I'd like $250,00 plz.
May 5, 2010 2:11 PM Subscribe
Are we crazy to think that someone will give us a mortgage at an un-outrageous rate in this climate and considering our circumstances?
My fiance and I are trying to get a mortgage, but we have a number of strikes against us. He has a great credit score 760+ and I have a horrible credit score (I don't even know what the number is, but it's bad), the majority of my bad marks come from old debt. I have student loans that were at one time 90 days late (they have now been consolidated with the government and I will pay ~$180/month for 25 years at which time the remaining balance will be forgiven, but before consolidation they were 11 separate loans all 90 days past due) and old credit cards that I took out during college and right after graduating and eventually could not pay due to being unemployed. Technically they're settled, but the bad marks continue to drive my credit rating way down. He makes 29,000/yr and I make 43,000/yr. He's a grad student at the top university in New Haven so we're hopeful that his income will rise a bit once he finishes his PhD program (in about a year and a half) and finds a job.
All of that being said, ideally we'd like to get the loan completely in his name, because of his high credit rating and use my earnings as additional income on the mortgage application. The house we're looking at ($238,000) is a 2 family so we'd have additional rental income as well. We've talked with one major bank who told us that he could not use my earnings or the rental as additional income and since his yearly salary is so low, he wouldn't qualify for a loan for a house at that price.
Additional information:
** We'd only be putting down 10%.
** I have one very low limit credit card that I rarely use and he has two high limit credit cards that he rarely uses. When he does use them, he pays the balance off before the next billing cycle.
** The unit we'd be renting out currently rents for $850/month
** We currently pay $1,400/mth for rent
** I rented an apartment in the house that we want to buy (for 2 years until a year ago) and everything about the house & location is perfect for our needs.
So are we out of luck on this particular house and should look for something cheaper? Have you ever heard of a lender allowing someone to use another person's income as an additional source of money on a loan application without that person being a co-applicant? Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
My fiance and I are trying to get a mortgage, but we have a number of strikes against us. He has a great credit score 760+ and I have a horrible credit score (I don't even know what the number is, but it's bad), the majority of my bad marks come from old debt. I have student loans that were at one time 90 days late (they have now been consolidated with the government and I will pay ~$180/month for 25 years at which time the remaining balance will be forgiven, but before consolidation they were 11 separate loans all 90 days past due) and old credit cards that I took out during college and right after graduating and eventually could not pay due to being unemployed. Technically they're settled, but the bad marks continue to drive my credit rating way down. He makes 29,000/yr and I make 43,000/yr. He's a grad student at the top university in New Haven so we're hopeful that his income will rise a bit once he finishes his PhD program (in about a year and a half) and finds a job.
All of that being said, ideally we'd like to get the loan completely in his name, because of his high credit rating and use my earnings as additional income on the mortgage application. The house we're looking at ($238,000) is a 2 family so we'd have additional rental income as well. We've talked with one major bank who told us that he could not use my earnings or the rental as additional income and since his yearly salary is so low, he wouldn't qualify for a loan for a house at that price.
Additional information:
** We'd only be putting down 10%.
** I have one very low limit credit card that I rarely use and he has two high limit credit cards that he rarely uses. When he does use them, he pays the balance off before the next billing cycle.
** The unit we'd be renting out currently rents for $850/month
** We currently pay $1,400/mth for rent
** I rented an apartment in the house that we want to buy (for 2 years until a year ago) and everything about the house & location is perfect for our needs.
So are we out of luck on this particular house and should look for something cheaper? Have you ever heard of a lender allowing someone to use another person's income as an additional source of money on a loan application without that person being a co-applicant? Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
Have you ever heard of a lender allowing someone to use another person's income as an additional source of money on a loan application without that person being a co-applicant?
Look at it from the bank's perspective, they only have your fiancé on the hook when it comes down to him being contractually obligated to pay the loan, there's no reason for them to believe that you'll decide to use your money to keep the loan current if something goes wrong. And if it's only his income they can count on then it's not going to be enough to cover it.
Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
That would be my advice. Keep saving your money so that you can put 20% down when you do end up buying a house, keep staying current on your debts so that your credit rating improves, and wait for your fiancé to finish school and get a high paying job. Until then, enjoy the fact that you can move across the country without having to find a buyer, you don't have to deal tenants and maintenance, and you can't lose a ton of money if home values continue to drop.
posted by burnmp3s at 2:47 PM on May 5, 2010
Look at it from the bank's perspective, they only have your fiancé on the hook when it comes down to him being contractually obligated to pay the loan, there's no reason for them to believe that you'll decide to use your money to keep the loan current if something goes wrong. And if it's only his income they can count on then it's not going to be enough to cover it.
Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
That would be my advice. Keep saving your money so that you can put 20% down when you do end up buying a house, keep staying current on your debts so that your credit rating improves, and wait for your fiancé to finish school and get a high paying job. Until then, enjoy the fact that you can move across the country without having to find a buyer, you don't have to deal tenants and maintenance, and you can't lose a ton of money if home values continue to drop.
posted by burnmp3s at 2:47 PM on May 5, 2010
So are we out of luck on this particular house and should look for something cheaper?
Possibly. Find a good mortgage broker rather than a bank. They have access to the rates and lending standards for a lot of different banks that a single bank, of course, won't.
But also look at the wisdom of taking on something like being a landlord right now. Maybe it is a blessing. $850 a month is great when you have a renter, but really really bad when you don't. If things are as tight as they seem to be, you probably can't afford that. Hence the denials. They don't deny loans to be mean, they do it because the income to bills ratio is unfavorable.
Have you ever heard of a lender allowing someone to use another person's income as an additional source of money on a loan application without that person being a co-applicant?
No. Co-signing IS pledging someone else's income as a source of money. Maybe waiting until you are married would improve your combined credit rating.
Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
For now, perhaps. In a year, you will probably be married, the past credit troubles will be another year older, and it is doubtful that real estate and interest rates are going anywhere significant by then.
posted by gjc at 2:47 PM on May 5, 2010
Possibly. Find a good mortgage broker rather than a bank. They have access to the rates and lending standards for a lot of different banks that a single bank, of course, won't.
But also look at the wisdom of taking on something like being a landlord right now. Maybe it is a blessing. $850 a month is great when you have a renter, but really really bad when you don't. If things are as tight as they seem to be, you probably can't afford that. Hence the denials. They don't deny loans to be mean, they do it because the income to bills ratio is unfavorable.
Have you ever heard of a lender allowing someone to use another person's income as an additional source of money on a loan application without that person being a co-applicant?
No. Co-signing IS pledging someone else's income as a source of money. Maybe waiting until you are married would improve your combined credit rating.
Are the odds of us getting any sort of loan (with a decent rate) so low that we should just resign ourselves to renting?
For now, perhaps. In a year, you will probably be married, the past credit troubles will be another year older, and it is doubtful that real estate and interest rates are going anywhere significant by then.
posted by gjc at 2:47 PM on May 5, 2010
If you're going to use your income, they're going to use your credit score. That said, figure out what your score is. It may not be as bad as you think. I know someone who qualified for an FHA loan with two outstanding judgements and some poor payment history on her report. They did make her pay off the judgements before the loan would go through, but part of the FHA's mission is to get people in less-than-perfect situations into a house. Call around the mortgage brokers and see what they tell you.
posted by the christopher hundreds at 2:51 PM on May 5, 2010
posted by the christopher hundreds at 2:51 PM on May 5, 2010
He's a grad student at the top university in New Haven so we're hopeful that his income will rise a bit once he finishes his PhD program (in about a year and a half) and finds a job.
And what if he doesn't find a job right away? Maybe I've just been reading the job-seeking threads on the Chronicle forums too much, but you should be working on the assumption that he might not find a job right away. It seems like a PhD isn't a guarantee of anything anymore. If I were you I would be stowing away as much cash into my emergency fund as humanly possible and preparing for this possibility. But I'm not you.
I can't tell from your post whether or not you still owe money on your credit cards. If you do still owe, how much? What are your minimum monthly payments? If they're paid off, how are you with money now? Do you keep a close eye on your finances?
