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Trying to figure out the up front costs
My H and I are very interested in a house on our street. It would be our first, and we aren't sure exactly what to expect. The house is priced at $72.5k but our realtor said that because it has been on the market since September and the owners want to move before they have another child she doesn't think we'll pay more than $70k. The loan will be an FHA. If it matters, the area had a 2011 ACCRA housing index of 76.4. I believe my H's parents will help us with a gift (with gift letter) for a chunk of our down payment because they had discussed it at length when we considered a previous house, and MIL has inherited a fairly large sum since then (1/3 the sales profit from her mother's house). Anyway, I am a little concerned about our debt to income ratio. What should it be ideally, and does anyone here know what it would need to be to be considered too high? Also, would being able to clearly demonstrate that our rent is higher than the mortgage payments would be, even after the mortgage insurance and the taxes rolled in, do anything to alleviate possible concerns about that? Thanks!
ETA: We can afford the down payment without a gift, of course.
Re: Trying to figure out the up front costs
The maximum debt to income ratio for an FHA loan is 31%. This site can probably help you:
http://www.fha.com/fha_requirements_debt.cfm
If you can afford to put 20% down then why not consider a conventional mortgage?
~L~
Mommy to 2 boys, ages 7 and 5 and a little girl who is 1.5
Have you looked into conventional loans? We were going to do an FHA loan, but the PMI was way less on a conventional loan (FHA PMI was going to be $400/month and conventional PMI was $125/month) , and with a conventional loan you don't have to have PMI for at minimum of 5 years like with FHA loans. We put down 10%, and we'll be making extra principle payments until we get to 20% and get the PMI taken off.
I remember our mortgage lender said that the debt to income ratio (including all debt) should be no more than 40-45%, which is a really really high number in my opinion! We don't have any other debt, but we sure as heck didn't want our mortgage to be that high, so our current mortgage is about 23% and will be about 28% when I go down to working part-time when we have kids in a few years. If I correctly from the MM board (if you're worried about finances with a house, post your budget over there, they're great with that sort of stuff!), mortgage should be 20-28% for L/MCOL and 25-35% for HCOL areas. Hope that helps, good luck!
Not really related but getting $2500 off the list price seems a little low if they are truly motivated sellers.
You can reach out to a bank or mortgage broker to get an estimated cost of what you'd need to bring to closing based on closing costs of different mortgages. I also agree with researching a 3% down conventional (Wells Fargo had one available last year for first time homebuyers) or a 5% down conventionald. The PMI on a conventional mortgage is much less than FHA if you have 5% down for closing. Also, ask your realtor if it's common in your area for sellers to pay a percentage of the buyers closing costs. There are limits based on the type of loan and it's not common in every part of the country but our sellers paid $4500 of our closing costs last year.
Do either of you know your credit score? That's going to determine your mortgage rate and or approval. I couldn't remember if you said your H has just medical bills (may not be on his credit report) or if he had some in collections that you all were paying off.