Here are our numbers, what does our situation look like?

[Anonymous]

We are looking to buy in August

FICO - Me 680, wife 651

In 2-3 months my score will go up however much a credit limit ratio decrease from 29% to 10% (or 0%) will do. My wife's score will go up from obtaining a CC. Myfico recommended it because she doesn't have any credit cards, and predicted an increase of up to 690.

We would have a DTI of < 28%

Wife has BKT discharged 3 years ago in May.

We would have 10-15k saved for down payment however I would rather do 100% financing in order to have good reserves.

Would my wife be eligible for Teacher loan programs?

Would we qualify for traditional or should we do FHA?

We wanted to rent for the next 3-5 years and save up as much as possible for a down payment on a SFH. Prices in our area (N. VA) were out of our reach until recently. We want to buy a place and live in it for 5 years and use any equity we have for down payment for a house.

I know what a lot of people are going to say and I FULLY understand the risks, however I am going to ask this question anyway. Would it be smart to do a 5yr Arm. I wouldn't do anything less than 5yr. Would we qualify for a 5yr ARM? Reason being I would like the lower interest rate to have more of the payment to go toward the principle (as opposed to the 30yr fixed). The townhouse we are looking to buy would be approx 270k. This townhouse was valued at 400k less than 2 years ago. My thinking is (as far as selling it or refinancing it 5 yrs from now) what are the chances it would be worth less than 270k?

Thanks for any input.

[ShanetheMortgageMan]

In this market I wouldn't really consider an ARM, because as you are aware, home values could be lower when your ARM is up, then you'll be stuck with a rising interest rate and no ability to refinance it or sell the home without having to bring in a lot of money to pay down your mortgage.  But it's also possible you would be paying down enough principal to where you'd have some equity too.  If you were in Southern California I'd tell you no way, buy with a 30-year fixed, but in NoVA you could be OK with a 5-year ARM.  I'd look into a 7-year ARM too, rates aren't that much higher than a 5-year.  Definitely think about making plans to live in it for longer though, you don't want to get caught not having a plan... those who don't plan usually fail.

If you only have a small down payment, and it would completely deplete your reserves, I'd recommend you go for high LTV financing... with conventional financing you are going to have to put down 5% due to the NoVA area being in a declining market.  With FHA you just have to put 3% down, but can get assistance with that through www.getdownpayment.com or www.ameridream.org. FHA is trying to outlaw those, so we should have some updates on that later this month.

If your wife is a teacher then she could be eligible for teacher programs, those are usually specific to the county/city you are buying in, so I would call the housing department up and see if any are available.  There is that teacher next door program where you can buy homes for very cheap, but most of the areas aren't too desireable from what I hear.