Mortgage advice, first time buyers (private mortgage insurance, loan, premium, pre-approved)

[tortoisegirl]

My fiance and I want to buy a home soon; for practical reasons we'll wait until after we get married later this year as we'll be busy. We thankfully have good credit (both over 700; the only thing stopping it from being higher is our ages of 22 and 26). Also have a down payment, but we'll be short on making 20% by a little as prices are high in our area. We'd have about 13-16% saved of the price range we're looking at to put down (and any fees or closing costs). From the calculators I've looked at we won't have a problem qualifying for the loan amount as it's way under the max for our income, also accounting for debt:income (only my fiance has debt, and it's a high balance of student loans).

From what I've read we won't want to do FHA as we have much more than the 3ish%, and have the credit to qualify for better rates and/or lower fees.

1. Are there mortgages that we could put down a varying percentage, not just a flat fee of 5, 10, 15%?

I'm not sure how that works. I could imagine the percent we put down will vary with the price, lender fees, if we have to pay closing costs (or the seller does), etc. Also if the house needs work I'd want to not use as much of the money. I also want to put as much down as possible because it would reduce the payment and the amount of interest we'd pay. We'd plan to keep the house for at least a few or five years, but it'll be a starter home. We're planning to only consider 30 year fixed, and if we move to a cheaper area of town we could actually get a mortgage cheaper than our current rent, so with tax benefits we'd come out way ahead and have the money for repairs and maintenance.

2. Anything else we need to be doing now to prepare for buying a home in the next year?

We're keeping an eye on credit scores and doing all we can to raise them even more. I had a car loan that really helped mine since I just don't plain have too much history at my age. Ideally we'd not want our parents to have to help us co-sign or anything.

I've also already researched areas, prices, school districts, etc. We have narrowed down our list of what we want in a house, including our must haves vs. our would like to haves. Trying to be rather modest because we'd just love to get into something at the bottom of the market in our area, at a historically low rate. I got a few quotes off Zillow that say we'd qualify for well under 5% which bumps up what we'd comfortably be able to spend as well.

3. How long is the average time frame from making an offer on a home to it closing and being able to move in? 30-60 days?

I'm trying to plan ahead and see how open-ended I need to keep our apartment lease. We might have to pay a premium for a shorter lease, but I'd want to minimize that time frame. Rent is too high to do double for more than a month.

4. Is there a potential problem while applying for a mortgage because my fiance has over $100k in student loans?

He's paying them fine (they even dropped the payments after a few months) but it definitely takes both of our incomes to make ends meet. When you account for both of our incomes and the amount of debt, it looks ok. I was just curious if it would be a bad thing in the eye of a lender to have one of the applicants with a high debt:income. I've reduced what our potential budget would be based on this. Of course we'd get pre-qualified before we start searching with an agent, but I don't want any surprises. Would they ever reject the loan because of one borrower's stats even though combined the borrowers are ok?

5. Are there any other federal programs, grants, discounts, etc, that we should look into besides FHA? I remember reading about some tax credit but it looks like we'd be buying after that expires if I read it correctly. I have a list of local ones in our area (we don't qualify for much based on income and what price range and areas we re looking at).

Thanks for reading all my questions and for the help. We really appreciate being the most informed potential buyers we can.

[chet everett]

First let's talk about student loans -- they are debt. In general more debt == smaller amount you will be allowed to borrow. I am hoping that $100K+ in student loans means know your finance has solid employment /earnings. If that is in medicine you are probably in good shape, as their are programs designed to all physicians to borrow more than others due to their higher odds of large long term earnings. If you apply TOGETHER then both your credit histories matter, as does ALL YOUR income. Most dual income couples this makes the most sense, but if one partner has really awful credit this might not be the best way to get the most favorable loan terms.

Now about "down payment" -- traditionally the number that you should shoot for is 20% of the purchase price. This will free you from PMI (private mortgage insurance, a way the lender tries to insurance against default) and give you the best rates. If you do not have 20% you MAY be able to do a combination of first and second loans so that your 10% downpayment + 10% second mortgage would allow you to have a first for 80% with no PMI -- could be a big money saver. If you can't get to 10% then you may be forced into deciding to swallow the add-on of PMI and you may want t consider NOT tying up any more money than need as it may be better to keep the funds as reserve for unexpected costs OR even to "plan ahead" for a possible refinance and the costs associated with it IF your outlook is such that future income increase would allow you to significantly change the kind of mortgage you could afford -- basically if your family income would JUMP UP so that you could go to a 15 year loan or shorter it might make sense to have a big pile of cash to kick that off... You could ut 7% or 9.43% or whatever, the lender won't really care, and rates are so low that you would not really have any benefit to doing this. Once you get over 20% then it is common to see folks pump every dime into making the loan as small as practical, though the same advice about keeping some reserves is also smart...

There are not CURRENTLY any other programs as broad in scope as the FHA loans, but who knows what the new administration might have in the pipeline.


From the time that you find a house that is worth making a bid on and the time you move in my gut tells me that very few people do this is less than 30 days and very few take longer than 90 days. Most common is probably less than 60 days.


