Steps to buying a home

[first48]

I am getting ready to head down the road of purchasing a home.  Earlier this year I couldn't even get an apartment because of my credit.  My scores were in the high 400's.  I have managed to rebuild and my current scores are down below.  I plan on buying a home in the next 2 years because I want to pay my credit card bills off and have money in my savings.   What should I currently be focused on?  I have a car that is in my mother's name but should be paid off by the end of next year.  Other than that my only debt will be my student loans.  When looking at your monthly income for a home do they look at net pay or gross pay?  Currently my net pay is 2900 per month.  Would I be able to purchase a home for 150,000?  Any help would be greatly appreciated.

 I also forgot to mention that I have been at my job for exactly 7 years .

Message Edited by first48 on 12-04-2008 08:18 AM

[ShanetheMortgageMan]

Gross pay is used to qualify.  The debt to income (DTI) ratio that lenders use as a qualifying guideline takes into consideration average deductions one takes.  This is why for non-taxable income the qualifying amount of income is generally 125% of the gross (which is also net) income.  To determine what you qualify for your payments (so student loans, credit card minimum payments, if you get a new car then that car payment, etc.) and income are considered, along with the proposed payment on the new mortgage.  The numbers are crunched (monthly payments divided by qualifying income) to determine your DTI.  For the housing portion (house payment divided by income) lenders want to see around 31%, and for the total DTI (house payment + consumer debt payments divided by income) 43%.  Much higher ratios than 31/43% can qualify if there are compensating factors (such as 5% or more down, reserves, strong credit scores, etc.).

[first48]

Should I be doing anything to prepare myself in the next 2 years to be ready.  My credit cards will be at zero. I will not have a car note and all I will have is my student loans.  Am I just supposed to save as much as I can until I am ready to buy?

[ShanetheMortgageMan]

Yup, just save for a down payment (minimum will be 3-3.5% down but I'd aim to save up at least 5-10% plus some reserves); stay in the same industry/line of work; if you are W-2'd then stay W-2'd, if you are 1099'd/self-employed you usually need at least 2 years for that income to qualify; work on getting your scores up to as high as possible (740 would be a great goal but not needed for good rates under today's guidelines), and you should be good to go.

[first48]

Thank you sooooo much for help Shane.

[ShanetheMortgageMan]

You are soooo welcome!