Is 5% down enough is today's environment?

[kailix]

I want to buy a house in July. My credit score now is about 660-670. I'm hoping by July it will creep up to 680, but there really isn't anything I can do to increase it by July.

We would like to buy a house for about $350K (I'm in California, it's expensive here!) With $350K, we are under the suggested 28/36 max ratios, however, since I started my job in July 2006, my 2006 W2 won't reflect my current salary. (bank statements and pay stubs will, however) Assuming 3% for closing costs (is that even reasonable?) we will need $28K to have 5% down. By July we are expecting to have about $30K, so just over 5%.

Assuming today's interest rates, is it reasonable to think we can get a rate of about 7%? Should we try to go FHA with the lower down payment? Or should we keep saving for another year and try and get the down payment up to 10%? We are living in a tiny apartment now to save money and frankly, I am ready to move!

Appreciate all advice! thanks!

[Amerikaner83]

I want to buy a house in July. My credit score now is about 660-670. I'm hoping by July it will creep up to 680, but there really isn't anything I can do to increase it by July.

You sure about that? What is the utilization % of your current creidt cards? Can you get higher limits? How about paying down car payments or wahtever? Every little bit helps. July is 7 months away...you can have 750 or more by then, if you want to. I've brought mine up form 470ish to 650ish in a year and a half...it's definitely possible!

[liverichly]

Anticipating 5% down in California is a good plan, as Fannie Mae pretty much has designated the entire state as a declining market... and declining markets are requiring a 5% LTV reduction from max financing, since max financing is still 100%, 95% LTV is where you'd sit if you go with a Fannie Mae or Freddie Mac backed mortgage.

Your W-2's don't need to reflect your current income if a current paycheck stub will instead. Further, shouldn't you get your 2007 W-2 pretty soon, which would reflect closer to your current income?

With 5% down and today's rates, you should be looking at something about 6%, not 7%. FHA can do 3% down, and you can use down payment assistance for the 3% down, essentially negated you needing to bring in a down payment... however if you can get your scores up to a 680 level, then conventional (Fannie/Freddie) financing is likely going to be your best bet. If your income & sales price fits within certain levels, CalHFA could be another option, and it still does 100% financing. At http://www.calhfa.ca.gov/ you can find out detailed info.

[kailix]

You sure about that? What is the utilization % of your current creidt cards? Can you get higher limits? How about paying down car payments or wahtever? Every little bit helps. July is 7 months away...you can have 750 or more by then, if you want to. I've brought mine up form 470ish to 650ish in a year and a half...it's definitely possible!

I think so. I have paid off all credit cards and will now pay them before the statement date, which I'm hoping will get me up another 10 points or so. I mostly paid them off every month before, but not always before the statement date, so they were reporting balances.

I just got a car in July, so the balance is very close to the original loan amount. And I have a huge chunk of installment debt in the form of [huge] school loans, which also have balances very close to the original loan amount. In order to make a significant dent in them, I'd have to pay down *a lot* of money, and from what I've heard, you are better off having cash for a down payment, and a car loan, then no car loan but no cash for a down payment. there is no way I can get my total installment debt to less than 50% and still have any cash left. Yeah, my student loans are high. But only at 3% interest and spread over 30 years!

In terms of why my credit score is low, that is because a few years ago I had a medical collection for $150 for a bill I never received because I was living abroad. I also have some late payments on my student loans from that time. The medical collection was paid January 2006, so I'm hoping that as it ages past 2 years, it will have less influence on my credit score.

(I also just got a letter from a collection agency for a Verizon bill in MA from 5-6 years ago, it is not appearing on my credit reports, I'm not sure if it's SOL and I'm trying to figure out what to do with it so that it doesn't hit my credit reports)

Also, in the last year, since I've had my WaMu credit card which gives a credit score, my score has only gone from 621 to 671. Although I guess considering I increased my installment debt, I that's not too terrible.

I appreciate any suggestions on how to improve my credit score!

[kailix]

Your W-2's don't need to reflect your current income if a current paycheck stub will instead. Further, shouldn't you get your 2007 W-2 pretty soon, which would reflect closer to your current income?

Yes, it will, I just wasn't sure if lenders average the 2 years of W-2s. if they focus on

Thank you so much for the info on CalFHA and the max financing. How sad that I live in a "declining market". It does make buying a bit nerve-wracking.

ETA - checked on CalFHA, bit of a mixed blessing - I am above the income requirements. I couldn't find income requirements for regular FHA, is that correct?

[liverichly]

Yeah CalHFA (not CalFHA) is income sensitive. FHA is not though (you are correct), but there are FHA loan limits you must be within, you can look up your county's at https://entp.hud.gov/idapp/html/hicostlook.cfm (majority of county's are at $362,790)

[firstsource]

And chances are great that shortly the FHA limits will be raised for the whole country to 417K.

Charles

[kailix]

Hi, just thought I'd provide an update, in case it's helpful to anyone.

Despite not wanting to buy a house until July, we accidentally stumbled across our absolute dream house - the house we didn't think was possible given how much we had to spend. It was a new-on-the-market foreclosure, and given all the interested buyers swarming around, it was clear it was not going to last until July, so we made an offer. It was listed at $370K, we offered $355K + 3% seller-paid closing costs (it wasn't a lowball offer, we detailed all the things wrong with the house that we felt justified the lower offer), the bank countered at $365K + 3% closing costs, we countered back with a 45 day close instead of 30, and the bank accepted.

As I mentioned, EQ had my credit score at 660-670. My EQ was indeed 662, but something else came up as 720, and something else as 697! (They were some specific tri-merge score agencies, not TU and EX, but I don't remember the names) So my mid-score was above my target score of 680. Because the seller is paying closing costs, we are still able to put 5% down, which apparently is essential in the "declining market" that is California. In fact, the broker I am working with, said she is qualifying me under a 100% financing program, because all programs are requiring an additional 5% down in declining markets. So far she has me locked in at a 6% rate for a 95% LTV, and thinks that with the seller paying 3% closing costs, there may be enough left over to buy down the rate a little bit.

The broker said that it was acceptable to have only 1.5 years employment at one place, but I got the feeling that's only acceptable because I'm in the same line of work that I have been for 10 years, and have 2+ years in this apartment. Plus DTI is 25/32, and I do have 2 years of W-2s, now that we've passed January 31.

So, the close is planned for mid-March. I am all fingers/toes/everything crossed that nothing goes wrong!

[jq26]

Congats on your new purchase!