You're not crazy to want somebody to give you a mortgage. I understand where you're coming from. I'm a wannabe homeowner myself, but we just can't afford it right now, as much as it pains me to admit it. Do the math - are you still going to have enough to live off (and save) after mortgage, insurance, property taxes, car payments (if you have them), student loans, and all the other stuff life is going to throw at you? Can you survive on one income if need be? Can you afford to cover rent if you can't find a tenant? If you can do it, go for it!
Sorry to bombard you with questions, but as a wannabe homeowner who just can't afford to buy a house, I have tried to convince myself otherwise on occasion, but a good hard look at the numbers snapped me back to reality.
posted by futureisunwritten at 2:52 PM on May 5, 2010
And what if he doesn't find a job right away? Maybe I've just been reading the job-seeking threads on the Chronicle forums too much, but you should be working on the assumption that he might not find a job right away. It seems like a PhD isn't a guarantee of anything anymore. If I were you I would be stowing away as much cash into my emergency fund as humanly possible and preparing for this possibility. But I'm not you.
I can't tell from your post whether or not you still owe money on your credit cards. If you do still owe, how much? What are your minimum monthly payments? If they're paid off, how are you with money now? Do you keep a close eye on your finances?
You're not crazy to want somebody to give you a mortgage. I understand where you're coming from. I'm a wannabe homeowner myself, but we just can't afford it right now, as much as it pains me to admit it. Do the math - are you still going to have enough to live off (and save) after mortgage, insurance, property taxes, car payments (if you have them), student loans, and all the other stuff life is going to throw at you? Can you survive on one income if need be? Can you afford to cover rent if you can't find a tenant? If you can do it, go for it!
Sorry to bombard you with questions, but as a wannabe homeowner who just can't afford to buy a house, I have tried to convince myself otherwise on occasion, but a good hard look at the numbers snapped me back to reality.
posted by futureisunwritten at 2:52 PM on May 5, 2010
Renting isn't as bad as it sounds. The market is pretty negative and not moving anywhere fast. Even if housing prices start to climb, it won't be very fast. And with the new homebuyer credit expiring, that's one more support for the market removed. So you won't be priced out of the market by not buying at this particular moment.
Renting also gives you a lot of flexibility to move when your fiancée gets that degree -- you can broaden the search to consider other universities or other employers of PhDs (even Yale can't afford to hire every PhD it produces!). Think how hard it would be for your family if your fiancee got a job offer but had to sell the home at a loss!
And unless that rental unit is currently occupied and contracted at $850 a month, you can't really count on the accuracy of that price. Landlords generally have to cope with a 25 percent vacancy rate over long periods of time or numerous properties; any particular rental unit could be vacant for longer than you'd stay solvent.
Don't become obsessed with the mortgage tax deduction -- you'll also be liable for property taxes and repairs and insurance. My suggestion is to keep renting and use the remaining time to save up for a bigger down payment and other life changing events that seem to be planned.
posted by pwnguin at 3:06 PM on May 5, 2010
Renting also gives you a lot of flexibility to move when your fiancée gets that degree -- you can broaden the search to consider other universities or other employers of PhDs (even Yale can't afford to hire every PhD it produces!). Think how hard it would be for your family if your fiancee got a job offer but had to sell the home at a loss!
And unless that rental unit is currently occupied and contracted at $850 a month, you can't really count on the accuracy of that price. Landlords generally have to cope with a 25 percent vacancy rate over long periods of time or numerous properties; any particular rental unit could be vacant for longer than you'd stay solvent.
Don't become obsessed with the mortgage tax deduction -- you'll also be liable for property taxes and repairs and insurance. My suggestion is to keep renting and use the remaining time to save up for a bigger down payment and other life changing events that seem to be planned.
posted by pwnguin at 3:06 PM on May 5, 2010
All of that being said, ideally we'd like to get the loan completely in his name, because of his high credit rating and use my earnings as additional income on the mortgage application.
Yeah, that's not going to happen. If you want your earnings to be part of the equation than you're going to have to appear on the loan, which brings your credit score into play. I don't think there's any good way around that.
