New Mortgage - First time home buyer

[patkingpin]

Ok, here is the story, me and the wife are in the low 600's with credit which we are working on improving. We have said multiple times that we want to wait until our credit is better before buying a house and getting a mortgage. We have the income to do it, but the credit is holding us back. With rates being what they are, what do the dis experts think would be our best course of action?
All ideas will be weighed and mulled over by us. We feel that if we wait too long we will miss all of the good rate deals that are out there, and with our credit not perfect, that could cost us a lot more money in the long run.

Thanks in advance!

 

[minnie1928]

I might be able to provide better advice if you say what the problem is on your credit (late payments, charge off, too high utilization, etc.)...

 

[momxx5]

I agree, now is the time to buy. House prices are are down, interest rates are great, etc.

I do think you credit score will play into it because the low rates are really tied to the scores.

Mortgage companies are so tight that they are lending to perfect applications right now.

Good luck. Keep us posted.

 

[patkingpin]

Mortgage companies are so tight that they are lending to perfect applications right now.

So, does this mean without a ton of money down, we are going to have a very hard time getting a mortgage at all?

 

[minnie1928]

So, does this mean without a ton of money down, we are going to have a very hard time getting a mortgage at all?

I think the days of 98% loan to value mortgages are gone. Lenders want to see down payments of value.

 

[libinatorsmom]

Ok, here is the story, me and the wife are in the low 600's with credit which we are working on improving. We have said multiple times that we want to wait until our credit is better before buying a house and getting a mortgage. We have the income to do it, but the credit is holding us back. With rates being what they are, what do the dis experts think would be our best course of action?
All ideas will be weighed and mulled over by us. We feel that if we wait too long we will miss all of the good rate deals that are out there, and with our credit not perfect, that could cost us a lot more money in the long run.

Thanks in advance!

I have been told that at least a 20% down payment is needed for any morgage and that is still no guarentee right now. Have you looked into doing a Contract Sale?

 

[crisi]

So, does this mean without a ton of money down, we are going to have a very hard time getting a mortgage at all?

Yes, it means that you will need a large down payment to balance less than perfect credit - and a downpayment regardless of credit.

 

[Cheshire Figment]

Do you have a long-term relationship with any bank (such as at least one account open for more than five years)? If the answer to this is Yes, go to that bank and talk to your Branch Manager and see what can be done for you. You may be pleasantly surprised

 

[kathie859]

I suggest you consider an FHA loan. FHA loans are NOT credit score driven and unless you have recent derogatory information on your credit report or don't qualify because of a debt ratio issue, it's one of the best options out there right now. After Jan 1, the required down payment is 3.5% of the purchase price. The seller can contribute towards closing costs.

Call your bank and they can help you. If you are a veteran, you may qualify for a VA loan (100% financing/ no PMI) and there's also USDA Rural Housing money for 100% financing.

Good luck...it IS a great time for first time homebuyers!

 

[tinkercat]

Just wanted to chime in with my couple of cents here.

When DH and I purchased our home (less than a year ago), our credit scores were in the low-mid 600's as well (they are much higher now that we own a home, go figure!).

As a PP mentioned, FHA loans are not tied to credit scores and have a fairly low requirement for down payments. We got 6% for a 30 year fixed mortgage. Find a good mortgage broker who works with FHA loans, and you may be surprised!

 

[loonieroonie]

It's a great time to buy, prices are low and there are deals to be had. I'm a realtor and have sold homes to many buyers in your credit score range, interest rate was the same as for a buyer with a much better score. Speak with a few mortgage lenders, don't just go with the first one. Some lenders are offering down payment programs. Some city housing authorities offer down payment grants as well. In our state there is a grant program through the state that can be combined with the city housing authority program. None of these get paid back if you live in the house a certain amount of years. Fha loans are a great way to go if you're worried about your scores. Again, speak with a lender (doesn't cost you anything to ask questions). Interest rates are great right now too. Ask about your down payment amount, ask about closing costs, ask interest rate for different loans. If any lenders, or realtors, are holding first time buyer classes go attend one.

Good luck whatever you decide to do.

 

[patkingpin]

Thank you everyone! There are some great tips here! I really haven't looked into FHA loans before. I am going to research those. I actually have worked for a bank for the past 3 years, but not anywhere near mortgages (Right now I am a Financial Analyst in charge of the fixed assets for the bank). My bank though is very conservative and is only accepting the best mortgages right now.

 

[lastminutemom]

Prices are low, but most experts think the bottom hasn't hit yet. Additionally, will this be a home you are willing to stay in for a while, because it may be a while before we see much appreciation in prices as well.

