First thing Chrissy029, welcome to the community.
Let me jump right in. Those HOAs are quite high for a $180K place, but having said that the insurance you mention is probably for the building and communal part of the complex, not your specific unit. You will more than likely still need to get your own insurance, so make sure you add that into your payment.
When you say your middle score is 621, I assume you are looking at your mortgage score? If so, you will more than likely have to either clean up your CR a little more or pay much higher interest rates on your subprime loan. Now I am not even sure if this would work with a middle of 621. Possibly some of the brokers can chime in, but it seems the magic cutoff is around 650. Stay away from some of the Hard Money out there.
But here are a couple of different interest rate scenarios for you to ponder. I used Plymouth on the South Shore and a $180K loan. With a 740 middle score the interest rate is between 4.27% and 4.35% APR (with a monthly PI between $870 and $885, but be careful of the points). The same loan with a 660 middle score is between 4.65% and 4.84% APR (once again be careful of the points. This is a monthly PI between $910 and $938. $885 and $938 are actually the best since they carry only 0.1% and 0.0% points. Here is the webpage you can play with to see what the different interest rates and points would be for you. https://www.mortgagecalculator.org/helpful-advice/bad-credit-mortgage-loans.php
Now on to your question. You said, “I would like to low ball it and ask for the seller to pay for closing cost.” Here are a few tips I use when considering asking for something from the seller. I always assume they have over-priced their property by 5% - 10%; thus I offer very close to the Full Asking Price. Many people will tell you that sellers overprice more than that (and in some cases that is true), but my statement is a very general value I use. We have to remember; a realtor is not going to waste their time trying to sell a listed property that will not get potential buyers. If a seller wants to list for $180K and the property’s comps are in the $135K range (75%); the realtor’s obligation is to advise the seller the property will not appraise for a much above the comp price for a conventional loan (without the buyer paying more into it). Remember, just because the property has been on the market for a while, does not mean the owner Must Sell it.
The next thing you want to do is Be Ready to Close. That means have your CSs up to par, you’ve secured your financing, your cash is liquid, you are ready to move, and you can have a quick closing (two weeks preferably). This will mean a lot to the seller especially if they need the money for another piece of property.
Finally, don’t ask for too much. Of course, complete your do diligence and have your inspections, but fundamentally take the house As Is. Remember, the less a seller has to spend on the property, the more they are willing to work with you.
I think these things will work for you (I’ve used it many times in my life and it works). Don’t fall too in love with it for it is only a piece of property. Be prepared to walk away and in the worst case all you did was take an inquiry hit. BUT, you seem to have a way to go – I don’t want to burst a bubble, but take some time and honestly evaluate your situation. Good things come to those who do their homework and wait. Here is what I would suggest.
1. Do a thorough forensic evaluation of your CR and figure out what is hurting you. Some things will take time, so no need to start house hunting until you determine whether you can get a decent loan at an affordable interest rate/points and truly afford the place.
2. If all is workable, then have your realtor give you some realistic comps. Don’t accept that your agent says it is overpriced; demand she/he give you hard and fast examples with addresses and closing dates. You want to know exactly what it is worth to the market and then you can determine what it is worth to you.
3. Make sure you can meet the seller halfway, if needed. I mean, you very well might need to pay some of the closing costs for your situation.
4. Finally, do your math. Make sure you can truly afford this property. It does not matter how nice it is or how much you love the area; trust me you will hate it if you become House Poor. I’ll use my dad’s old car saying. “Don’t be the guy who has a Cadillac sitting in the driveway, but too poor to afford the gas to drive it.”
5. As I said before; just because the property has been on the market for a while, does not mean the owner Must Sell. If the price has not been reduced, that may be a sign the owner can continue to carry the property until they get what they want. Doesn’t mean it is worth that, but some sellers become infatuated with their property and just wait.
