topic Re: Advice sough re: mortgage. Apply now or wait? in Mortgage Loans

Advice sough re: mortgage. Apply now or wait?

Anonymous — Mon, 20 Apr 2020 14:20:09 GMT

Hi folks,

Looking for some advice. I'll try not to be too long winded.

Background:

43 year old male. Filed for bankruptcy in 2017 (discharged May 2017), partially due to a divorce.

Present:

My mother and stepfather own a townhouse that I rent and pay for. When I say I pay for, I mean I literally pay for everything. The mortgage comes out of my bank account. I pay the HOA fees. Insurance. Heat. Water. Taxes (via mortgage). Everything. It's in their name, however, since I had to wait a minimum of two years to apply for a mortgage. I'm past that point now but am only eligible for FHA. Waiting four years to go conventional isn't really an option because my DTI is dangerously close to the 50% mark. It could actually be above 50%. It just depends on how they calculate my bonus into my income. My understanding is that they take the average of the past two years. If that's the case, I'm around 48-49% DTI. If I cut my bonus completely, I'm around 51-52% DTI. My scores are around 660-690. I have just paid off some credit cards and my utilization is going to drop below 30%.

Some information on my debt before I get lectured too much. I owe about $4000 no credit cards at the moment. I have a modest car that is about $15,000 financed. I refinanced it to a very low interest rate. The thing that is driving up my DTI so high is my child support. I have no issue with it. It's my responsibility as a parent. My point is, I have mostly lived within my means over the past three years and have done a lot to rebuild my credit.

Here's the question.

One of my credit cards is $2390. Minimum payment is around $50 a month. While I had planned to apply for a mortgage end of April, I'm now considering delaying this my three months so that I can pay off the credit card before applying for the loan. It will lower my DTI by 1% either way. My other thought was to split the difference. Pay down the credit card significantly - maybe half - to get the the minimum payment down to $25/month. Put the other money towards a larger down payment. My gut tells me that paying off the credit card is better. Better to owe more on a lower interest mortgage versus a higher interest credit card. The other benefit is that dropping below 30% should raise my score a bit, too.

Few other tidbits. Mortgage is going to be around $130k. I have about $6k cash to put down. Question is: pay credit card off or split the difference and pay off half and then put $7k cash down instead? I have been communicating with banks and with my DTI being so high, it looks like a 680 score might be needed if I'm looking at 50% DTI. This is why I'm leaning towards waiting the three months until the card is paid off.

I am back on my feet at this point. Emergencies happen, yeah, but I don't forsee paying the credit card off only to charge it up again and carry a balance.

Thanks for your thoughts.

Re: Advice sough re: mortgage. Apply now or wait?

FICOlearner123 — Mon, 20 Apr 2020 14:34:27 GMT

I think going after 3 months would help you

Re: Advice sough re: mortgage. Apply now or wait?

NC_Mtg_Loaner — Mon, 20 Apr 2020 14:50:15 GMT

What do you have in the way of reserves/savings at this point? 3-6 months' worth of mortgage payments--while they may not be required, would certainly come in handy even if you need to save the money you'd use for a down payment and allow your folks to "gift" you some equity for the down payment. (if there was enough equity for a 10 % gift, then your PMI would eventually disappear )

IS the property complex eligible for FHA financing? IF not, this could be an unforseen SNAFU which you obviously would like to avoid.

Re: Advice sough re: mortgage. Apply now or wait?

Anonymous — Mon, 20 Apr 2020 15:29:27 GMT

My complex is FHA approved, yes.

The townhouse is worth around $200k. Or at least it was. Who knows given the situation the country is in. Though for this area (Northeast), $200k is 'starter home' territory and I tend to think it won't drop as much as say a $500k home.

Their mortgage is $130k and that is what they want to sell it to me for. So I'm already buying at a discount. I realize I could buy it for more to get some cash out of it, but then I'm pushing the DTI past the point of approval. That's probably a no go. Also, my understanding is that FHA has PMI baked in regardless. In a few years my child support will be cut in half (two older kids will fall off). At that point I can look into refinancing to a traditonal loan. I would love to go with a 15-year at that point.

Most of my short term savings is just that - the $5-$6k I am planning to put down. I do have company stock but it's locked for periods of time. It gets released periodically once a year.

Re: Advice sough re: mortgage. Apply now or wait?

NC_Mtg_Loaner — Mon, 20 Apr 2020 16:07:23 GMT

If you bought the home for $150k and were gifted 10% equity plus you had the sellers pay $5000 in closing costs, it's quite likely you would retain all your savings and have a loan where the PMI drops off after 11 years.

While interest rates will likely be low for the next decade or two, chances are that interest rates will be higher than today so you may benefit by simply getting this loan in your name now and beginning/continuing the process of paying it off.

FHA loans are subsidized by HUD so the APR is likely to be close to the APR on any conventional loan you'd qualify for at this time so I'd focus more on getting it done now, vs. waiting until later.

Re: Advice sough re: mortgage. Apply now or wait?

Anonymous — Mon, 20 Apr 2020 17:29:38 GMT

I'm trying to avoid having them pay anything for this transaction. They have helped me enough.

I understand gifting the equity. That's definitely something I will discuss with the lender. But having them pay the closing costs? How does that work? If I buy for $150k and they gift 10% equity and cover $5,000 closing costs, then I'm financing $135k, correct? $15k equity gift and $5,000 closing rolled into the loan?

Thanks.

Re: Advice sough re: mortgage. Apply now or wait?

coreyb80 — Mon, 20 Apr 2020 17:51:03 GMT

If I remember correctly, you could go up on the price offer to cover the DP and closing costs to avoid them losing money on the deal. Let's say you offer them $160K and then deduct DP and closing from that so they leave with or around the $150K they're seeking. Hopefully someone confirms my thought process and chime in.

Re: Advice sough re: mortgage. Apply now or wait?

Anonymous — Mon, 20 Apr 2020 18:19:10 GMT

Keep on mind $130-$135k is likely the max I get approved for in regards to amount financed. Anything else pushes me too high on DTI.

Thanks.

Re: Advice sough re: mortgage. Apply now or wait?

VALoanMaster — Mon, 20 Apr 2020 20:04:28 GMT

@Anonymous wrote:
Keep on mind $130-$135k is likely the max I get approved for in regards to amount financed. Anything else pushes me too high on DTI.

Thanks.

That depends on the rate & the lender.

A lot of lenders have new overlays that are not required by FHA. For example: Lenders are requiring a 680 score & 2 months reserves for FHA loans with DTI over 50%. In your case, you could increase the sales price to allow your parents to do a gift of equity for your down payment & extra money for your closing costs. This was you can keep your money to meet the reserves requirements.

Here's an example: Your house is worth $200,000 & your parents want $130,000.

Your parents can sell you the home for $150,000 & contribute 10% for your down payment ($15,000) and $5,000 for your closing costs.

So here's the math. $150,000 - $15,000 - $5,000 = $130,000. So you're increasing the sales price by $20,000 to cover your DP & closing costs while ensuring your parents get the $130,000 they need to pay off the loan.

Does that make sense?

Re: Advice sough re: mortgage. Apply now or wait?

CAS2019 — Mon, 20 Apr 2020 23:27:43 GMT

A question for the experts, could the parents quit claim if there isn't a second mortgage?