So, if you are thinking this is a short term purchase, it may be prudent to be a renter. However, buying in the next year or so, is a great idea if you intend to be a long time in the home.

Finally, in our area, lease purchases have much more flexibility. You might look for one of those.

Read this about FHA loans and credit history.
http://www.fha.com/hud-fha-02.cfm

 

[minnie1928]

Thank you everyone! There are some great tips here! I really haven't looked into FHA loans before. I am going to research those. I actually have worked for a bank for the past 3 years, but not anywhere near mortgages (Right now I am a Financial Analyst in charge of the fixed assets for the bank). My bank though is very conservative and is only accepting the best mortgages right now.

I was a banker, an analyst similar to you, until earlier this year. If you have a relationship with any of the mortgage lenders I would do the classic "I have a friend...." and see what they recommend. Your bank may be very conservative, but I bet the mortgage lenders know who is willing to work with FHA or lower credit score clients (assuming your bank isn't in that market right now).

Also, FWIW if your bank is small (mine was) I actually didn't finance anything through them because I didn't like the idea of my coworkers having access to my financial information. Just putting that out there...

 

[asmit4]

FHA... for sure! It's the best way to get a mortgage with a low credit score. Plus you only need 3% down and you can roll closing costs into the mortgage.

 

[Mom of three]

Chiming in....FHA is definitly the way to go. Im a loan officer at a mortgage company and 99% of the loans I do are FHA.

However, although they are not as score driven and have no minimum score requirements, the majority of the lenders do.

There are few lenders that will lend to anyone with less than a 580 credit score and there need to be quite a few compensating factors.

After the first of the year there are many other things changing as well including FHA loan limits, minimum down payment, appraisal procedures...just to name a few.

Do you have a friend or family member that works with a broker that they could recommend? That is usually the best way to go.

Brokers also have access to the wholesale side of things, as opposed to just walking into your local bank or credit union. So sometimes the rates are better. Although if you have an established relationship with your bank/credit union, you may have more pull with them.

Good luck with everything!

 

[Mom of three]

Forgot to mention:

One of the great things about FHA loans is that if at any time during your loan, rates do come down...you can do whats called an FHA STREAMLINE refinance.

Basically just rolling your current FHA loan into another, lower rate loan. Most of the time there is no credit check, qualification, income documentation or even an appraisal necessary. As long as you have made a mortgage payment ontime for 12 consecutive months you qualify.

I think this is a great thing.

 

[Kickapoo Joie Juice]

Thank you everyone! There are some great tips here! I really haven't looked into FHA loans before. I am going to research those. I actually have worked for a bank for the past 3 years, but not anywhere near mortgages (Right now I am a Financial Analyst in charge of the fixed assets for the bank). My bank though is very conservative and is only accepting the best mortgages right now.

You're a financial analyst in charge of fixed assets and you have bad credit? I don't mean to be snarky here, but aren't people who work around and with money supposed to be good with it?

 

[TifffanyD]

Is there anything "wrong" with FHA loans? I mean, if they don't use credit do they have higher interest rates or something?

I am looking at buying a house this fall. We recently relocated to FL and my relocation assistance on buying a house runs for a year, so if I do it then I can use my company's zero closing cost program. Also, house prices have come down a LOT here recently, to the point where if I wait and sock away more money any additional savings (and then some) may be eaten up by housing price increases.

Anyways, moral of the story, I know that I have good credit. Above 760, not sure how much above. My DH and I just got married, he didn't have much credit before but has an auto loan now. We currently rent an apartment.

I think we will have about 10-15% to put down by fall (but would rather not completely empty out savings just in case). So 10% to be safe. Would an FHA loan still be a good idea? Just getting an idea of what I should start researching. Only looking for around 150k if possible (homeowners insurance and property taxes are high here so would rather keep the mortgage a bit lower)

Any thoughts are much appreciated!

 

[purplegirl247]

I may be confusing this loan with another, but I'm pretty sure we were turned down for an FHA loan through our credit union because our salaries were too high (and they really aren't that high, lol). Do FHAs generally have salary requirements? That might be something to consider...

To pp, we just bought a house in late July in Orlando. We put 10% down and were able to get a loan no problem through our credit union, but we both have good credit. I would check both your and your husband's credit now if you want to buy a house in the fall. That way if there's anything wrong or needs to be fixed, you have time to work on it. You can get a free credit report (have to pay like $8 for the score itself, I believe) from annualcreditreport.com (this is the government site; most of the other sites are just trying to convince you to sign up for credit monitoring services) from each of the 3 major credit bureaus once per year. Hope that helps!