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Prepping for first solo mortgage!

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Established Member

Prepping for first solo mortgage!

Hi MyFICO community,

I have been renting for 15 years since my divorce- feeling a bit intimidated by being tied to a mortgage alone- as silly as that sounds. But now I am finally wanting to purchase my first solo home- so I although I co-owned a home many moons ago, basically I am a first time home buyer. I am hoping to tap into all of you as a resource for best strategy over the coming months.

Here’s basics: FICO 8: EX: 833, EQ: 716, TU: 836
EX FICO 2: 776 (haven’t pulled any other mortgage FICOs yet)
Negatives: EQ: 3 paid medical collections- trying to remove but not hopeful. DoFD: 6/17, 1/18, 5/18
Hard Inquiries: EX- 2: 12/18 from Collection Agency above, 3/19 from credit union on personal loan I thought about taking but changed mind; TU- 2: 8/17, 4/18 both Dept of Education
Revolving: 3 Credit Cards - $0 balance on all, credit limits $19.5K, $2K, $21.5K (opened 02/09, 04/12, 12/13)
Installment: 4 accounts - all student loans
My student loans:
1. Balance $191 (will be paid off this month) - Original Balance $12,625 open since 12/02
2. Balance $6,741 - 4.375% - pymt $114 (autopay $200) - Original Balance $13,543, open since 12/02 - wanting to pay slow on this to keep credit length and it’s low interest %
Parent Plus Loans
1. Balance $31,706 - 6.06-7.35% - pymt $383 (autopay $400) - open since 9/15 - this child just graduated in Dec 18 so done increasing
2. Balance $31,445 - 6.06-7.35% - pymnt $381 (autopay $400) - open since 9/16 - this child graduates in June but last loan was added so this is done increasing too

That’s everything. So... here are my questions:
1. My son graduates from college next month and after that I was thinking about refinancing both Parent Plus Loans - to both lower the interest rate (a big chunk of both loans are at 7.35%) and perhaps extend the timeframe so payments show as lower monthly amounts to benefit a mortgage outlook. Thoughts?
2. Should I aggressively pay on these loans before applying for a mortgage or save that money for downpayment. I am planning to have 5% downpayment. I won’t be able to save 20% unless I wait 10 years to buy Smiley Happy
3. If I were to refinance my parent loans- I obviously want to avoid anyone who pulls my Equifax CR since that’s the one with the collections. Suggestions on that?

Any other suggestions?? Thank you all again so much for your help!
Message 1 of 14
13 REPLIES 13
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Frequent Contributor

Re: Prepping for first solo mortgage!

Hello, getting ready to apply for a mortgage is certainly a big decision, so completely understandable you're a bit nervous about it.

 

It sounds like your credit scores are in pretty good shape. One thing I want to note is, are you sure one of the hard inquiries is from the collection agency? Collection angencies are allowed to look at your credit but this would be a soft pull. Hard Pulls are only for when you're applying for credit somewhere.

 

As for your loans, these aren't crazy high payments, so you might be okay. You didn't include your income so it would be hard to say where your DTI level would sit. If you want to include your income here, can help determine if that would a good DTI level.

 

I would certainly try to refinance those student loans as you would almost certainly get lower interest rates and help get your payments down.  That would then help you be more comfortable with your monthly payments after securing a mortgage. I would not be too concerened with them pulling your EQ report as those are paid collections and aren't likely to have an affect on the new loans. I don't think I'd aggressively pay them down anymore than you already are. The balances are high enough where you'll already be paying on them for a while. You'd be better off saving that other portion of money for downpayment and closing costs.

 

At around 5% down payment, there are some conventional loan options out there that will work with this. Your scores seem like they'll be plenty good enough for the conventional route. I would ask whomever your apply with to give you quote comparisons for FHA vs Conventional and see the costs of both options

 

Hope this helps

Message 2 of 14
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Senior Contributor

Re: Prepping for first solo mortgage!

Out of curiosity, why the wish to buy after renting for the last 15 years? Especially, assuming no childeren will still be living at home.

I've done a little research into owning versus renting, and it'n not that much cheaper by the time you add interst to the loan and housing upkeep/repairs over the years. I've gone back and forth several time on whether to buy or keep renting, simply because rent is getting a tad outrageous lately. But it's still cheaper than the expense of owning, and being single I like the feeling of not being tied down to a place.

 

Just curious is all, since it seems so many people seem to want to buy a house. And some at a very young age today, yet don't stay very long.

My grandaparents didn't buy a house until very late, my Parents were in their mid thirties before their first house purchase. 

In those days you bought a house tostay there most of your life, and possibly retire there. Or at least until kids graduated. But today I see so many people moving after about 5 years. I guess I don't quite get the house buying appeal. Then again I don't stay too long in one place, so owning probaly isn't right for me. I bought my first house very young and have rented it out 90% of the time, due to work I couldn't stay there. But couldn't sell it because it was close to Family etc.






Message 3 of 14
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Frequent Contributor

Re: Prepping for first solo mortgage!

