topic Re: Buying a house in Mortgage Loans

Buying a house

Anonymous — Sun, 13 Jan 2008 12:36:23 GMT

Hi, I am an avid reader of the forum and have not seen yet posted my question. When trying to obtain a mortgage is it better to pay down credit cards or to place any extra money in a savings account. I am torn. Before the holidays my utilization was about 30% and now at about 45%. My fico scores without the holiday add on (not yet reported) are 661/633/618.

Thanks,

Hoping to own

Re: Buying a house

sunrise — Sun, 13 Jan 2008 16:12:45 GMT

Paying down cc's will give you a score boost, therefore giving you a better mtg rate. Having More $ in savings is a cushion for down pymt on mtg. They are both good things, what I would do is call a prospective lender/mtg broker ( I recommend ShanetheMortgageMan...he is our mtg genius here on the forums!! He really knows his stuff!!) and ask him/her what is preferred during these times with the mtg crisis situation!

BTW...Many of us here on the forum (even real financial experts) are expecting a 1/2% int. rate drop at the end of the month, so, those of us going for a mtg after Jan, are getting a bonus!!

Re: Buying a house

ShanetheMortgageMan — Mon, 14 Jan 2008 01:36:28 GMT

Like sunrise laid out, it really depends on which angle you are going for... as in, do you need to reduce your debt to income ratio/maintain your scores or do you need to save up for a down payment?

Lenders typically qualify based on your middle score, which is a 633 right now, but might drop to around 620's or lower once the new credit card balances are reported. 620 or 633, it's the same for mortgages.. when you get below a 620 it can impact some of your options, and when you get to a 640 it can expand your options, or help alleviate problems.

To determine if it's impacting your debt ratio to a point where it could hinder your chances of being approved... what are the current minimum monthly payments vs. what the new monthly minimum payments would be? How much is your income? What sales price range are you going for, how much do you have to put down, and if you saved up vs. paid off the credit cards, how much do you think you'd be able to save?

Down payment isn't always required, but some areas are declining in value which makes lenders want to require a 5% down payment. FHA can still do 97% financing though, and the 3% down payment can be received from down payment assistance.

Re: Buying a house

Anonymous — Tue, 15 Jan 2008 11:14:39 GMT

Shane,

I was very interested when I had read that you helped someone from Hernando County FL. That is exactly where I am residing, I teach here. My salary is 36,500 a year (approximately) My debts 2- student loans totaling 255 per month and credit card is less than 100 per month for all. I do not have a down payment per say but do have access to approximately give or take 10,000. I would rather not if at all possible use that money. Is it possible that I could purchase a home and if so what would be an appropriate price range. Also are cell phones used in your DTL ratio? They do pull your scores.

Thanks in advance,

Florida Teacher

Re: Buying a house

Anonymous — Tue, 15 Jan 2008 17:13:18 GMT

floridateacher wrote:
Shane,

I was very interested when I had read that you helped someone from Hernando County FL. That is exactly where I am residing, I teach here. My salary is 36,500 a year (approximately) My debts 2- student loans totaling 255 per month and credit card is less than 100 per month for all. I do not have a down payment per say but do have access to approximately give or take 10,000. I would rather not if at all possible use that money. Is it possible that I could purchase a home and if so what would be an appropriate price range. Also are cell phones used in your DTL ratio? They do pull your scores.

Thanks in advance,

Florida Teacher

Many states offer first time home ownership programs for police, fire, & teachers. Also your salary could qualify you for down payment grants. You local hud housing office can give you more info. Check out http://www.hud.gov/local/fl/homeownership/buyingprgms.cfm

Re: Buying a house

ShanetheMortgageMan — Thu, 17 Jan 2008 04:29:52 GMT

floridateacher wrote:
Shane,

I was very interested when I had read that you helped someone from Hernando County FL. That is exactly where I am residing, I teach here. My salary is 36,500 a year (approximately) My debts 2- student loans totaling 255 per month and credit card is less than 100 per month for all. I do not have a down payment per say but do have access to approximately give or take 10,000. I would rather not if at all possible use that money. Is it possible that I could purchase a home and if so what would be an appropriate price range. Also are cell phones used in your DTL ratio? They do pull your scores.

Thanks in advance,

Florida Teacher

Well with FHA you are probably looking at around $125k sales price max.. that would put your DTI about 45%. If you have good reserves then a higher debt ratio could qualify. Cell phones, utilities, daycare expenses aren't included in the DTI ratio. Where would you be able to get the $10k from?

Re: Buying a house

Anonymous — Thu, 17 Jan 2008 20:31:00 GMT

Shane,

My husband as a gift, perhaps more but again would rather not. My DTL ratio is now down to about 40 or so and is going down.

Thanks

Florida Teacher

Re: Buying a house

ShanetheMortgageMan — Sat, 19 Jan 2008 20:33:09 GMT

The $10k gift is fine to receive from your husband, which could lower the amount you need to finance on a mortgage or at least help pay for closing costs (in FL closing costs are a bit higher than in other states). With FHA you can also ask the seller to pay up to 6% of the sales price in closing costs, which would cut down on the amount of funds you need to bring in yourself. With the FL market being the way it is, I'm sure sellers will be willing to pay closing costs for you just to sell their home.

