Will I qualify for a mortgage?

[KaleighMaeA]

I currently am 22 years old, and have owned my home for about two years. My mom co-signed my loan for me. I recently got married, and we are looking at purchasing another home in about a year. I want to set us up for success on this one, so I wanted to start asking advice now.

My current credit score is a 652 and my husband's is a 683. We have about 20k-30k worth of equity in our current home. My husband and I bring home a combined income of about 90k per year.

Our currently monthly debt which will be coming with us includes $284 per/month Car Payment, $194 per/month student loan payment, and $310 per/month Car Payment (This payment will be paid off in July, well before we want to purchase another home so I am going to take it out of the equation)

That makes our total monthly loan payments $788 now, will be $478 at the most (plan on paying a student loan off before then too, but I'll estimate high).

I have been working for the same company for 3 years, my husband has been at the same place for 5 months now, will be a year and a half when we actually start applying.

1) Should we have any problems qualifying for a loan?
2) Is there anything more I can do in the mean time to help with qualification?
3) Would I have a problem qualifying for a $150,000 - $200,000 dollar mortgage?


Thanks for any advice/information!

[DanielB]

Just curious ... do you have any cash on hand? I've been told this is very important. And are you planning to keep the current home or sell it first?

[KaleighMaeA]

I will sell the current house before purchasing a new one, but I would like to get pre-approved before selling my house. It would be terrible to sell the house then not get approved for a new one.

Also, currently I do not have a large savings amount. However, this is because when my husband and I got married he had a significant amount of debt I have been very carefully paying off. At this point, I am confident I will not have the payment on his car by the time I am ready to get pre-approved and a minimum of 5k in a savings account, possibly as much as 10k.

Also, I do have a minimum of 20k of equity in my house, but will probably be able to get closer to 30-35k.

[Hector]

Provide following detail
monthly income after tax
total debts including APR
monthly expense

Where is your EF?

Where is down payment?
40,000 is 20% of your desired 200,000 mortgage.

[Little House]

I think that as you pay off one of your cars this year, you might notice an increase in your credit score and that might help to qualify for a new home loan. Are you in a hurry to move? Could you wait until you've paid off that car and saved a bit more? If you make 90K per year and your debt payments are under $800 a month, you should be able to save a nice little sum over a 6 month period. A larger down payment will also help with the loan.

[KaleighMaeA]

Monthly income after tax is roughly $4,720
(I say roughly because my husbands makes different hourly rates depending on what he is doing in the plant that week, but that is a very good average while mine stays the same)
Total Debts: 4 Nelnet Student Loans, 2 subsidized, 2 unsubsidized at 6.8% totally $15,600
Car Payment of $284 per month totaling $8000 7% interest
Car Payment of $340-$510 per month totaling $10,500 12.5% interest($170 every other week, husband had bad credit at the time of car purchase prior to us being married)
Current Mortgage $537 per month.

I am receiving 10k in July. I plan on using that to pay off the high interest vehicle loan. Also, over the past 4 months I have eliminated $5,300 dollars in debt using just our regular income. I plan on starting an EF next month and should have it at about 5k in July when I will pay off the high interest car. Then that gives me another 5-6 months before we want to purchase a home to build that EF fund to 10k.

The down payment will come from the equity in my home. I put 25k down on my home and have done a lot of renovations. It appraised at 120k I only owe 67k. I would be happy to get 100-105k out of it which shouldn't be a problem when researching comps in my area.

Am I on the right track?

[KaleighMaeA]

I should probably explain my monthly income a little better. I am on a fixed salary. I make $1920 dollars a month after 401k contributions and taxes.

My husband works as a contractor in power plants. If he is removing lead he makes a certain dollar amount an hour, if he is doing scaffolding it's a different rate, and so on and so forth. He never clears less than $2,800 a month but sometimes clears as much as $5,500 a month during "outage months".

Makes it a bit hard to budget, so I usually go with the least amount he clears and anything above and beyond that I put toward whatever goal I'm working on at the moment IE) Paying off the high interest car.

[Hector]

I think you are on excellent track. Thinking about personal finance at 22 itself is a huge. Very impressive.

Seems like your priority is to buy bigger house over funding retirement. The way I think its not the way to go, but if you could manage it by the age of 25, why not.

You forgot to include your monthly expense.

I think, car installment is not a good idea. I prefer to pay cash for cheaper car over buying a bran new or expensive used card. I read somewhere that just by not buying expensive cars, a person can save a lot during entire life.

Before you go for buying bigger house, I would suggest paying all your debts - including student loans - the way you guys are going it wont be impossible to do it within a couple of years. Make sure you have enough EF. If you are not not able to have 20% down payment by selling current house, make sure to save extra to come up with that down payment. Dont rush. Rather than having time line (say you wanna by exactly after 2 years), it better to cover some milestones (no debt, enough EF, 20% down payment etc..)

Good luck.

[KaleighMaeA]

Thank you for the advice. I agree with the car theory. I will never have a car payment again after this. My first car I paid cash for, then traded it in (was starting to have problems with it) for a car I owed 8k on. I wasn't concerned about this because it was my only debt besides my mortgage, and I had 10k coming a year later so paying it off would happen quickly.

Then I got married. Life does that sometimes, and now his car is way more crucial than mine. However, once we pay his off we will not be financing another vehicle. Very bad call on both of our parts.

