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 01:28:14 GMT

Sorry--Yes! There is something new to factor in. I didn't realize that they counted childcare in the DTIR. So, Add in $700/month. He also added in the student loans, even though they are in deferment.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 01:37:26 GMT

On a $100,000 home annual taxes are $1,465. Homeowners Insurance quote on a potential home came in at $4,287/Year.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 01:52:46 GMT

Considering your new numbers, you can't afford a house. Not even close. With your student loans factored in, and assuming you can access all of the $8,500 you have available (cash and 401k) for a downpayment, every calculator I've put you through qualifies you for only $8,500.00 to $10,000.00. With those insurance and tax numbers you estimated, your DTIR is way too high at nearly 50%. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income; on top of all that you'll have extra utilities such as electric, water, sewer, trash pickup, and gas. I'm sorry, but I don't see any chance of you qualifying for a mortage at this time. Your best course of action is to remove as much recurring debt payments as possible (and I would not suggest deferring loans - remember, that's temporary, but a mortgage is 30+ years), and looking for ways to increase your monthly income.

Re: A little nervous--Will I qualify for a mortgage?

StartingOver10 — Wed, 06 May 2015 01:56:04 GMT

@Anonymous wrote:
On a $100,000 home annual taxes are $1,465. Homeowners Insurance quote on a potential home came in at $4,287/Year.

Wow, low taxes and extremely high homeowners insurance. The rate you quote of $357 per month rivals our rates here in Florida.

Is it because of the particular structure? Do you have a way to mitigate this expense?

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 01:56:38 GMT

@Anonymous wrote:
On a $100,000 home annual taxes are $1,465. Homeowners Insurance quote on a potential home came in at $4,287/Year.

That seems awfully steep for homeowners insurance. I'd still try another lender.

Re: A little nervous--Will I qualify for a mortgage?

StartingOver10 — Wed, 06 May 2015 02:01:53 GMT

Check this link. It is about HOI in your area and gives average HOI costs for various insurance companies - scroll to the bottom of the page. The insurance costs were much lower than in your post. Is it possible that the particular home for which you requested a quote has some issue that would make the HOI high? Like many previous claims or something else?

https://www.ok.gov/oid/Consumers/Insurance_Basics/Home.html

I agree with dpeezy - check another lender. Not a bank, they are too conservative.

Re: A little nervous--Will I qualify for a mortgage?

frugalQ — Wed, 06 May 2015 02:28:35 GMT

Child care is factored into DTI calculation? I didn't realize that.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 02:49:24 GMT

It makes sense - it IS a recurring monthly committment. It's also usually administered by a court, and will be reported on your credit report.

http://www.creditcards.com/credit-card-news/surprise-weird-items-impact-credit-report-1282.php

@Anonymous.com wrote:

Child support
In accordance with a 2003 amendment to the Fair Credit Reporting Act, child support payments are treated like any other money owed -- both current and delinquent payments are shared with credit bureaus and noted on a credit report. However, the listing of those payments (or the lack thereof) on a credit report will not factor into the parent's FICO credit score. As outlined on its website, Fair Isaac does not consider items reported as "child/family support obligations" in calculation of the credit score.

Re: A little nervous--Will I qualify for a mortgage?

frugalQ — Wed, 06 May 2015 02:47:51 GMT

Child care on credit report and mandated by the courts? Ok, I can see the court mandate if it's part of a divorce or custody situation. What if the child will be going to pre-k next school year at the neighborhood school?

That brings me to another question: what if your child is school age and you pay after school care...is that factored in also?

I never knew child care had to be factored in. Do you have to show proof of enrollment and monthly payment amount?

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 02:51:50 GMT

@Anonymous wrote:
Sorry--Yes! There is something new to factor in. I didn't realize that they counted childcare in the DTIR. So, Add in $700/month. He also added in the student loans, even though they are in deferment.

Child care or child support? Important distinction here.

Re: A little nervous--Will I qualify for a mortgage?

Anonymous — Wed, 06 May 2015 02:55:21 GMT

@frugalQ wrote:
Child care on credit report and mandated by the courts? Ok, I can see the court mandate if it's part of a divorce or custody situation. What if the child will be going to pre-k next school year at the neighborhood school?

That brings me to another question: what if your child is school age and you pay after school care...is that factored in also?

I never knew child care had to be factored in. Do you have to show proof of enrollment and monthly payment amount?

Child care is not typically factored. It is either child support or a lender overlay.