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I know nothing about mortgages so any guidance you can give will greatly be appreciated.
I would like to buy a home next year. But here is my situation I was saving a lot extra in my 401K because I was planning on taking out a loan for a downpayment. A few months ago I was downsized (I was still renting thank god!). Because of this I have gotten behind on some of my bills and my credit has taken a hit. Nothing too bad no bankruptcies or charges offs just some 30 day late payments. I have a lot of small credit cards. All togethor they only add up to about 2K.
I want to wait at least a year after I get my new job to make sure it will work for me. I don't want to quit or get fired when I have a mortgage. I also have a feeling that I will have a difficult time getting a mortgage within a year after deragatory info was reported on my credit score.
My credit score I'm guessing is in the low to mid 600s. I have more then enough for a down payment in my 401K and still have enough to be a little bit better then average for my age (30). Since loosing my job my confidence has been shaken and I don't want to take the whole 20% down out since my 401K will be all I have if worst comes to worst. Also it will be a dispersion and not a loan and I will loose a lot.
Houses are cheap in my area and I would like to be able to buy a fixer up. My question is what do you think about taking a mortgage with a higher interest rate and then refinincing in a year after I made improvements to the house, paid extra on payments or allowed my credit to improve. Is this something do able? I really don't expect houses to fall much if any in the area because we never experiance any kind of boom and they have been stagnent for decades.
Why do you say take out a mortgage at a higher rate? Currently, you can get the best rates out their with a middle fico score of 640 with a FHA loan. If score is 620 to 639, your rate would only be an .125% higher...today that is 3.875% for a 30year.
There are a few lenders going down to a 580 score on FHA. The lenders i work with do not, so i am not sure how much worse the rate would be...i would guess maybe .375 to .50% higher..so worst case 4.25%.
Currently, FHA which is the most widely used loan today, they have no minimum credit score to qualify. However, all lenders have overlays, meaning they add their own guidelines ontop of what FHA will approve. One such overlay is the minimum score.
More than likely, a year after you buy, so 2 years from now, rates will probably be moving upward making a refinance unlikely possible.
*You pay off all your credit cards and have no debt
*Do not borrow from your 401k
*Start saving money for down payment and for closing costs.
*Have cash reserves of about 6 months
*Don't look into refinancing a fixer upper, may not happen.
*Look at local rents in the area and if the (future) mortgage matches the rents in the area, then your safe (in case you lose your job and cant pay) you can rent it out.
I'll take a different tack on this -
For one thing, consider moving your 401k funds into a self-directed ira.
Look closely at the offerings, the one I chose allowed me to invest in any stock or mutual fund out there, instead of just a couple (poorly managed) funds.
If you're a "first time" buyer, you're allowed to take $10k from your IRA with no penalty (you still have to pay the tax) to buy a home. Not a loan, a withdrawal.
You know how much is in your account, what your job prospects are, and your comfort level in investing, so make your own decision.
Perhaps you should consider a lower down-payment program like FHA or Homepath, or if offered in your area, a USDA loan. The fees are a little higher, but the downpayments are much lower. There shouldn't really be a need to re-fi out of one of those loans, the rates are very comparable to conventional loans.
Why do you say take out a mortgage at a higher rate? Currently, you can get the best rates out their with a middle fico score of 640 with a FHA loan. If score is 620 to 639, your rate would only be an .125% higher...today that is 3.875% for a 30year.
There are a few lenders going down to a 580 score on FHA. The lenders i work with do not, so i am not sure how much worse the rate would be...i would guess maybe .375 to .50% higher..so worst case 4.25%.
Currently, FHA which is the most widely used loan today, they have no minimum credit score to qualify. However, all lenders have overlays, meaning they add their own guidelines ontop of what FHA will approve. One such overlay is the minimum score.
More than likely, a year after you buy, so 2 years from now, rates will probably be moving upward making a refinance unlikely possible.
Thanks for the info. If I had a few 30 days lates a few months before I was looking to recieve a mortgage would that disqualify me from a mortgage usally? What if I had my job for less then a year?
Thanks for the info. If I had a few 30 days lates a few months before I was looking to recieve a mortgage would that disqualify me from a mortgage usally? What if I had my job for less then a year?
Can anyone usually get a mortgage that wants one?
Recent late payments will make the underwriter pick your file apart. It isn't impossible, but you're climbing uphill. They're going to want two years on the job, unless your new job is in the same field.
Thanks for the info. If I had a few 30 days lates a few months before I was looking to recieve a mortgage would that disqualify me from a mortgage usally? What if I had my job for less then a year?
Can anyone usually get a mortgage that wants one?
The only effect the late pays will have is a hit to your fico score. Even with recent late pays on credit cards or car loans does not disqualify you...unless the late pays lowered your fico score below the minimum. however, late payments on rent or a mortgage can have a huge impact.
Lenders want a 2 year work history. Work history will include schooling. so if you were in school and just got a job...lenders will accept the schooling together with the one year on job as your history.
No to your last question. It used to be, back in 2004 to 2006, that anyone with a pulse could get a loan. Today the guidelines are much more strict. But if you fit in the box it isnt that difficult.
I still say he should not seek the loan or a house until his debts are paid off and have extra money for down and closing plus 6 months backup money even if he can get a loan with his situation, but maybe thats just me. My words get tossed in the wind.
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