My experience (buying a house with a partner that I am not married to, about 12 mos ago) is that banks are not consistent in how they do joint applications. Some average the two credit scores, some take the lowest (!), perhaps there are some nice ones out there that would take the highest but I doubt it. Not sure how married couples are handled.
Anyway, so I think the bank was being straight with you there. Unless there's a court order which makes some of your income his (e.g. alimony or child support payments; not likely), he can't put down your income.
I also think there's some variability in how banks handle rental properties but in general they're not going to look at the income potential of an "in-law suite" all that much when writing your loan. They just regard it as too risky; you might not be able to find tenants, you might rent it to a friend who can't pay, etc. It might be different if you were really approaching it as an investment property (multifamily apartment building), but then I think it would be more like a commercial real estate loan and they'd want to see property-management experience, the terms would be much different from a primary dwelling mortgage, etc.
So, to be honest, my gut feeling is that it isn't the right time for you guys to be looking at buying a house. If I were you, I'd find an inexpensive place to rent for a few years while you work on stabilizing your incomes at a higher level, plus building your savings and credit history. That's not to say that there's nobody willing to write you a loan, but in the current climate I would be pretty suspicious of anyone who would; you'd probably be subprime and I doubt the rate you'd get would make buying the wise choice versus renting. Just a guess.
In a couple of years, when your then-husband has a much higher salary with good history behind it, and your credit is back in shape, you'll probably have enough savings for more than a 10% down payment, too. That will help ensure you get a loan (or, if you want and the numbers work out, buy down the rate with points — that's a separate question). In the meantime you might want to set up a joint savings account that's purely for the house down payment, and put a few hundred bucks a month or whatever you can spare into it.
Everything that I've been reading suggests that it's going to be a slow recovery, and for its many downsides the one upside for you is that it's going to be mostly a buyer's market for real estate for the foreseeable future. There's no rush.
posted by Kadin2048 at 3:23 PM on May 5, 2010
Yeah, that's not going to happen. If you want your earnings to be part of the equation than you're going to have to appear on the loan, which brings your credit score into play. I don't think there's any good way around that.
My experience (buying a house with a partner that I am not married to, about 12 mos ago) is that banks are not consistent in how they do joint applications. Some average the two credit scores, some take the lowest (!), perhaps there are some nice ones out there that would take the highest but I doubt it. Not sure how married couples are handled.
Anyway, so I think the bank was being straight with you there. Unless there's a court order which makes some of your income his (e.g. alimony or child support payments; not likely), he can't put down your income.
I also think there's some variability in how banks handle rental properties but in general they're not going to look at the income potential of an "in-law suite" all that much when writing your loan. They just regard it as too risky; you might not be able to find tenants, you might rent it to a friend who can't pay, etc. It might be different if you were really approaching it as an investment property (multifamily apartment building), but then I think it would be more like a commercial real estate loan and they'd want to see property-management experience, the terms would be much different from a primary dwelling mortgage, etc.
So, to be honest, my gut feeling is that it isn't the right time for you guys to be looking at buying a house. If I were you, I'd find an inexpensive place to rent for a few years while you work on stabilizing your incomes at a higher level, plus building your savings and credit history. That's not to say that there's nobody willing to write you a loan, but in the current climate I would be pretty suspicious of anyone who would; you'd probably be subprime and I doubt the rate you'd get would make buying the wise choice versus renting. Just a guess.
In a couple of years, when your then-husband has a much higher salary with good history behind it, and your credit is back in shape, you'll probably have enough savings for more than a 10% down payment, too. That will help ensure you get a loan (or, if you want and the numbers work out, buy down the rate with points — that's a separate question). In the meantime you might want to set up a joint savings account that's purely for the house down payment, and put a few hundred bucks a month or whatever you can spare into it.
Everything that I've been reading suggests that it's going to be a slow recovery, and for its many downsides the one upside for you is that it's going to be mostly a buyer's market for real estate for the foreseeable future. There's no rush.
posted by Kadin2048 at 3:23 PM on May 5, 2010
You're going to have to be on the mortgage for those numbers to work. Find a mortgage broker who has experience (recent experience) with FHA loans. FHA loans are made for people with less-than-perfect credit, or those with not a lot to put down. And a mortgage broker with experience with FHA will know where to shop your file for the best possible outcome.
posted by rabbitrabbit at 3:42 PM on May 5, 2010
posted by rabbitrabbit at 3:42 PM on May 5, 2010
Couple of suggestions that haven't come up in this thread yet:
1) Could you get any family members (yours or his) to co-sign?
