May 4, 2007 7:22 AM   Subscribe

How hard will it be to get a mortgage for $575,000 to fully finance a house purchase? My spouse and I have a combined income of approx. 160,000/yr. Our FICO scores are just under 700 and we have zero debt except for a single car payment. Also my spuse is not a US citizen but has a green card and has been in the U.S. under permanent resident status for ten years and is the primary wage earner by about $5000. Any advice or feedback would be excellent.
posted by gogomickey to Work & Money (19 answers total) 5 users marked this as a favorite
The way lenders work these days, you can probably get the financing. However, the question is can you really afford it. Our household income is about 120,000/yr and the 239,000k house we bought is straining us a little financially.
posted by stormygrey at 7:34 AM on May 4, 2007

Two years ago many shady lenders would have been more than happy to take your money and let you sink. Now that the subprime lending hangover has hit, you may find a little more resistance to the idea of overbuying. Especially since, as evidenced by your lack of a down payment even while making so much, you aren't too disciplined about budgeting.
posted by DU at 7:39 AM on May 4, 2007

The general formula was 2.5*annual income =maximum purchase price, when I was working in the field. But the real limiting factor was a debt to income ratio of 60 percent.

There may still be programs that work around this, but the debt to income ratio factor was a pretty fixed ceiling.
posted by 517 at 7:46 AM on May 4, 2007

It won't be hard to get a mortgage -- your profile doesn't seem to have any downsides for a lender.

The question is whether the mortgage terms will be amenable to you in terms of a monthly payment and the risk you bear. I found lots of great advice on and motley fool when I was looking into mortgages a few years ago.
posted by redarmycomrade at 7:50 AM on May 4, 2007

Considering how high your mortgage payments are going to be on this amount w/no down payment, a good mortgage guy is going to want to know how on earth you plan to make payment and still afford utilities.
posted by desuetude at 7:50 AM on May 4, 2007

Unless you have other assets somewhere, it's not likely that you'll find a mortgage whose terms will be very favorable to you. At that amount, and with your income (and no other info), you'll be considered a risk.

I'm going to stray a bit and give you some unsolicited advice that was given to me 20 years ago when I bought my first home - don't buy a home whose monthly fee will require you both to keep working in order to make payments. If losing one job will result in calamity, buy something less expensive, or wait until you have a down payment that will lower your mortgage. I know that this may seem old-fashioned to many, but it served us well over the years. The fact is, you just don't know when someone will lose a job, or get sick, or decide to stay home with a child. Plus, you may want to take a vacation. Or replace a roof. Or replace a furnace that goes on Sunday morning in the middle of January. Home ownership is full of nasty surprises that never go away. The older the home, the more surprises.
posted by Flakypastry at 8:04 AM on May 4, 2007 [1 favorite]

Speaking simply as someone with a mortgage we are looking to refinance, knowing our own credit scores and the rates we've been quoted...

A sub-700 credit score is going to put you somewhere in the range of 6% - 7% interest rate I think... You're looking at an $3500 - $4000 monthly mortgage payment before property taxes, home insurance and PMI... You might want to open a line of communication with your bank or a mortgage lender to discuss what you'd be looking at for a final monthly payment. Find out what local property tax rate is. Get an estimate on insurance on the house as a structure (which would be the house as is, empty without personal possessions -- the mortgage company is going to require it). Ask how much PMI will be.

Looking at your AskMe history, I'd just say to tread carefully.
posted by jerseygirl at 8:09 AM on May 4, 2007

As 517 said, above, your ceiling for a place should be no higher than 400k (2.5 times your gross income). 575k is a little ridiculous.

You can always find some sleazy lenders who'd be willing to lend you that....

Assuming even a 6% interest rate (which is getting rare as all hell these days), roughly $5000 a year in prop taxes, plus $5000 a year in homeowner's insurance, plus monthly PMI payments of ~$350 a month, you're talking about a monthly mortgage payment of $4630.

Are you sure you're ready to absorb that?

I'm assuming, at roughly 160k per annum, you're probably grossing $13,300.. netting in the vicinity of $9400 a month, depending on local taxes.

And, of course, considerably less so, if you're putting anything into your 401(k).

So, you're planning on paying exactly half of your net income on a mortgage payment. This is dangerous territory to be in. In general, the OTHER major rule is to have mortgage payments not exceed 1/4 of your gross monthly income.

This would, of course, be around $3,300 a month, not the $4,630 you're looking at.

Please consider something smaller.

Like stormygrey above, my family grosses 120k a year, and I wince at the thought of the note on even a 200k house.
posted by The Giant Squid at 8:13 AM on May 4, 2007

And, as a followup, We're buying a second rental property right
now and with the following:
  • my credit score is 810
  • my wife's is 710
  • putting down ten percent
  • have 140k in net assets
  • buying a 200k place
We're still only able to get a 6.15% rate.

Yours will most likely be higher.
posted by The Giant Squid at 8:17 AM on May 4, 2007

You should wait a few years, built up your credit score, save up for a down payment, and then look for a cheaper house.

A sub-700 credit score is going to put you somewhere in the range of 6% - 7% interest rate I think.

Wrong. A 780 credit score is gonna put you in the neighborhood of a 6% interest rate, with a down payment. (Trust me, I'm closing on Tuesday.)
posted by croutonsupafreak at 8:26 AM on May 4, 2007

As someone who works in financial services / lending, I am begging you not to buy a house that expensive on your income. Seriously.

To first answer your question: In today's market it might not be that hard to get the loan, but you will likely pay a premium on interest, or have to book some odd type of product that looks good but really isn't the safest option (like an interest only, or an ARM).

