Hello, My girlfriend (soon to be fiancee) and I would like to purchase a home by this coming fall. She has a credit rating near 700. I have a rating of just over 600. My low rating is due to the fact that I signed for a loan for a friend, who made several late payments along the way (very stupid move by me). This home is now under contract to be sold next month. What types of interest rates can we expect to receive with scores like this? We would have about $35,000 to put down on a home (outside of about $5,000 set aside for closing costs). We'd like to purchase a home in the $250-$300K range. Our monthly after-tax income is about $6,400, while our monthly expenses outside of the mortgage/real estate tax/home insurance/utilities would be about $2,500 (this includes weekly spending/grocery money). We would keep about $5,000 in the bank for emergency money. This would give us about $3,900 to use toward our home. Does it sound like we'd be able to get a loan without having to pay a crazy interest rate? Sorry if I sound naive, but thanks for any help.
The housing payment you are expecting is pretty high. Your housing payment shouldn't be more than 28% of your gross income. Anything more and you are taking a chance that you may not be able to pay it back in case you lose your job.
Here's my $.02 - First - watch your debt to income ratio. Lenders will often approve buyers for more than they should be paying on a house. The rule of thumb is that you should keep 3-6 months income CASH on hand in case of emergency, that means for you guys anywhere from $18K - $36K. There are a whole lot of unforeseen expenses that can crop up in home ownership - the roof could collapse, you could lose your job, get sued, etc. Our mortgage payment just jumped up by $400 month because our taxes went up and we have an escrow shortage that we have to make up. We bring in more than you guys do in a month (net) but that $400 HURTS! You are not allowing yourselves enough of a safety net, and that's a bad position to take when you commit to over a quarter-million dollar investment that is not readily liquified. As to whether you CAN get approved - yes, I'm sure you'll be able to with your fiancee's scores. Your lender will probably be able to do a rapid rescore and get your derogs removed long enough to go through underwriting. If not, you'll still be able to get a loan even if it is B class. Just make sure you are very, very conservative in what you commit to repay. Particularly in today's market, you can't be sure you'll be able to unload your house if disaster should strike. Two years ago I bought a home in the hottest intown neighborhood in my city. It appraised a week after I bought it for $65K more than I paid for it. I was patting myself on the back all the way to the bank to sign my equity loan. 4 months later, my fiance and I discovered that we were expecting a little bundle of joy. I put my house on the market 6 months after I bought it, expecting to unload it without problem. It was 6 weeks after 9/11 - the world was a different place. After 3 months, I got some tenants who wanted to do a leasepurchase. they broke both deals a week before closing. Now, 6 months later, out of work because of the baby, I've fallen behind on the payments because we're also paying our current mortgage. Haven't even had a nibble. The bank will forclose next month. I don't mean to scare you but in hindsight I realize that I was not prepared to weather any sort of financial adversity - I didn't have enough of a nest egg available in cash, I was over committed to my mortgage, and I'd put a fat wad of cash in my lenders pocket to close the deal - he wasn't concerned about MY financial security - he wanted his commission. I know you didn't ask for this sob story but I REALLY want you to be careful, 30 years is a LONG time to be committed to a mortgage payment and a lot of stuff can happen. You'll get a loan, if you're willing to accept the interest rate. Question is, how much do you really want to be on the hook for? You can't just walk away from the bank - they'll come get you. And believe me, a foreclosure or deed in lieu look REALLY bad. Anyway, I apologize for this sermon. Just be careful, ok? Poochie
Wow, this sounds a lot like a deal I started working on today. I don't know where rates will be in the fall, but you should be able to get conforming rates for this. It will help if you have documentation that proves this other person is making payments on this loan that's goving you problems. Canceled checks are good.
Poochie, E-mail me at nerolouie@yahoo.com. I have someone who might be willing to take the about-to-be-foreclosed property off of your hands (depending on your location). I don't want to get your hopes up too much, but it doesn't hurt to see if there's a chance. I look forward to hearing from you. Thanks, Sacraba
I agree that you'll probably be able to get it, but be careful. And get the biggest loan that you can and save some of the money you are going to put down if you don't have to put it down. That way you have something to fall back on. Poochie's story is just why I tell everyone to not pay that extra on the mortgage. Save it, invest it conservatively (at least 3-6 months in the bank, forget the interest), then if you lose a job or something you have money to make the payments until you can either sell or get back on your feet. If your money is tied up in your house and you lose your job, you won't qualify for that loan to get it out. But if you have the money put aside, you make the payments, pay your bills, and at least survive. Then you still have your home while you regroup.
