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Realistically...could I get a mortgage?


meghand
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Hi all! My credit score right now is 659/660/658. I am hoping to buy a $125,000 home. We only have about $3000 to put down. Or that would have to go to closing costs, not sure?

I've been improving my credit scores bit by bit. New credit cards in late 2006/early 2007 helped pull me up. No late payments for at least 4 years on auto, etc.

I've never owned a home before either!

The only major thing on my credit is an old credit card (ex boyfriend) that is now in collections for $13,000. The CA bought it, put it as a revolving account opened in 12/2005 (even though the DOD on the cc was in 2003.) and then closed it. Reopened it again in 1/1/0001 (seems to be a weird year huh?) and has it listed as an Open Account, Collection Account.

I have been with the same employer for 5 years, currently an independent contractor making $30,000 per year with a guaranteed bonus of $2900 per year as well.

I'm looking in PA.

Would I qualify for a mortgage? If not, would a co-signer help?

Any help, info would be greatly appreciated!

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A few points I noticed:

If you're an independent contractor, you don't have an employer--you're self-employed. That's going to hurt you quite a bit, even though it's been steady money. Traditionally, being on someone's payroll is seen as a sign of stability. Though we all know how much that counts for anything these days. :roll:

I'd really look into the FHA loan programs available though various lenders. They typically have more relaxed credit and income requirements. The deal is that the federal gov't agrees to payoff what you owe to the bank if you default. So they're more willing to lend to somewhat more risky borrowers. The downsides are that you're restricted to how much house you can buy (it varies by county, but you're almost certainly safe at $125k) and that you have to pay the equivalent of private mortgage insurance (PMI) for the whole term of the loan. On a normal loan, you don't have to pay for PMI anymore once you have 20% equity into the house.

I've read that as long as you don't have any active collections and no late pays within the past 12 months, you're normally pass the credit check. A FHA loan also carries a DTI ratio requirement of 31/43. Which, simplified (and assuming you don't have any debt) means that you're allowed to get as much house as 31% of your income allows. So in your case, $30,000 a year divided by 12 months is $2,500/mo. in gross income. 31% of that is allowed to be used towards your house payment, making your maximum allowable monthly mortgage payment to be $775/mo. Looking around a bit in my area, you might be able to get 6.5% fixed-rate loan. On a $125k house, that would put your monthly payment at around $780/mo--almost exactly on target.

You'll need a minimum of a 3% down payment under the FHA program. So get another $1000 saved up and you should be good there too. Also, since you're right at the permissible DTI ratio, make sure you pay off any debt (car note, credit cards, student loans, etc) ASAP. You'll only be allowed to carry around $300/mo. in debt payments.

Finally, even if you weren't buying a house, I'd recommend that you really work on that outstanding credit card problem. It sounds like something fishy is going on. I'd suggest that you create another post in the appropriate forum with further details.

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Just beware of closing costs being high in PA. If you are looking within Philadelphia, the transfer tax is 4% alone. That is $5000 on a $125k home. The rest of the state is 3%. Buyer pays half, unless you negotiate otherwise. Then you have title costs, which tend to run clsoe to 1% of total value of the home. Add in required escrow (1 year's taxes and insurance) and upfront mortgage insurance (required with FHA) of 1.5%. Before you know it, before you even talk about down payment, you are looking at 5% of the cost of the home that is eaten up in transactional costs.

Please don't klet that scare you. I'll defer to the mortgage folks on here as to what can be rolled into the loan and what cannot be. I chose not to roll any costs into the note. But when I went FHA in april '07, I brought to the table $21,000, and only $6000 went to a down payment (3%).

if you get creative, you can chop down your costs, either by financing them into the mortgage or having the seller pay.

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Thanks for the replies so far!

ShortBus, I was employed until Oct of 2007 by the company I work for, for 4 years...the only reason I am an independent contractor now is because I live in another state...my title/$$, etc is the same and my boss said she would be happy to write a letter/speak with anyone regarding that! Do you think that would help?

I just paid off my student loan, whoot! (As of 2 minutes ago!) It was down to $250, so I said, why not? I have $7500 left on my car loan, I don't have the money to pay that off. I have about $2000 in credit cards, but think I can get that down.

My next step is that fishy situation! I'm looking into it a bit more, getting all my ducks in a row before I proceed! That is the MAJOR flaw in my credit report!

jq26, I'm looking near Harrisburg. I also heard of a Keystone Mortgage program. I contacted M & T bank to see if they can help me...I am wondering about rolling it all in together too. Maybe finding a house at the $120,000 mark would be better!

I was thinking of FHA loans too! That might be my best bet it looks like!

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Thanks for the replies so far!

ShortBus, I was employed until Oct of 2007 by the company I work for, for 4 years...the only reason I am an independent contractor now is because I live in another state...my title/$$, etc is the same and my boss said she would be happy to write a letter/speak with anyone regarding that! Do you think that would help?

I just paid off my student loan, whoot! (As of 2 minutes ago!) It was down to $250, so I said, why not? I have $7500 left on my car loan, I don't have the money to pay that off. I have about $2000 in credit cards, but think I can get that down.

My next step is that fishy situation! I'm looking into it a bit more, getting all my ducks in a row before I proceed! That is the MAJOR flaw in my credit report!

jq26, I'm looking near Harrisburg. I also heard of a Keystone Mortgage program. I contacted M & T bank to see if they can help me...I am wondering about rolling it all in together too. Maybe finding a house at the $120,000 mark would be better!

I was thinking of FHA loans too! That might be my best bet it looks like!

Hmm, you might be able to find even better deals on houses out there. 125K will buy you a pretty nice house in the PA boonies. Though, of course, the closer you get to H'burg and some of its 'burbs prices go up.

I think the Department of Community and Economic Development has some mortgage deals and some places where they're encouraging home ownership so you can get more help.

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Well, I tried with Quicken and they said no, because of the outstanding collection account. I guess I will try with someone else? Everything else is good to go they said! Just that!

Thanks Mag, I will try looking into that too!

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The collection account could be a problem with FHA, especially how it is being reported on your credit. There are other bank programs available to you, don't give up. One thing about DiTech/Quicken/ELoans is that their ad's imply that they have programs for everyone, but they just take the easy to do loans.

Charles

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