Fizzle1979

Pre-Approval Encouragement/Opinions

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I have mostly been hanging out in the Credit Repair forum for the past few months. I have “corrected” all the “inaccurate” information on my credit report. I have become interested in purchasing a home loan. I am looking for opinions on what you as other current and future home owners think about my chances for pre-approval. I do not want to waste my time and inquires if ya’ll think it is a bad idea for me to get a home loan at this point in time. So please, give me your honest opinion. Please do not take any of this information as I am bragging or rubbing it in…because I am not.

FICO Scores – The last average score of all three FICO’s was 725. Because of all the “inaccurate” information I recently had removed from my credit report my credit history is fairly short. None of this “inaccurate” debt reports to my credit report. My oldest loan started on 06/05. With the exception of my name being reported incorrectly and my address being reported incorrectly on my credit reports; all is good in “my” opinion. All but one of my debts is past the SOL of four years for TX. For the one debt that is not past the SOL, I recently received a letter from the law firm stating that the OC was no longer going to report the information to the CRA’s (I already had it deleted anyways) and they were going to stop collection activity because of a recent dispute letter I sent. I am aware that the “inaccurate” debt might show up again but all seems to be good for now. I have not gotten collection calls in years.

Credit Cards – I currently have $2,000 in credit card limits’ reporting to the CRA’s. As of today I only have $775 balance on my credit cards, however, this will be paid off over the next month. I use them like debit cards to get cash back rewards. I always pay my credit cards off before I am charged interest. I have recently applied and received three cards over the past month. So my new total credit card limit is $11,000, which will hopefully start reporting soon. I only have two recent inquiries total showing from those credit card applications. So even though my total credit card balance is $775 and I will have it paid off by the end of this month, I am going to show my monthly credit card minimum payment as $50/month.

Loans – I have two loans I pay monthly on. I pay $450/month for these two loans.

Consumer Debt – So for this purpose I am going to say my consumer debt is $500/month. I have no other loans or credit cards I pay on. I guess you could say I have a decent amount of disposable income but I do that … dispose of it. I still pay rent, utilities, cell phone, internet, the array of insurances (auto, life, rental, medical, etc) and other stuff. In my opinion, I fall in the low 20% debt to income ratio.

Down Payment – I currently have no down payment saved or money for closing cost. Like I said, I spend money. My hope is to get financed for a conventional loan at 100%? How realistic is that with the housing market in the shape it is in now? I would be a first time home buyer, but the “house” I am looking at buying now is actually a townhouse and would not qualify for a FHA loan from my understanding. The reasoning I picked this “house” is because of the price. It’s in a decent neighborhood with a great school. I think someone might have recently “flipped” it because from the looks of the pictures posted online it has all new appliances and paint and no one appears to be living in it. For the price I am paying in rent, I could buy this house and pay it off in ten years by doing 100% regular payment and another 100% principal only payment. I will explore other options (family member “gifts” that are not to be paid back) later.

Documentation – I have been working for the same “company” since August 1998. With that said, we changed our name in January 2005, however I think our HR Department would verify my employment since 08/98. I don’t really see it being a problem because I have my two W2’s from 2005 and 2006 and 90% of my pay stubs from this year which all are from the “new” company name. I have already printed out the last four months of bank account information. Does it matter that my bank account information is printed from the bank’s online web site instead of the actually banking statement? I shredded the originals. Also I have two checking accounts at one bank, another checking account at another bank and one savings account (only $25 in it) at a credit union. Is this too much information to provide? I read that I should be upfront about all bank accounts, so I do not want to hide anything. But I don’t want them to look at me having four bank accounts as a negative thing. I do not currently have rental verification letters from my previous landlords from the past two years; however, I do have both leases available showing my residence at both places. I have my most recent 401K statement. Of course I have my ID and SS card available too.

Loan Officer or Mortgage Broker – My plan is to go with a Mortgage Broker. Unless someone can tell me why I should not?

Hopefully I included everything needed to give me your opinions. (Yah I know it's too long but I tried to break it up.) Anyone see any areas that I need to improve on? I'm "strong" in two areas...income and employment in "my" opinion.

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While not in the business, I have alot of friends that are and we talk shop all the time. Here is my impression of how things are going right now and what is looked at.

1. Fico average of 660 or above.

2. Documented income compariable to the house you wish to purchase. (BAsically in really simple math $45,000 per $100,000 of house you wish to purchase)

3. Debt to Income ratio. (currently anything over 25 percent is a negative. How big of a negative the range is from 25 to 35 depends on how bad the loan officer needs to make a loan.)

4. Precentage of installment debt vs revolving debt. (This one is a new one for me but reflects the recent tension being shown toward the CC industry.)