Re: Buying a house

Anonymous — Sat, 19 Jan 2008 20:49:26 GMT

Hello, I am new to this forum and the world of finance in general. I don't understand a lot of what you are talking about, but I would really appreciate some advice on timing issues involving buy a new house. What loans I should consider, and who do I talk to about this (my bank?, a realtor?), is this the right time for me to make such a big purchase? I am between jobs where I am making 37,000 to a another job in which I plan to make 50,000. I am in the medical profession, so I am not worried so much about my income being steady as I am about balancing it (and being able to afford any surprise cost). My credit score is 760, and I have only one outstanding debt which is a student loan around 3500. I owe 0 a month on it, but have been aggressively paying it off. I don't have much I could put down (maybe 2-3 thousand). My goal is to buy a starter home around 80-150, which is somewhat possible in Springfield Missouri.

My main concern is I am currently renting and needing to move in August, I don't want to pay 700-800 on another rental property if I can invest this into something I own. However, being such a novice to this world I don't want to overshoot and lose everything. Any advice on how and where I should start?

Thanks so much.

Emily

Re: Buying a house

ShanetheMortgageMan — Sat, 19 Jan 2008 23:03:54 GMT

erk195s wrote:
Hello, I am new to this forum and the world of finance in general. I don't understand a lot of what you are talking about, but I would really appreciate some advice on timing issues involving buy a new house. What loans I should consider, and who do I talk to about this (my bank?, a realtor?), is this the right time for me to make such a big purchase? I am between jobs where I am making 37,000 to a another job in which I plan to make 50,000. I am in the medical profession, so I am not worried so much about my income being steady as I am about balancing it (and being able to afford any surprise cost). My credit score is 760, and I have only one outstanding debt which is a student loan around 3500. I owe 0 a month on it, but have been aggressively paying it off. I don't have much I could put down (maybe 2-3 thousand). My goal is to buy a starter home around 80-150, which is somewhat possible in Springfield Missouri.

My main concern is I am currently renting and needing to move in August, I don't want to pay 700-800 on another rental property if I can invest this into something I own. However, being such a novice to this world I don't want to overshoot and lose everything. Any advice on how and where I should start?

Thanks so much.

Emily

Hi Emily,

There are a few main things lenders look at when qualifying for a mortgage.

1) Debt to income ratio (the percentage of your monthly debts compared to your monthly income, this includes in the new mortgage payment)

2) Credit & credit scores (a 760 score is considered excellent)

3) Reserves/assets (after any down payment and closing costs are paid for)

4) Employment history (2 years in the same line of work is preferred)

5) Down payment (which is still optional these days)

You look to be in pretty good shape to qualify for a mortgage that is equivalent to the sales price, which is referred to as "100% financing", so no down payment is required. Even though no down payment would be required, there are closing costs involved in purchasing a home and obtaining a mortgage. Closing costs usually run around 3-5% of the sales price, depending on the sales price... because closing costs do not directly correlate to the sales price, the lower the sales price, the higher the % of the sales price closing costs would be. For example $3k in closing costs would be 2% of a $150k sales price, but would be 3.75% of a $80k sales price. Mortgage programs allow you to ask the seller to pay all/portion of your closing costs up to a certain percent of the sales price... for 100% financing lenders will permit the seller to pay anywhere from 3-6% of the sales price towards closing costs. That is important because I don't recommend someone buy a home being low on cash, there can be unexpected expenses with owning a home, so it's good to have some savings. Lenders also like to see that you have some reserves/assets after any down payment/closing costs as well, usually equivalent to 2 times the proposed PITI payment (check the acronym "sticky" to help with mortgage jargon).

Even though your student loan appears to be deferred, most loan programs will still include the payment into your debt ratio for qualfying purposes. Assuming the payment on the student loan, once it goes into repayment, is $100, on a $150k sales price, your debt ratio is about 41% using your current income, or would be about 30% using your projected $50k of income. 43-45% is the level that most lenders like you to be under... so you are fine there.

Like I mentioned earlier, a 760 score is excellent, and lenders will not have a problem with your credit as long as you've had 24 months of credit reported. If you've been working in the medical industry for 2 years then your employment should have no problem qualifying either, even if you recently graduated from school (majoring in someting related to what you do now) and have less than 2 years of employment, it can still qualify.

You could anticipate a PITI payment on a $150k home to be around $1,200 with taxes & insurance. On an $80k home, more like around $700/mo. Two times the PITI payment would be $2,400 & $1,400, respectively... so your $3k you'd have is enough to satisfy the lenders requirements for the reserves/assets, as long as you are able to get the seller to pay closing costs.

If you do decide to go for the higher end of your $80-150k range, and because the $1,200 is higher than what looks like you have been paying in the past, I would recommend you start putting aside $500/mo into a savings account so you can "feel" what it is like to have a higher housing payment, plus that will help you increase your reserves/assets.