2) If you are close to the current owner, as it sounds you might be, you could ask them to essentially loan you the money privately. You would give them the 10% down, they would give you the house and you would grant them a security interest worth the other 90%. You would make monthly payments to them rather than a bank. Of course, if they are interested in getting the lump sum to invest in other property, that will not work out. You could even make a tentative agreement to re-finance a couple years down the road, career permitting; that way you could get a 1-2 years of the rental income on your record and be a better bet for the bank.
(and also, "the top university in New Haven"? Come now; does New Haven even have any other universities?)
posted by rkent at 4:09 PM on May 5, 2010
1) Could you get any family members (yours or his) to co-sign?
2) If you are close to the current owner, as it sounds you might be, you could ask them to essentially loan you the money privately. You would give them the 10% down, they would give you the house and you would grant them a security interest worth the other 90%. You would make monthly payments to them rather than a bank. Of course, if they are interested in getting the lump sum to invest in other property, that will not work out. You could even make a tentative agreement to re-finance a couple years down the road, career permitting; that way you could get a 1-2 years of the rental income on your record and be a better bet for the bank.
(and also, "the top university in New Haven"? Come now; does New Haven even have any other universities?)
posted by rkent at 4:09 PM on May 5, 2010
Hi! As a fellow Connecticutie, I would really, really advise you against buying a house in CT. If your husband-to-be has student loans, then even with guaranteed rental income, the price of things here makes making ends meet very, very difficult and it's just going to get worse in the next ten years or so. Also very difficult at the moment - trying to sell a house, so if you need to consider moving elsewhere in the country after he gets his PhD, you really don't want the albatross of a house hanging around your neck. There's properties in my town that have been on the market for going on two years, and they're good-looking, clean properties that people would have fought over four years ago.
Also, we did the same thing - we bought a three-family thinking it would be easy to be landlords. If you're not the right kind of person for this job - which I am not, though I thought I would be - this can be a giant pain in the bottom. We had to evict someone who we gave every chance in the world to pay his rent, and he was a giant asshole about the whole thing. He even left a bitter note about how he had been doing us a favor by not paying his rent and almost sending us into foreclosure.
Uh, so anyway, I'd wait on that house, until your future is clearer and hopefully you're out of this lovely but crappy state.
posted by kittyloop at 4:25 PM on May 5, 2010
Also, we did the same thing - we bought a three-family thinking it would be easy to be landlords. If you're not the right kind of person for this job - which I am not, though I thought I would be - this can be a giant pain in the bottom. We had to evict someone who we gave every chance in the world to pay his rent, and he was a giant asshole about the whole thing. He even left a bitter note about how he had been doing us a favor by not paying his rent and almost sending us into foreclosure.
Uh, so anyway, I'd wait on that house, until your future is clearer and hopefully you're out of this lovely but crappy state.
posted by kittyloop at 4:25 PM on May 5, 2010
the christopher hundreds wrote: "If you're going to use your income, they're going to use your credit score. That said, figure out what your score is. It may not be as bad as you think. I know someone who qualified for an FHA loan with two outstanding judgements and some poor payment history on her report. They did make her pay off the judgements before the loan would go through, but part of the FHA's mission is to get people in less-than-perfect situations into a house. Call around the mortgage brokers and see what they tell you."
+1 on the FHA if your FICO is at least 550. I'm not sure if the new risk based pricing is in effect yet, though. Previously, if you could get an FHA loan you paid the same regardless of your score. Now or soon, you'll pay a little bit more for the mortgage insurance. They also now require 3.5% down instead of the former 3%, but it's still a good program.