5. Stability (measured by how long in current job and how long at current address)

6. Down payment. (current market dictates at least 5 percent or a major problem)

7. Value of property in current market terms.

I would recommend a Loan officer over a broker for your first shot at a house. IMO a loan officer can provide a better deal for you if you meet the above guidelines. IMO if you do not then a broker is your best option.

Just for curiousity sake a friend ran my numbers and I met everything easily except number 1 (average was 560) and he said he could not touch me now.

HOpe this helps and if I am off one of the professionals here can correct me.

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Assuming you make a reasonable living, with your scores and your DTI, you should have no problem qualifying for a loan based on what you have posted.

I would stay clear in applying for anything else from here on out though.

As far as closing costs, you can always ask the seller to pay them, or at least a portion there of.

Hope that helps. ;)

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Thanks for the comments.

How do you feel about me borrowing money from my 401K? When I spoke with a LO last year, she said it would not be considered when figuring my DTI Ratio. Anyone know if that is true? I would only request $5K at MOST.

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Withdrawing from your 401K is really a exercise in math:

You basically lose half of what you withdraw in taxes and penalties. So @ 5000 withdrawal you are at -2500.

Compare that negative to the gain you will get by having 5000 downpayment. YOu would determine that gain by differance in offers and deciding how long you plan on staying in the house you are buying.

If you have a program where you can actually borrow from your 401K (as my DW does) then it would diffently be worthwhile. IMO

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Yes I mean borrow with a repayment program.

Withdrawing from your 401K is really a exercise in math:

You basically lose half of what you withdraw in taxes and penalties. So @ 5000 withdrawal you are at -2500.

Compare that negative to the gain you will get by having 5000 downpayment. YOu would determine that gain by differance in offers and deciding how long you plan on staying in the house you are buying.

If you have a program where you can actually borrow from your 401K (as my DW does) then it would diffently be worthwhile. IMO

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Yes borrow with a repayment plan. My DW can borrow from her 401k plan and pays herself back thru payroll deduction @8 percent interest. It is very nice for emergancies and is not reported to CRA's.

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I have another thought in my head ... so I'm just thinking out loud.

I currently have an installment loan with about $4K left on it but with 16.99% rate. I recently got a new credit card that will allow me to transfer that account to the card with a 3% fee and 0% rate for 12 months. I realize that taking an installment account debt and moving it to a revolving debt is not smart but I'm looking at the savings I could make by not paying that 16.99% rate. Over the next twelve months hopefully I could pay it off. Any ideas?

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Open the credit card, transfer the balance and then over the next 12 months slam down the payemtns and pay it off.

Also, 401k loan payments are factored into dti. But it is still better than a withdrawal. Keep in mind that even though you are paying yourself interest, you are doing so with after tax money. Also, you are reducing some growth due to the "deficit" that would have been growing but is now in your house. Not a big deal if it allows you to buy a home and then benefit from the mortgage interest deduction- but it would be good to pay off that loan when you can (maybe around tax time...?)

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I'm always amazed how my brain works at times. Sunday I wanted a mortgage, Monday I didn't, Tuesday I did, Wednesday I don't. I've decided against applying for a mortgage. I bought Suze Orman's book The Young, Fabulous and Broke today. I've only read part of it but my plan has changed in order to get a better mortgage next year. Tell me what you guys think of my plan.

I have $3500 Balance left on an auto loan at 13.45% and $4000 on a personal loan with 16.99% interest. I plan on transferring both of those balances to my new credit cards with zero percent interest for 12 months and putting a decent chunk of money towards those new balances. I'm told that even though they are installment accounts and not credit cards, they will still transfer as the balances. However, these are my only two installment accounts. So once the balance transfers are done, I will no longer have any open installment accounts just revolving credit.

Any thoughts?

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Okay then. No mortgage yet.

I think your plan is a no-brainer. As long as you stick to it and pay off the revolving debt. It will feel great when you have $0 balances across the board. Who cares if you don't have any installment accounts. If you really want one, open a secured loan at a bank, pay down 90% of it a week later, and then wait for it to report. But it seems that if you are getting 0% balance transfer offers then your credit is solid enough that you don't need any FICO boost that would be attributable to an open instalment loan.

Tomorrow is Thursday. Mortgage questions are welcome again. ;)

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Okay then. No mortgage yet.

I think your plan is a no-brainer. As long as you stick to it and pay off the revolving debt. It will feel great when you have $0 balances across the board. Who cares if you don't have any installment accounts. If you really want one, open a secured loan at a bank, pay down 90% of it a week later, and then wait for it to report. But it seems that if you are getting 0% balance transfer offers then your credit is solid enough that you don't need any FICO boost that would be attributable to an open instalment loan.

