DTI questions (srsly complicated)

BridgetM · ‎02-04-2010

OK, so I'm about to start talking to people about mortgages and want to know how to best manage my money.

My income is in the $115K-$130K range, I am just about to drop my debt down below $10k (monthly combined minimum payments are less than $300) and will be in the $6k range within a month. I have no car payments and my credit score is in the mid-700s at last check.

I'm looking at properties that will require about $16k-$18k down. I presently have about $11k. How much should I throw at debt versus putting more money toward my down payment...thoughts?

Lel · ‎02-04-2010

BridgetM wrote:

OK, so I'm about to start talking to people about mortgages and want to know how to best manage my money.

My income is in the $115K-$130K range, I am just about to drop my debt down below $10k (monthly combined minimum payments are less than $300) and will be in the $6k range within a month. I have no car payments and my credit score is in the mid-700s at last check.

I'm looking at properties that will require about $16k-$18k down. I presently have about $11k. How much should I throw at debt versus putting more money toward my down payment...thoughts?

What is the price range of homes that you're looking at? And are you looking for a conventional mortgage or an FHA loan?

With your income, those CC minimum payments are not going to have a huge impact on your back-end DTI. They only represent about 3% of your monthly gross income. It appears that your main obstacle to buying a home is the amount of cash available for your down payment.

Theoretically, you could continue to make minimum payments on your credit cards and save money for your down payment. This is going to cost you more money in the form of finance charges in the long term, however.

BridgetM · ‎02-04-2010

OK, fair enough. Now, I've got the choice to pay off one or two cars, or should I bring all three down to low levels evenly?

Lel · ‎02-04-2010

If your primary goal is to save money, then you should pay down your card with the highest interest rate.

If you'd like to maximize your score, then paying off a couple cards (even if they're not the high-rate cards) and letting just one card report a balance might result in an increase in score. However, you'd also want to make the sure that the individual utilization of that card's credit limit is not too high. With your current scores, you don't really need that much of a boost in order to qualify for the best conventional mortgage rates.

Anonymous · ‎02-08-2010

That's a great question. If you're over 740, you've graduated from credit concerns, now you can advance to concerns about finances/net worth.

For your long-term finances, the mortgage rate will significantly outweigh any month or two's worth of credit card interest. I can tell you how much, but we need more numbers.

We don't know your price range, therefore no way to figure what loan you are looking at, and therefore no way to tell you how much more expensive that .5% change to FHA will be in when it goes into effect in April-ish.

BridgetM · ‎02-08-2010

I'm looking primarily in the 150k range, usually below. What's going on with FHA in April? I'm not familiar with that....

Anonymous · ‎02-08-2010

FHA is changing two or three important things. Notably, the up-front mortgage insurance is going to go from 1.75% to 2.25%. Depending on down payment, it's $700-750 extra just by closing then rather than now.

Personally, I think the bigger deal is mortgage rates. They're absurdly low, below 5% on an FHA for most people today. That because your tax dollars are subsidizing them and that ends at the end of March. Fed insiders say 1% increase would not be out of the question. Total interest costs over 10 years, per $100,000 financed:

5.00%    $45,760.66
5.50%    $50,675.67
6.00%    $55,631.79

And then one more fun thing: FHA/HUD is also asking Congress for permission to raise the monthly insurance factor, currently .5-.55%, by "some amount." I don't know how much. I don't think they do either.

Your loan plan should be to compare a bunch of items, but I'd look at an FHA loan with 3.5% down buying now versus a Conventional loan 10% in the future. I care less about putting more money down and more about cash reserves, debt reduction, and building investment assets.

You're living so far within your means based on what you've outlined that you really should be able to fund some incredible investment/retirement options AND buy the home AND pay off your debt in full. Nice work.

BridgetM · ‎02-11-2010

Yes and no. Half of my income is per diem - tax free but not reportable, unfortunately. I don't know if there's any way to include that, though, on an application.

Also, someone was telling me that a 25-percent+ downpayment eliminates questions about income. Not sure if that's only with ING, though.

Message Edited by BridgetM on 02-11-2010 07:13 AM

Anonymous · ‎02-11-2010

My wife and I faced a similar question this year. We have CC debt that we wanted to get paid down before buying a house, but in the long run securing a loan with a ridiculously low interest rate and snagging the $8k tax credit made more sense than paying down CC debt before going for a house. The interest rate and tax credit are entirely time sensitive, whereas we can still pay down our debts later on at the cost of a few added months of interest on them.

We decided in December to start socking away all extra money for a down payment and just pay minimums on credit cards. This was very hard to do because I've been working very hard to pay down CC debt for the last 3 years, with the goal of owning a house in mind. But it was for the greater good. We found the perfect house, are pre-approved for $50,000 more than our negotiated price, and are (fingers crossed) closing March 10.

In unusual circumstances conventional wisdom needs to be modified slightly. If there were no tax credit or impending mortgage rate increase, the right move would probably have been to pay off our unsecured debt before going for the house. But there are currently significant rewards for acting quickly that outweigh the benefits of behaving in a way that is usually preferable.

BridgetM · ‎02-11-2010

Ah yes, I am all too familiar with unconventional wisdom at the moment. Does anyone have any experience with how credit works when three individual parties are going out for a joint mortgage?