I do have about 5k in stock, and about 5k in my 401k. All of this has been added within the past 12 months. At this point I would like to get rid of the cars so I can contribute more toward retirement.

This may sound silly to most, but actually we don't even want a bigger house per say. The size of our house isn't our issue. It's the location. It probably won't sound too savvy to explain on a forum, but we have two very large dogs which are our kids. We really want to move into the county where we grew up in and we have just about the worst neighbors in the entire world. It's bad enough that it's pretty much intolerable at this point. AKA drug dealer who lives across the street who is fresh out of prison and already back into the drug world who is unemployed and knocks on my door multiple times a day to ask for cigs (and will keep beating on it until I answer) and a convicted child molester down the street who got out of prison two years ago, and an older man who makes it his duty to call the city about every tiny little thing you do (aka my best friends car broke down he had it towed to our house so we could work on it in the garage, it was in my driveway for 7 hours before he called the city to file a complaint) of course the city knows the guy is just bored with nothing better to do, but it's completely stressful and almost intolerable to live in my house at this point.

[Hector]

It makes sense to move out of this neighborhood. I would think that house prices will fall a lot in neighborhood like this in economy like this. Hopefully it is not horrible.

If you think, you are not going to need that 5k in the stock -
since you invested it within last 12 months, it might be the case that few of your stocks are trading at lesser value than for the coast that you paid for. If that's the case, sell those stock, open an IRA and allocate that proceed into it.

[KaleighMaeA]

Thank you for the advice, knowing that I do have equity in my house how much hard cash do you think I need to be able to show in my bank account to qualify?

[littleroc02us]

I would say if you can come up with a 30% downpayment the banks may overlook your low credit scores. Also, I'd be quite worried about all of the consumer and school debt that you have and carrying it over to the next house payment.

[KaleighMaeA]

Would banks be worried about lending to someone who has a 652 and 683 credit score? I always heard that as long as you were about a 630 you were pretty much in the clear for mortgage qualification?

[bjl584]

FHA requires at least a 680 credit score to qualify for a mortgage.

Conventional financing probably will require a less of a credit score, but you will need at least 20% down.

My guess is that you won't qualify for a loan until your current house is sold. I could be wrong, but lenders are being particularily gunshy to approve mortgages in cases of less than favorable credit scores and high debt to income ratios.

Worst case scenario is that you will have to sell your current home, then find a place to rent until you can find a new one.

[littleroc02us]

Originally Posted by KaleighMaeA

Would banks be worried about lending to someone who has a 652 and 683 credit score? I always heard that as long as you were about a 630 you were pretty much in the clear for mortgage qualification?

Not anymore, they are afraid of all the defaulters, all I was saying is that because of your lower credit scores they will be more willing to loan you money if you come up with more capital to put down. Think of it from their perspective, they've had a lot of people short sale or forclose even if they could pay for their mortgage and they don't want to get burned again.

[KaleighMaeA]

I think I am just really confused, when I tried to look up the FHA requirements online it keeps saying the minimum is a 580, which we are at a 680 well above that criteria. Am I looking at bad information? Also, my current mortgage is FHA and my credit score was only a 620 then, I've raised it quite a bit since then and that was 2 years ago.

[KaleighMaeA]

Originally Posted by littleroc02us

Not anymore, they are afraid of all the defaulters, all I was saying is that because of your lower credit scores they will be more willing to loan you money if you come up with more capital to put down. Think of it from their perspective, they've had a lot of people short sale or forclose even if they could pay for their mortgage and they don't want to get burned again.

I totally agreed, I was just wondering what I should have in cash. I have 20-35k equity in my house I will be able to put down on the next one, and we are wanting to buy a house in the 150-200k price range. Probably more about the 150k.

Thanks

[littleroc02us]

Originally Posted by KaleighMaeA

I think I am just really confused, when I tried to look up the FHA requirements online it keeps saying the minimum is a 580, which we are at a 680 well above that criteria. Am I looking at bad information? Also, my current mortgage is FHA and my credit score was only a 620 then, I've raised it quite a bit since then and that was 2 years ago.

I was say more important for someone looking at buying a house with a mortgage, isn't the credit score and the FHA stuff, is whether you can put a decent amount down, not 3% like FHA and you don't have hardly any debt. If you no to that, IMO you aren't in a good financial position to buy another house.

[littleroc02us]

Originally Posted by KaleighMaeA

I totally agreed, I was just wondering what I should have in cash. I have 20-35k equity in my house I will be able to put down on the next one, and we are wanting to buy a house in the 150-200k price range. Probably more about the 150k.

Thanks

If you could put 45k down that would be 30% they would loan you in heartbeat a good interest rate even with a 630 credit score, as long as your debt is quite low.

[KaleighMaeA]

Update: I spoke to a financial advisor through the military, and this is what I was told. I would like to get some opinions on this.


Since I am wanting to buy a house in the next year she said:
Do not pay off anything. Neither cars or the student loan.

Put all of my money into a separate account and just let it sit there.

Using the 28-36 rule I qualify for a mortgage payment of up to $2,440 a month. The price range I'm looking at where I have found multiple houses I really like would only cost me between 900-1200 a month.

Her suggestion to secure approval is to show the bank I have significant extra cash just sitting there, then apply even more toward the downpayment. Pay off the car after I move into the new house. She is right though, the bills we have now even with the two car payments are still significantly easy to pay each month with a surplus left over.

Does this sound wise?