Delta98

A Question o

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Here is the situation; I am in a lease/purchase agreement. The property was on the market for $495,000 and our agreed purchase price is $350,000. I have put a total of $17,000 down and am receiving a downpayment credit of 50% of the rent. (rent is $1600). I am planning on a total downpayment of 20% by the time I go for my financing. I have an agreement in writing with the seller that if the house fails to appraise at an amount high enough for me to obtain an 80% loan to value mortgage that he will hold a second mortgage in an amount to be determined at that time.

I had to do the lease option because of 2 student loans that were in default. These loans are currently in rehab and will be out of rehab and eligible for consolidation in 3 months. I filed bk7 discharged in 2003 because of a loss of my job and some very high medical bills that weren't paid by the insurance company. I have re established credit: 3 credit cards with 12 months never late (will be 2 years by the time I go for mortgage) auto lease that will be paid in full in 6 months (1 30 day late in the last 18 months) I still have 2 collection accounts that are showing 1 medical for $172 and 1 non medical for $320 that is from the college where I went for my nursing degree.

Current scores are 580 TU 620 EQ 540 EX I will be applying for a mortgage in about 12 months. I am thinking of an FHA . Do you think that is the best course? Is there anything else I can do to bring up my scores? Should I apply for secured credit card? When the lease is over on my car should I lease another or should I buy a cheap reliable car or go without one at all? I have access to a car to get back and forth to work. I am an RN with an income in 2008 of $68,000 because I only worked part time for most of the year, my income in 2009 will be around $85,000 plus bonuses.

Thank you for your help

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I'm by no means an expert on mortgages, but here's a few things I do know...

CCs, whether secured or not, will not help your FICO mortgage score. Stick with the 3 you've got...keep them paid to $0 if you can...avoid any CLI.

And, a $300-$320k mortgage on $85k a year sounds like trouble. The new (actually, old, and prudent) payment to income ratio may work against you...

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Thank you Willingtocope, looks like no new credit card if it will not improve my score I don't need it.

As for the income ratio, I thought the FHA ratio was 29/41, has that changed? I will be putting 20% down on the purchase. The mortgage amount is $280,000 and the PITI will be $2035.00. Right now I am paying $300 a month on the student loan rehab I am not sure if that will go down when I consolidate the two loans. I need to know if am going to need a large amount of cash reserves and if I should forego the new car lease until after the closing. I have 13 months left before I need to exercise the option to purchase and I want to make sure I do everything possible to make sure I qualify for the mortgage. :-)

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Everything I read said 29% of gross so I am not sure. But the P&I on 280k @ 6% is $1680 then there are taxes and insurance. I don't think the rate would be higher than 6%. I have 20% to put down and I hope that is enough. If I can raise my scores up high enough I might be able to go conventional but I worry about the 6yr old BK. Not sure if I would be approved on a conventional with that.

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Right now you can get FHA for less than 6% and 4 yrs from BK. (The rules just changed for that - used to be 2 yrs from BK). The 20% on a FHA is a mitgating factor (in a good way) - so that will help you. Also, FHA does not require reserves and conventional does require them. Fl is extra tough - especially on conventional. Stick with the FHA. Your payment needs to include taxes and insurance - it is 29% of gross including taxes, insurance and HOA if applicable. The back end ratio of 41% is good -but I have seen approvals for more.

If you are in certain areas you can qualify for City funds or Ship funds, but the ratios are tighter. FHA IS NOT SCORE DRIVEN. If you have a lender that is telling you that, then find another lender. Charles on this website seems to be excellent. I also know of an excellent FHA mortgage banker I use regularly - PM me if you want a contact.

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Thank you for your response Denita.

FL is a high foreclosure state and it is going to be tough getting a mortgage. That is why I am starting now to do everything I can to make my application strong. Do you have any idea what the FHA rates are at this time? I am sure they will change before I am ready to apply but I am just curious. I am also not sure about the MI on the loan. I read that it is needed on loans up to 78%loan to value and that I have two carry it for 5 years. Is that right? Any idea what the cost is? Is there anything else I should do now to make it easier to obtain an approval when I apply?

Thanks again for your help.

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Florida is a high forclosure state, but FHA loans are still available. Remember everything must be verified - income, source of downpayment, employment etc. FHA is a full documentation type loan.

My concern with your contract as it is written is the amount of credit you are getting for the downpayment from the rental rate. You should check out the underwriting criteria with the mortgage banker I sent you or with Charles of Firstsource here on this website (he is also excellent) or Morrow - she knows her guidelines extremely well too. As I recall, there is a limitation as to how much can be credited toward your downpayment - I thought it was limited to the amount of rent you pay OVER the market rent was allowed to be credited as down payment. I could be wrong, but check it out now so something can be worked out before you go to finance this lease/purchase.

Also, see if you can get rid of the lates showing on your report after the BK - those are especially hard to overcome after a BK. You might try Goodwill letters to the OC to have them removed since they are now older. Look up Goodwill Letters on this site for a quick 'how to'. Fizzel is really good at getting those through!

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If you are in certain areas you can qualify for City funds or Ship funds, but the ratios are tighter. FHA IS NOT SCORE DRIVEN. If you have a lender that is telling you that, then find another lender. Charles on this website seems to be excellent. I also know of an excellent FHA mortgage banker I use regularly - PM me if you want a contact.

That is 100% correct, FHA is NOT score driven.

However, lenders have their own guidelines and although they will technically do an FHA loan, they have their own requirements and the majority of them have minimum FICO requirements as well. Ive seen quite a few that still wont accept anything below a 600. The few that are left that are still underwriting to Fannie Mae guidelines (no minimum FICO) are few and far between or portfolio lenders.;)

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Rental credit is a problem to use as part of the down payment.

You need to establish what the actual rental would be per month. This is best done by getting an appraiser to give you a "market rental analysis". This will give you a rental figure that the lenders will accept.

Then the difference between the market value and what you are paying is going to be what you can use towards the down payment.

ie: the rental analysis says rent should be 500.00, but you are giving them 750, you can count the 250.00 per month towards the down payment etc.

Charles

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