It's a bad, bad idea. 575k is way too much money for 160k/year in total income, and you will be absolutely devastated if and when one of you is temporarily out of work, etc, unless you have a LOT of money saved up and still will have a lot left over after your down payment.

This is the #1 problem with America, and I don't mean to call you out as an example: People feel they must have XYZ house and will do whatever it takes to get it because they somehow think less of themselves if they can't.

This is why the mortgage market is having issues right now, especially in the "subprime" area. People feel this way and don't educate themselves about responsible borrowing, and lots of lenders couldn't care less - they just want the commission in their pocket for making the loan.

Save your money, wait until your income is higher or buy somewhere cheaper. On 160k in gross income you could maybe be looking at places in the 300k-400k range and try to stick closer to 300k because you never know when one of those two sources of income will be interrupted.
posted by twiggy at 8:27 AM on May 4, 2007

Wrong. A 780 credit score is gonna put you in the neighborhood of a 6% interest rate, with a down payment. (Trust me, I'm closing on Tuesday.)

It's different state by state and lender by lender. Walking into a thread and saying the above is not only a bit snarky, but is misinforming the original poster of the question.

Yes, a 780 credit score is "prime", but the current rates for prime loans vary significantly by locality.
posted by twiggy at 8:28 AM on May 4, 2007

Sorry if I came across as snarky, I was trying to say that 6% is a good interest rate these days, and that the original poster has fairly crappy credit (sub 700), and should not expect a good interest rate.
posted by croutonsupafreak at 8:37 AM on May 4, 2007

Wrong. A 780 credit score is gonna put you in the neighborhood of a 6% interest rate, with a down payment. (Trust me, I'm closing on Tuesday.)

We both have less than your score and higher than gogomickeys and I got quoted 6. Guess YMMV applies.
posted by jerseygirl at 8:41 AM on May 4, 2007

Ditto on the MV. It's going to depend on many factors.

Here's a warning on financing your down and closing: it's hard. Not that the lender won't let you, they will if you can qualify, but you're looking at needing to overbid the asking price (or, say, the price you're willing to pay, which might be a little under asking price) by 9%, give or take. Now, that's no skin off the seller's back* as long as they understand what you're doing, which is giving them too much money and they pay you the change, but here's the neat trick: the house has to appraise for the full financed amount.

So, the house you want is listed at $575,000. You want to offer them $570,000, fully financed. You have to pay them $626,300 in order to get the $51,300 back to pay 3% down plus closing, and the house has to appraise for $626,300 or your lender won't finance, and your mortgage payments will be on a $626,300 note, not $570,000.

All that is assuming that 3% down is enough, I'm basing that on experience in a way cheaper market and FHA loan. There are other programs where the numbers will come out differently from my example - maybe an 80/20 loan would be a little more advantageous for you - but nobody's going to give you down and closing for free. And "not free" on over half a million dollars is a bucket of money any way you look at it.

*Actually, it is a little more paperwork and hassle. Your offer will not be as appealing as a simpler offer.
posted by Lyn Never at 9:09 AM on May 4, 2007

My husband and I took on a bit less than that amount of debt about two years ago, our income is higher, and we have no kids. Our credit was good, we had no trouble getting the loan, and our mortgage company said they regularly sold mortgages to couples with even higher mortgage/income ratios.

However. Please listen to what the folks above are saying. For me (the one who really wanted the house), it is a crushing weight. It limits my career and lifestyle options. Suddenly the smallest, most ridiculous purchases require a Sophie's Choice-type calculus that is a harsh everyday reminder to me that my old lifestyle is over forever. It's a lovely house, but those little things can begin to add up to death by a thousand cuts.

I don't understand how you might expect to take on this kind of debt if you have not budgeted yourself any downpayment to date. If you recently have gone through a crisis that has erased your savings, now is not a good time to buy. If you have found it too difficult to budget during this time leading up to a major house purchase, please believe me when I suggest to you that it is only going to get worse and harder after you have a house that has its own demands for upkeep and hidden needs for repair.

Good luck to you.
posted by onlyconnect at 10:06 AM on May 4, 2007 [1 favorite]

these days, you'd be in Alt-A territory, maybe even subprime looking to get into a deal like that, you can always find lenders to make the deal but, remember, it's not their job to make sure you're not acting like an idiot, it is ultimatly your job, as the one I would recommend against it...
posted by Salvatorparadise at 1:07 PM on May 4, 2007

By my math, you will probably qualify. Call a mortgage broker. I calculate if you spend 40% of your gross income on housing, your monthly budget is about $5000, and I highly suspect you can get a monthly payment lower than that. They seem to still be doing 80/20 loans for people with your credit.

But you should try to save something however minimal for a down payment or closing costs. Your closing costs will probably be $10-20K. And putting down even 5% of the purchase price will help a lot. But neither of those are definitely deal-breakers. What is more likely to be is that they'll almost definitely want to see "seasoned" assets that have been in your bank account for 2 or 3 months and are equal to 2-6 months of payments.

Anyway, the people who know all this stuff are called mortgage brokers, and they specialize in figuring out creative ways to get you in a loan, because that's when they make their money. It sounds intimidating, but it's not. Bankers and lenders are slightly intimidating. But mortgage brokers are almost as sociable as real estate agents, and they work for you, so they're nice.
posted by salvia at 7:09 PM on May 4, 2007

P.S. You can find a mortgage broker by asking the real estate agent on the property, or better, another real estate agent, or by asking other people you know that have bought property.
posted by salvia at 7:10 PM on May 4, 2007

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