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Hi everyone. I love this forum... most of you are extremely helpful and respond quickly.
I have some questions that googling and using the City Data search engine cannot answer for me--
I recently was pre-approved for an FHA mortgage for $150,000, at 5.1%. My credit score is in the upper 600s and I make about $3,000 a month, take-home. I have three jobs - as a music teacher (private, and for an after-school program), and I run a studio/music-production business, and I also have other passive sources of income. I plan on renting rooms out in my first house, to friends and/or roommates (with an extensive background check/employment history/references you name it).... to offset the cost of my mortgage.
In my area, there are very, very few houses in the range of $125-150k. My parents know this even though they live in FL (I'm in the Philly 'burbs). For just a little more than I got pre-approved for, there are houses that are quite nice (older, or a little further out from my job)... we're talking in the $200k-$210k range.
Now I know that the price difference between $150k and $200k is considerable. However, this reflects the difference between a piece of crap at $150k that probably needs $50,000 in repairs.... and a house that might need a little painting and a new carpet in a couple rooms (the $200k houses).
Even though I was pre-approved on my own for that amount... my parents have offered their help as they are excited that I am wanting to finally buy a house (after renting for 15 years... I'll be 35 in a few months).
The thing is, I don't know exactly how they can help other than helping me with my downpayment (I will have about $5,000 saved next month and they will match that, thankfully) and possibly cosigning for a mortgage loan that is higher than I initially got approved for.
My parents want me in a house that doesn't need a lot of work (because I am the opposite of "handyman"). I know a few friends of friends who are contractors, and a couple parents of my students are general contractors as well... plumbing experience, bathroom renovation, etc. But even with knowing people, the costs of fixing up a house are considerable. So again, my parents want me in a house that needs very little work.... hence, the price range of $200-$225k.... as opposed to the lower range. Believe me, I've searched every single day for a solid month and have seen many in person, shown by my friend who is my buyer's agent/realtor, and the houses worth owning are the ones in the low 200s.
So, how would I get pre-approved for a higher loan after getting pre-approved for a lower one? If my dad cosigns (he has perfect credit and is retired), could I get pre-approved for a mortgage loan up to $225k, through the same mortgage company or a different one?
My plan is to rent a few rooms to a few friends, as I wrote above... or find a stranger or two. I want to rent to no fewer than two other people (my best friend is my first renter), ideally three others. If I charge them $400-500 per room (all util included), I am in a position where I am paying about the same as my current rent, and having a ton left over each for emergencies (my debt and monthly expenses are QUITE low, as I am very frugal). My jobs are all stable and a few of my friends who expressed interest in living with me in my future house all have great jobs, too.
So... forgive me for the rambling.. just trying to figure out if it was possible, through FHA or conventional loans.
And please, save the negative feedback... I know it's risky to buy a more expensive house on my income, and I know emergencies always come up... I've been researching first-time home-buying for the past two years. I am ready, my parents know I'm ready... and the whole roommate thing is smart, even though they're not for everyone. I've lived with roommates for the past 6 years and it doesn't bother me a bit. I just want to be able to do my music, teach my lessons, watch movies with surround sound, and enjoy my very simple single life. I have no plans to start a family or get married, not for at least another 8 years.
Your parents can help out by providing the down payment and/or co-signing on the loan.
When they co-sign, all of their income and debt payments are mixed with your income and debt payments to calculate a "blended ratio" and that is what qualifies. Some lenders require the occupant (you) to have some sort of income, either no less than 100% of the payment or some percentage around there, but there are still a lot of lenders who won't require you to have any qualifying income either.
They can help in the down payment department but that doesn't increase the buying power as much as someone with strong income/little debt.
You can still purchase one of those lower priced fixer-uppers and not have to worry about considerable costs afterwards to repair it by utilizing a rehab loan program that finances the purchase price + the cost of improvements (which the down payment % is based on that total amount). The most popular one these days is the FHA 203k loan which you can read up on at Rehab a Home W/Hud's 203k Rehab Program. Non-occupant co-borrowers (such as your parents would be if they co-sign) are also permitted on that program as well.
How much could I get with the fixer-upper loan option? Say the house was $160 and needed $40,000 in repairs... new floors, you name it. Could I get an additional $50k in that loan?
Welcome. Yes you could. There are two versions of the 203k loan - the full version & streamline version. Streamline version caps out at $35k in improvements, so you'd need to utilize the full version. Not as many lenders offer it, but there are still many who do. The interest rate on the full version is usually .25-.375% higher than the streamline version.
Ok great! Much appreciated. I guess it seems like my only option is to buy a fixer-upper with that type of loan. Now how would I go about in obtaining this loan after getting pre-approved for the standard FHA loan? Is this loan just added to my initial loan or do I need to run through the whole pre-approval process from scratch?
Thanks so much for your help... there are a couple homes I am seeing tomorrow that are just over my pre-approval amount that definitely need work... one needs a floor throughout (big house, great area-- just needs floors and paint), and the other needs a good amount of cosmetic work and possibly other stuff...
Also, I read about getting an HUD-licensed guy to come out and estimate the work costs on a fixer-upper... when would he come out? After I make an offer? Before?
You need to ask your lender if they offer the 203k loan, as well as if they allow a non-occupant co-borrower to help you qualify for it. If yes, then they may just need your parents application information/check their credit/get their documents, as well as you'd need to start getting estimates for the improvements you plan on financing with the new loan amount. Some lenders may start the underwriting process all over again, it just depends on what policy is. If your lender doesn't offer the 203k program, or permit non-occupant co-borrowers on it, then you should seek out a new lender who does. A good mortgage broker should have access to a couple lenders who have the 203k program, as well as several of the bigger named banks.
The HUD home inspector charges money to come out, so unless you want to spend money before you even know if the seller will sell you the home, I recommend you get them afterwards. Make sure your real estate agent helps a lot of buyers who are using FHA financing so he/she will be able to identify anything that would likely need to be fixed to meet FHA property requirements, in addition to help you make that initial estimate of those costs.
Nonchalant? It's called good parents, and mutual respect from child to parent, and parent to child. I can absolutely make payments (even on my own, without roommates), but I don't have tens of thousands in savings, or a perfect credit score. Most of my savings went to rebuilding my credit. I screwed up five years ago, but have since proven myself to be on the right track, and fixed all of my past financial mistakes. I grew up. Want to get a house that's worth owning, and living in (and not just living in to "flip it" two years later). I want a house I can live in for over 10 years, living on my terms instead of irresponsible landlords (like my current one... I live in his house, and he spends most of the roommates' rent money on beer, and lottery tickets). That's a huge reason why I want my own place.
Sure, it's a huge responsibility on the parents if I flake, but here's the thing-- I won't. And they know that.
Thank you Shane... and you're right, it is done all of the time.
I recommend you do a search on this forum about 203k loans. There are some very negative experiences with those loans (such as the consultant having a huge influence on what repairs need to be done, issues with monetary disbursements, and other nightmare scenarios). We had already decided against the 203k when we began searching for a loan but after reading about experiences on here I'm very glad we did. That said, I'm sure there are plenty of people who have had great experiences but are less likely to search out these forums to rant about them. But doing your homework is always a good idea.
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