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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 716
Experience:  CPA experienced in tax and financial planning
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I have a mortgage question and since the experts are typically

Resolved Question:

I have a mortgage question and since the "experts" are typically people trying to sell you a mortgage I can't seem to get any real answers without having 500 people trying to actually get me to take out a mortgage loan.

So my situation is this: I am 29 years old and make $80,000 a year. In a couple of months I will make a little more money as I will be getting a raise. My credit is not great. It is probably in the 600-650 range. The last time I checked it a few months ago I think it was about 630. The reason is my level of debt. I have about $20,000 in credit card debt and about $50,000 in student loans. I have two credit cards that I closed and put into a debt management program to get the APR lowered so that I could more easily pay them off. Though the loans are in my name, my parents actually pay for them so in essence I am getting about $10,000 more a year as that is what they are paying towards the loans. The credit card debt was stupid and came from a lot of medical bills, etc. but whatever is done is done so it's time to just deal with that. I have never had a late payment on anything, never defaulted, etc. I just have a lot of debt that I am slowly paying off.

I am paying as much rent as I would be paying on a mortgage and would like to buy my first house. My father is willing to co-sign on a mortgage for me as he has great credit. I have about $8000 that I could use towards a down payment but am wondering if it would be better spent paying off my credit cards that are in the debt management program and then borrow the money from my parents for a down payment.

Basically, I have a job in NC that I think I am going to have to leave in the next few months and see myself at a new job, making a bit more money in VA in the next 6 months or so. I had originally planned to be in NC for a few years and pay down a lot of this debt and then move back to VA and purchase a home but the current situation is making it more likely that I will have to look for a new job sooner rather than later. This is due to economic issues for the company. I am not unhappy or getting fired or anything but I can see the company maybe struggling and I am trying to be on top of my own situation before that happens.

So now that you know my situation, here are my questions.

1. Do you think I would be able to get a mortgage as a first time home buyer with/without my father co-signing?
2. What kind of loan/down payment options do you think I could get. I would really like to get 100% financing but understand that that is probably impossible right now. Would I qualify for FHA or something like that with 3.5% or 5% down?
3. How much house do you think I could afford? I currently pay $1500 in rent now and could afford to go a little higher so maybe a $1500 mortgage and then the rest of what I can afford would go towards taxes and insurance. I have been looking at houses between $200,000 and $275,000.
4. If it's possible to get a mortgage loan, where do I go? How do I go about obtaining it, etc.?

Thanks in advance.
Submitted: 3 years ago.
Category: Finance
Expert:  DanielleCPA replied 3 years ago.

Hi and welcome to Just Answer! I'm happy to help answer your Finance questions. Feel free to interject at any time if you need clarification.

 

1) I think it would be difficult to get approved for a mortgage on your own with your debt level and credit score. Your credit score meets the requirement for FHA loans, but lenders typically like to see a debt payment to income ratio of no more than about 40%. If you are able to get approved, I don't think it will be on that great of terms. With your father cosigning, you would be more easily approved. Keep in mind that lenders typically don't like to see gifted down payments, so that may be another obstacle for you in the process, since you mention your parents would be willing to gift you part of the down payment.

 

2) I agree that 100% financing is unrealistic right now. You may be able to qualify for a FHA loan. You can read about the requirements here. Generally, 3.5% down is required, but you will also need to pay private mortgage insurance premiums.

 

3) It is difficult to say how much house you can afford without knowing your full financial picture. How much house you can afford would depend on what your payment is. It is a recommended guideline that your total housing payment (mortgage + taxes + home insurance + private mortgage insurance) is no more than 25% of your income, 30% at the absolute max. Use a mortgage calculator to play around with different loan amounts and interest rates to see what your principal and interest payments will be. Generally, annual taxes are listed on MLS listings with real estate agents.

 

4) If you are qualified for an FHA loan, you will need to find a letter that does FHA loans (not all lenders do). FHA has a lender list available on its website for you to use. To find a mortgage lender, call banks, credit unions, private mortgage lenders. You can set up an appointment with a mortgage broker who should be able to give you an idea if you qualify for a loan with them or not. Be careful about pulling your credit at a lot of places, even though the inquiries will all be for a related purposes.

 

Even if you are able to get approved, my recommendation would be for you to hold off on buying a house right now. You make a decent amount of money for a single person, but you have a lot of debt. Buying a house is only going to tack on more debt and likely put more of strain on your budgets. Even if your mortgage payment is the same as rent, you will have more expenses, such as property taxes, repairs, etc. All of these things can be costly. Experts always recommend that you will spending about 2 to 3% percent of the home's cost in a year on repairs, etc. If you pay down your debt, you will have more flexibility in your budget for all these things.

 

You say you want to move back to VA. Are your parents there? They are already helping you out financially, but would it be okay with you (and with them) to move back in with them until you can pay off a large chunk of your debt and beef up your savings? Even if you pay them a small amount for rent, you would easily be saving over a $1,000 that you could throw towards debt.

 

Regardless of what you decide, I suggest starting to track your spending and keep a budget if you are not already doing so. There are some great tools out there, such as mint.com, to help you do so. This way you will have a better idea of what you are spending and what you can afford.

DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 716
Experience: CPA experienced in tax and financial planning
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