@Janus I think as you mention it depends on what people want to do. Personally I've had a few times where I was renting, liked where I was living. However, after my lease was up the owners decided they wanted to sell to someone and I had to move. So I hated that feeling of someone deciding for me I had to move. For yourself where you mention you don't stay in one place long, renting makes a lot of sense.

 

So in summary I think it depends on a personal preference. Personally I don't want to move every 5 years. I do have younger kids so that factors into it.

Message 4 of 14
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Established Member

Re: Prepping for first solo mortgage!

Super super helpful- thank you!

I thought the collection company doing a hard inquiry was incorrect as well- but every report I’ve pulled from my annual report to various sites shows that as a hard inquiry. I called Experian to ask them why it’s on there and they said to call the collection company directly or file a dispute if I don’t know who they are since they might be trying to steal my identity. I obviously know who they are since they are the collection company for those 3 on my Equifax report... I am expecting something back from the collection company verifying debt and if I don’t get anything from them I might dispute that hard inquiry on Experian. It sounds like the score won’t affect me after Dec 2019 so I might just let that happen and not open a can of worms with Experian. I don’t know. What do you think?

As for DTI- I make around $100-110K- sometimes a bit more... sales. My base is $90- so I always budget for my base pay but the mortgage company will see higher on my taxes for the previous years. I live in an expensive area- so even a townhouse will cost $450K. My hope is to save $50K for the downpayment - so financing $400.

Thank you for the student loan advice too- I was thinking based on the offered interest rates that I could stretch it out to 15 or 20 years so payments are lower by both lower interest rate and longer payback - I can always pay more on those loans if I have a good quarter or year but I don’t want to be in a rough position in a hard year- and those always come.

As for mortgage loan types - you don’t think those collections on my Equifax are yanking my scores down so much that I won’t qualify for a decent rate? I understand most lenders will pull all 3 and do an average of all 3 scores... I guess there’s only so much you can do- it is what it is. Just trying to do whatever possible now to max the rate I can get.
Message 5 of 14
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Established Contributor

Re: Prepping for first solo mortgage!

Hi! I’m also buying solo after a divorce 8 years ago and feel long a first timer Smiley Happy

Your credit, debt and general outlook looks good. What’s your income? How much are the homes? It’s hard to say whether you need to do anything on the student loans without that.

Keep in mind that unless your payments are fixed and fully amortize over the loan period, your true payment won’t matter for FHA at least. They attribute 1% of the total balance as a monthly payment. That cut my borrowing power in half but I have nearly 200k in student loan debt. Your balances are much better!

Still, before you mess with the loans, figure out your DTI ratios and look into how SL payments are factored for the programs you want. It seems like you’re in good shape credit wise so that’s the real question!
FICO8: Low 700s. FICO9: Mid 700s. Goal: 800 club
Message 6 of 14
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Established Member

Re: Prepping for first solo mortgage!

@Janus i totally get your point... and that is why in 15 years I haven’t purchased a home. I didn’t want to be tied down- or not have options if I needed them. But now- I think for me- I pay $2000-2500/month in rent...and no asset to show for it- sinking into rent with no appreciable asset- it feels like a financial mistake. I also like the feeling of being able to do whatever I want to a house without restrictions... updates, etc. I was considering a personal loan to pay off a credit card with high interest a few months ago- but changed my mind and just paid it off with a bonus I got- but in that process they made me realize I have no assets!! I drive a company car, use a company cell phone- no house... the car part is nice- and I don’t want to have to pay for a car if I can help it- but still...
Message 7 of 14
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Established Contributor

Re: Prepping for first solo mortgage!

Oh I see the answers now! Bonus or commission are usually factored as the average of the last two years.

What’s the total monthly payment look like at 400k? Even if we assume $700 for the student loans (1% of the balance... you’re paying more so you might need to refi) if the housing payment is around $2700 that would be 47% backend DTI without including anything but base.

I’d reach out to a lender but it seems like you’re good to go.
FICO8: Low 700s. FICO9: Mid 700s. Goal: 800 club
Message 8 of 14
Established Member

Re: Prepping for first solo mortgage!

@Readyformyhome I will definitely refinance my parent student loans- even if I keep the 10 year timeframe as I’m pretty sure the interest rate will be sign. lower than 7.4%. Good to know on the 1% of the total balance being factored- I didn’t really know that. I figured they looked at everything I pay per month in debt and used that for DTI.

So you’re saying with a $700 student loan payment and $2700 housing payment - it puts me at 47% DTI... and that’s usually considered OK?
Message 9 of 14
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Frequent Contributor

Re: Prepping for first solo mortgage!

As someone else mentioned they will use your middle mortgage score (not average). So even if your EQ is lower, that's okay since it won't be used. I think your scores are plenty good enough to qualify for a great rate. As a reference I have a middle score of 670 and was just approved for 4.075.

 

As for the student loans, as the other poster mentioned this may be true. I also did a FHA, and they simply just used the payment that shows on my Credit Report. They didn't even ask to see my payment agree with the loan servicer. So if you're already on the fixed payment plan, you're likely fine.

Message 10 of 14
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