Tomorrow is Thursday. Mortgage questions are welcome again. ;)

Well I decided to put $3850 towards my personal loan. I recently opened it in 06/07 and I feel im paying too much towards interest.

I'm leaving the auto loan alone for now. I've opened it in 06/05 paid $300 towards principal and requested a re-am so my note is now $200. So I have been paying $50 a week towards it. I'm going to keep it until the original pay off date of 06/09. Since I've paid on it extra I'm no longer paying as much interest. Also I was told that mortgage lenders don't look installment loans if you are six months from the pay off date. So this time next year I will start looking for a house to buy.

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Since you're not all hopped up about getting into a mortgage--that's a good sign that you're not going to make a hasty decision that you'll wanna kick yourself in the a$$ for later! ;)

First of all, call your local real estate office. Many times they work with local lenders who are very good. These lenders work with YOU to find a loan that meet your needs.

Ask lots of questions BEFORE you allow them to run your credit. You can give them all of your information (and from working your credit like you have--you're really up on what's on your reports). They can give you a pretty good idea of what loan programs are avaliable to you. There are zero down loans, but that requires higher scores. There are also down-payment assistance programs that most lenders who deal with FHA loans know all about. If you put down less than 20% on an FHA loan you can expect to pay PMI until you've paid down that amount on the begining principal.

If you feel comfortable with that lender--and you're ready to start shopping. let them run you. They can pre-approve you and they tell you the amount you have available to you.

Another thing you might want to look at is buying a REO (a property tht's been repo'd by the bank). In this case they may be asking for a large amount but the bank may be willing to sell it to you for a lot less. The biggest problem with these types of properties is that there are no warrantees--but you can make an offer with a contingency that your inspection come back that everything is okay. The market is really soft right now--people are willing to accept far less for a house than they would have when the market was at it's peak a year or two ago. Some houses have been sitting for months (not REO) and the owners would be happy just to get an offer. Most Real Estate Agents add about 10% to the comp value of the house for negotiation purposes. So if they're asking 200K you can reasonably make an offer that's 20K less.

Sorry for going on about this--but I'm doing the same thing you are too! LOL! If I find the right place for the right price I'll do it--but I'm not in a big yank to buy a house just for the sake of buying one. I also qualify and am approved for a payment of about $1800 a month--sounds great--but I'm not gonna pay that much for a payment so I have limited myself on the amount I will mortgage to fit what I am willing to pay each month. (Which is a lot less than what they say I can afford!)

Oh and taking money from your 401K--don't do it if you don't need to. That 401K is money in the bank--when you look for a mortgage they want to see how much you have in assets--so it's better to leave it alone. I'd only touch mine in an emergency -- and the times I've thought about it, I've given myself at least 7 days to come up with an alternative solution BEFORE I draw from it. So far I haven't.

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Since you're not all hopped up about getting into a mortgage--that's a good sign that you're not going to make a hasty decision that you'll wanna kick yourself in the a$$ for later! ;)

First of all, call your local real estate office. Many times they work with local lenders who are very good. These lenders work with YOU to find a loan that meet your needs.

Ask lots of questions BEFORE you allow them to run your credit. You can give them all of your information (and from working your credit like you have--you're really up on what's on your reports). They can give you a pretty good idea of what loan programs are avaliable to you. There are zero down loans, but that requires higher scores. There are also down-payment assistance programs that most lenders who deal with FHA loans know all about. If you put down less than 20% on an FHA loan you can expect to pay PMI until you've paid down that amount on the begining principal.

If you feel comfortable with that lender--and you're ready to start shopping. let them run you. They can pre-approve you and they tell you the amount you have available to you.

Good info. Another thing to keep in mind is, by all means shop around. Don't strictly go by whatever rate you are quoted, but rather the APR thats listed on your Truth in Lending disclosure. This is the amount financed plus additional fees added, such as points/lender fees. Use this as a shopping tool to compare lenders.

Real Estate agents usually have a handful of loan officers they work with, but they also have their favorites too. Just because one works for one client, doesnt mean it will work for the other. It goes both ways also, your loan officer may have a realtor they can refer you too as well.

When we looked at houses we used the lender our RE agent recommended and they werent able to do anything for us. We ended up using someone else who was able to help.

Good luck with everything and let us know what happens.:)

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I agree, there is really good info here. Just wanted to clear up one thing. No matter how much you put down on an FHA loan, you will still incur the UFMIP (upfront mortgage insurance premium). This is, in part, how the gov't makes their money on these loans. It also allows the monthly cost of MI (mortgage insurance) to be lower than on it's conventional counterpart.

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Fizzle,

You also have the option to take a "hardship withdrawal" from your 401K if taking a loan would disqualify you from getting the loan.

You would get 1099'd, but they would take out 20% taxes to cover what would be due come tax time. Also, the downfall is that you get hit with an automatic 10% penalty and you cannot participate in making contributions to the plan for 1 year.