If you have not already gotten your credit reports and reviewed all the entries / understand your FICO you should do this for both of you.

Good Luck!

[tortoisegirl]

Thanks for the comments. We're pulling in over 100k/year right now out of college and have the potential to go up or down based upon career decisions. But yeah, it's steady. How far history do we need nowadays for a loan? I knew it used to be different, but I only have 6 months at this point...it'll probably look a lot better once we plan to apply. If they are looking at everything together for us I think it'll look ok. That's awesome the amount you put down is really flexible. I would want to compare the rates with two loans vs. having PMI, because from what I've seen the second loan is usually a much higher rate to sometimes it could make sense, but sometimes not. We would have cash reserves. Our down payment money right now is being kept separate and it's been earmarked for awhile since I'm lucky enough to have had it given to me.

[ufcrules1]

"2. Anything else we need to be doing now to prepare for buying a home in the next year?"

Right now the government is offering a $7500 tax credit if you buy before April 9th. Also, rates are at all time lows right now so you are going to want to buy as soon as possible.

As long as your credit scores are around 720 or higher you should be able to get the best rate possible.

"3. How long is the average time frame from making an offer on a home to it closing and being able to move in? 30-60 days?"

This is negotiated between you and the seller through your agents. Typically within 30 days. It just all depends. Sometimes the seller may want more time so they can find something else, etc. 90% of the time its within 30 days though.

"He's paying them fine (they even dropped the payments after a few months) but it definitely takes both of our incomes to make ends meet. When you account for both of our incomes and the amount of debt, it looks ok. I was just curious if it would be a bad thing in the eye of a lender to have one of the applicants with a high debt:income. I've reduced what our potential budget would be based on this. Of course we'd get pre-qualified before we start searching with an agent, but I don't want any surprises. Would they ever reject the loan because of one borrower's stats even though combined the borrowers are ok?"

From everything you have said above I think you will be fine. Considering that you both have good credit, and can afford the student loans and a mortgage payment etc. This is my advice to you. Go to your bank and get pre-approved for the top of the range you are looking at. The pre-approval process is nothing and can be done right away just by going to your local bank (as long as they do mortages). If not, you can do a pre-approval over the phone with a mortgage lender... Bank of America, Wells Fargo, Chase, etc. Or if you are using a broker they can do it. This will not effect your credit and its a good way to see where you stand etc. You can get pre-approved for 60 days and then do it again when you are close to buying your home. It's a very simple/common procedure.

"5. Are there any other federal programs, grants, discounts, etc, that we should look into besides FHA? I remember reading about some tax credit but it looks like we'd be buying after that expires if I read it correctly. I have a list of local ones in our area (we don't qualify for much based on income and what price range and areas we re looking at)"

As of right now... no. Besides the $7500 tax credit. We bought in November so we will get that.

It is a good idea to avoid the PMI and the old rule was you had to put down 20%. Thats not always the case now. When we were looking BOA, had a loan that as long as you put 10% down and had credit scores of over 720, there was no PMI. So there are loans out there that don't include PMI.

If you cannot find one then go with an 80/15/5 80% Loan and 15% loan and you put down 5%. Yes, the second loan will be higher but you and your husband would need to focus on paying that loan off first. So you would pay extra to the principle on that one.

My wife and I just bought back in November and I know a good bit about the buying process. If you need any help along the way feel free to email me. Aoliver@targetdist.com. Keep my email handy because you will have several more questions!

[tortoisegirl]

That really sucks that is only through April...no way we could do it: our apartment lease is through June (if we had to close by April 9th we'd be paying 3 extra months rent or more almost canceling out the tax credit once you add in moving expenses), we need to get through a current lay-off threat that should be over in March, it would be simpler to wait until we are married in September (and we'll be busy), and we want prices to drop just a tad bit more (wanting to see more of a bottoming out here in case we need to sell in 5 or so years we can still be ok). I'm hoping they will extend it or something because I just couldn't imagine having to rush through it right now.

Thanks for the advice...that is all sounding really good. Glad to hear we will be in good shape for qualifying--maybe the extra few months will let us both get above 720 (think we're a tad shy last I checked). Planning to get pre-approved for the max because I've heard of people asking only to get approved for X, and wanting to buy for X + $1k or something! The 10% down option sounds right on target to leave a little extra in the emergency fund and for any immediate improvements (definitely not even close to our dream house in our local market and price range). I'll bookmark this thread for reference.

[tortoisegirl]

Oh wow I just read up on it and it was to be paid back over 15 years in $500 increments...that is absurd. Definitely not worth it for me. Also, it is good until July 1st (April 9 2008 was when it started). But, the repayment issue makes it a moot point to me--having to rush into buying a house and incurring more expenses won't be worth it for the tax credit (which we wouldn't see until early 2010 with our refund unless we changed withholdings). It's great if you were already buying a home though...just not much of an incentive to me.

[tortoisegirl]

Sorry, another update. It's also capped at only 10% of the purchase price, and has income restrictions.