The banks don't really care much, since the FHA is on the hook if you don't pay, although that doesn't stop them from charging a higher rate. What FHA wants is good recent history. All that 3-7 year old stuff? Not really an issue as long as you can explain why it happened and why it probably won't happen again. The exception, of course, are judgements, which have to be paid so that your creditors won't put a lien on the property.
FHA will guarantee people who have previous foreclosures only 2 years old. If you don't have anything like that, you'll probably be fine.
Oh, and the person who said that the banks will not consider rental income is accurate. The only time that will happen is if you have previous history of being a landlord and keeping the property occupied. IIRC, 3 years of being a landlord is the minimum. Even then, they take a percentage of that off your income to account for the average vacancy period in your particular region. (that's how it works with an FHA loan, anyway)
The house we bought has a garage apartment that came with a renter who pays his rent on time every month. (he's retired, so as long as Social Security keeps going, we get our money) There is always little stuff that breaks, but over the last year we got $4800 in rent and paid around $500 in various small repairs. It's worked out very well in the sense that it funds the rainy day fund.
Despite the repairs and other miscellaneous repairs/upgrades taken out of it, in one year we've received enough to pay the mortgage for four months. (five if you count the rent that will keep accumulating as the mortgage fund is drawn down) Once the fund builds up a little more, I think we'll start paying extra principal with some of the rent money.
posted by wierdo at 6:12 PM on May 5, 2010 [1 favorite]
+1 on the FHA if your FICO is at least 550. I'm not sure if the new risk based pricing is in effect yet, though. Previously, if you could get an FHA loan you paid the same regardless of your score. Now or soon, you'll pay a little bit more for the mortgage insurance. They also now require 3.5% down instead of the former 3%, but it's still a good program.
The banks don't really care much, since the FHA is on the hook if you don't pay, although that doesn't stop them from charging a higher rate. What FHA wants is good recent history. All that 3-7 year old stuff? Not really an issue as long as you can explain why it happened and why it probably won't happen again. The exception, of course, are judgements, which have to be paid so that your creditors won't put a lien on the property.
FHA will guarantee people who have previous foreclosures only 2 years old. If you don't have anything like that, you'll probably be fine.
Oh, and the person who said that the banks will not consider rental income is accurate. The only time that will happen is if you have previous history of being a landlord and keeping the property occupied. IIRC, 3 years of being a landlord is the minimum. Even then, they take a percentage of that off your income to account for the average vacancy period in your particular region. (that's how it works with an FHA loan, anyway)
The house we bought has a garage apartment that came with a renter who pays his rent on time every month. (he's retired, so as long as Social Security keeps going, we get our money) There is always little stuff that breaks, but over the last year we got $4800 in rent and paid around $500 in various small repairs. It's worked out very well in the sense that it funds the rainy day fund.
Despite the repairs and other miscellaneous repairs/upgrades taken out of it, in one year we've received enough to pay the mortgage for four months. (five if you count the rent that will keep accumulating as the mortgage fund is drawn down) Once the fund builds up a little more, I think we'll start paying extra principal with some of the rent money.
posted by wierdo at 6:12 PM on May 5, 2010 [1 favorite]
I agree with the commenters here who think this isn't a great time to buy a house, especially given that there's a high risk of your having to move for a job in a year and a half, but I had a further thought based on your post: $1400 is on the expensive side for a 2-person apartment in New Haven. Given the way housing prices have gone lately, I'd think you could find something quite a bit cheaper, and save some money to buy sooner rather than later. Since you're thinking about moving anyway, that might be another way to go!
posted by palliser at 12:14 PM on May 6, 2010
posted by palliser at 12:14 PM on May 6, 2010
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If you are not on the loan, your income cannot be a factor in awarding a loan to your fiance. It is his income alone that can be listed on the application, the reasoning being that if you break the engagement and disappear, he needs to be able to pay the mortgage on his own, given his current income. And unfortunately for you & your fiance, banks don't automatically assume that people will be getting better-paying jobs in a couple of years. And the possible rent money can't be factored in, either, because there's no guarantee you'd have steady tenants.
Personally, I'd wait until he has finished school and has a PhD-level job. His pay will be better and his employment would be steadier than it is now (I assume).
posted by puritycontrol at 2:41 PM on May 5, 2010