Buying A Home
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Getting a loan, bad credit
We're looking to buy a fixer upper and have found a few that would be about $400 a month on a 15 year fixed, or less on a 30 year. Between the two of us we make 2k a month. However both of us have bad credit.
We have about 10-15k to put as a down payment and the houses we're looking at are between 85k and 95k. I'm just wondering how much the loan will be raised because of our credit rating or if we can even GET a loan.
Both of us are very frugal. We pay cash for everything and I've never had unpaid debt on my credit cards. I've never missed a payment on one of my student loans but had a 20k in legal fees that wiped out my saving and I defaulted on my other student loan. He had over 50k in debt and is down to 10k.
Re: Getting a loan, bad credit
Do you have an idea in what range your scores fall?
A fixer upper sounds good. But, the $400 per month doesn't include property taxes, homeowner's insurance, utilities and/or any of your renovation/fix-up costs.
Is the $2k income per month before or after taxes?
The rule for home ownership or even rental payments is to have the monthly cost be in the 25-28% range of take-home (after tax) pay for low to mid COL areas and 30% for HCOL areas.
2k after taxes. Originally we budgeted $800 a month for rent, since that's about average for a 2 bedroom, no frills, apartment. So we were planning for $350-$400 for the mortgage, and that extra $450-400 would all go into savings for taxes, home owner insurance, and utilities. We do have emergency savings incase something major happens, and any major fix up costs we'd probably shy away from buying the house. For instance the house we're looking at now has a new roof, and new wiring, and he did a lot of the expensive groundwork... but it's not painted and needs cosmetic work that could wait.
That's what worries me about renting, it's almost half of our take home pay. Homes need a lot of maintenance but since we're buying a fairly inexpensive home it seems like a better deal. We'd also be living there long term. We have one child now and it has 4 bedrooms as well as an unfinished basement.
I don't know what our scores are. I just assume they are very bad.
I think your numbers may be off. I bought a house that was 110k. After taxes, insurance, and payment it is $850 a month. Then I have the extra costs of lawn care and maintenance. The house is less than my rent was but overall it costs me a lot more. You need to be able to save a lot more in case you need a roof, etc. If you are planning on the extra $400 going to insurance, utilities, and taxes then I do not know for sure it would cover that every month. If you are buying a condo then you need to factor in HOA fees as well. The utilities are much more expensive in a house than an apartment.
To answer your credit score question to easily get an FHA loan they need to be 640 unless anything has changed since I hunted. You will also want to look into first time home buyer programs. They may have down payment assistance in your state. I would recommend attending a first time home buyers class. They are usually pretty inexpensive, if not free. They will help you set a budget and know all of the costs going into home buying.
I disagree with the post above which states that an FHA will give you a higher interest rate. I just closed on an FHA loan yesterday with a 3.5% rate. My credit is not great. My loan officer ran the numbers, and found that an FHA loan actually gave me a lower payment than a conventional loan would have. A lot of your monthly payment will depend on how much you have available for down payment.
I would talk to a loan officer... they can tell you what kind of loan you will qualify for, and what kind of payments you would be looking at. A lot of the houses that we looked at online ended up being way out of our budget in terms of how much we wanted to be paying per month once the insurance, taxes, and everything else were added onto the base payment.
Thanks for all the advice. I think the online mortgage calculators messed me up. It wasn't counting taxes and started at $336 a month so I was trying to high ball it with $400.
Found out his score is 640 and we got a quote back that we'd be paying $573 a month including property, homeowners, and mortgage insurance. We also made a budget of what we both make in a month. 25% of our income would be $625.
We saw the house today and thankfully the previous owner did a lot of work. New windows, roof, insulation, and bathrooms. We'd need kitchen appliances and one of the bathrooms needs a tub and shower. Other than that everything is cosmetic. Painting the downstairs and cleaning up the yard. It's looked so much better than we expected.
We both love the house and the neighborhood is incredible. We might just have to brainstorm building up a better down payment over the next year which is pretty disappointing. It's a short sale and there were two offers already, the the bank countered back over 50k over asking price. Very disappointing day.