The only good thing is that you would not have to worry about payments. You get taxed twice on 401K loans. Of course, the money going into your plan is pre-tax. When you take a loan and make payments the payments are not on the cafeteria plan so they are after taxes. Then again, someday when you withdraw the money you are taxed again.

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Fizzle,

You also have the option to take a "hardship withdrawal" from your 401K if taking a loan would disqualify you from getting the loan.

You would get 1099'd, but they would take out 20% taxes to cover what would be due come tax time. Also, the downfall is that you get hit with an automatic 10% penalty and you cannot participate in making contributions to the plan for 1 year.

The only good thing is that you would not have to worry about payments. You get taxed twice on 401K loans. Of course, the money going into your plan is pre-tax. When you take a loan and make payments the payments are not on the cafeteria plan so they are after taxes. Then again, someday when you withdraw the money you are taxed again.

Well I would never do a hardship withdrawal. But I did read Suze Orman's YF&B book and learned that 401K loans you pay tax on when you repay them and then when you withdrawl at retirement. So I won't be doing that. If I can't save up enough money on my own as a down payment, then I'm not ready for a home. She made it very clear to me there are "investment" accounts (401K, IRA, etc) and then there are "savings" accounts (local bank or credit unions) and you should never take money out of an investment account.

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She made it very clear to me there are "investment" accounts (401K, IRA, etc) and then there are "savings" accounts (local bank or credit unions) and you should never take money out of an investment account.

I totally agree, 401K withdrawals should be a last resort, but they are an option (albeit not the wisest), and wanted to make sure you knew.

I'm waiting on saving enough cash for a house too and wouldn't think about the 401K Hardship unless I was homeless. I also personally wouldn't take out a 401K loan either...I feel the same way, if I can't save the cash I have no business buying a house.

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I agree, there is really good info here. Just wanted to clear up one thing. No matter how much you put down on an FHA loan, you will still incur the UFMIP (upfront mortgage insurance premium). This is, in part, how the gov't makes their money on these loans. It also allows the monthly cost of MI (mortgage insurance) to be lower than on it's conventional counterpart.

Real truth has do to with the I In UFMIP or MIP or PMI. Any way you put it the I stands for insurance.

The insurance is a policy taken out to INSURE the loan.

It's not a government bailout.

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Oh, by no means was I equating the UFMIP to a bailout for the gov't. Just wanted to point out that it was there and does not go away because of a 20% downpayment. Just like any insurance company, the premiums paid represent an income stream. This is no different for FHA loans. Last I heard, the MMI (Mutual Mortgage Insurance fund) was hovering aroung 16 billion and from all that I have read, it is set to drasctically increase as more FHA loans are being orginated in light of what's going on in the sub-prime market.

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FYI on UFMIP. I had it on a loan that closed in April. 1.5% of the value of the loan upfront. And even if I made lump sum principal payments and paid off half the note, I cannot get rid of the monthly payment for at least 60 months.

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FYI on UFMIP. I had it on a loan that closed in April. 1.5% of the value of the loan upfront. And even if I made lump sum principal payments and paid off half the note, I cannot get rid of the monthly payment for at least 60 months.

I'm not familar with UFMIP. I don't think we have that here in TX. I could be wrong. I'm going to research it. Thanks for the info.

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RE: Loan on 401K. Legally you have to declare any new loans/obligations that are not showing up. Most of the time those loans are on your paystubs anyway.

RE: Waiting until the right time. Great idea if you can figure out what the bottom is for homes and for interest rates. If you are comfortable with the payments, are not going to be in the home for less than 3-5 years, then go ahead and buy. Rates are historically so low-but with inflation coming to the economy they will go up. Home prices are probably not at the bottom, but by the time you realize that they were at the bottom, they will have gone up.

Charles

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My husband and I just bought a home. We went with a mortgage broker and he was great. I have heard bad stories about brokers and loan officers. I would just check and compare.

We got the sellers to pay most of our closing. Right now most sellers will be willing to do something to help you get the house.

My advice to anybody thinking about getting a home soon or in the near future would be: save money. Even getting closing paid for and other fees rolled into the loan....you just got a new house. You are gonna need stuff and want stuff. It sucks if you don't have any moneyxdancex

Our scores were not that great. Your broker or officer should be able to advise you on different types of programs that will/can help.

Borrowing from 401k is counted as a debt that has to be paid back. The lenders will want to see and add that into you debt. Withdrawing your 401k (hardship) can also hurt you because they use that as seasoned money. If you withdraw it....you don't have any "savings" anymore.:shock:

Paying down your debt is the way I would go. It sucks to have a mortgage along with tons of other credit cards and such.:cry:

Good luck

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