I’ll get you started a little with point 4. Using the calculator above, let’s examine what might be the best for you if you have a 670 middle score. The value is $167K and the asking is still $180K. You have $15K total cash. Make your offer showing at least 3 comps below your offer price. Assuming closing is 10% of your purchase price (~$17K), offer the seller $165K and they eat the closing. Take the house “as-is” pending inspections (be sure to check the solvency of the condo association as well – you don’t want to get hit with an assessment in a few months/years). Sweeten the pot by offering $10K to the deal. Keep $2K reserve to negotiate up to the true value.
Now you know what you are going to do. If you don’t get that just walk away. First, figure out if you can truly afford that. You are going to have a mortgage between $162K and $164K if they accept the deal as mentioned. You really don’t want any points because that is up-front cash you don’t have (remember you still have to move, turn your lights on in the new place, etc.) There is a 4.875% APR with 0 points that has a PI of $857/mo. Using 1.25% for taxes that is about $172/mo. I’ll use a straight $50/mo. insurance. This is a monthly payment of $1,079 PITI and $1,501/mo. with the HOAs. Don’t forget to add in your moving cost and any security deposits you may need for electricity, internet, etc. That’s why you want to keep some cash above.
Calculate your annual income (if it varies by month). Be sure to be able to verify it, but don’t leave anything out (i.e. interest income on savings accounts etc.). Divide by 12 and see your monthly gross income (don’t take out your taxes now). If you have “tax free” income (VA disability, SS over a certain age, SSDI for yourself or children, etc.) you can add a factor for gross purposes; but that is a little more complicated. Next take all your monthly bills (car, student, personal loans, insurance payments, etc.) and your average revolving monthly bills for your CCs and add them together. I take 25% of this value and add it into my bills as misc.; but that is me, I maintain a detailed budget and I am fiscally, extremely conservative. Once you have this there are different methods used to determine your fitness. One that underwriters use is called backend DTI (debt to income).
Backend DTI: add all your debts and add in your new mortgage payments (PITI+HOA). Divide that value by your gross monthly income. You want the % to be below 38% - 40% with 20% - 25% being ideal (but it truly depends on your CS). The lower the better.
The 4x Rule: Subtract the bills from your monthly income and if it is less than 3 times your new mortgage payments (PITI+HOA) you probably can’t afford the house. If your new mortgage payments (PITI+HOA) is 4 times the value you should be okay. In this example above you have $4,503/mo. (3:1) probably can’t afford this deal. If it is $6,004 (4:1) you should be sweet. This case, the higher the better.
There are many other different ways of calculating what I am saying above (frontend DTI for example) but let me give you some numbers. Using the 4x rule: Your total monthly gross income $8,000/mo. and you have $500 in bills. Your remaining value is $7,500. Divided that by $1,501 and you get about 5:1. Now say you have the same monthly income but your bills are $3,500/mo. Your ratio is now only 3:1 and with your CS you would be a hard underwriting sell.
You can see that not only is your CS hurting you, but so are those HOA fees. Using the last example where you have $3,500/mo. in bills. If you did not have the HOAs; your magic number would be $1,079 (as mentioned above). Now do the same calculation and see that the ratio is 4.2:1 and you would probably get in.
The Backend DTI Example: Using the example where you had $500/mo. in bills and a total mortgage payment of $1,501. Add them ($2,001) and divide by $8,000 gives you 25% - good. Now use the $3,500 in bills ($5,001) and a 62.5% - not good at all.
I hope this gives you a rough guide of how to calculate and determine whether any deal is good for you. The numbers I gave were for illustrative purposes only and not intended for you to make a decision on. I don’t know (nor do I wish to know) your personal financial situation; however, my intent is only to get you thinking in a way that could be beneficial to you. REMEMBER, what I said at the very beginning. I’m not sure your credit score will let you do this and while you may find a lender willing to give you the funds at a good rate, why not get the best deal you can from that lender after you fix your CR? If you want to work on the credit (and it is definitely work) then this is the place for help. I truly believe that once you have the credit, the rest is simply pump and dump; sign and send. Good luck.
Y
