What are the odds that that I can be approved for a $200k - $225k mortgage??

Question

I am a first time home buyer with under 20% to put down on a house. I make approximately $40,000 annually (gross). I have absolutely no outstanding debt and an excellent FICO score (760+ last time I checked). I know the formula is typically 2 1/2 times your income, but that would mean I could only get approved for around $100K and where I live, there are no houses in that price range. A decent Condo/Townhouse (which is what I am looking for) in my area starts at $200k.

What are the chances that I can get approved for a $200k - $225k mortgage?

To clarify when I said I have no outstanding debt, I mean I do not owe any money to anyone. My car is paid off in full, all of my credit cards have a zero balance, and I have no open loans. I've also never been late on any payments.

Answer 1

To be honest, it doesn't look very good at all. That's way outside your league for an income of $40k.

Typical mortgage guidelines for a conforming loan are housing at 28% of GROSS income and total debt at 35%. Let's assume that a lender allows you to go to 35% for your housing owing to no other debt. That puts your UPPER payment limit at about $1,166.00 per month. (Your monthly gross is $3,333.33)

Let's say that you find one for $224.000 and put down $22,400 leaving you with a balance to finance of $200,000. The P&I payments on that at 6.5% will be $1,264.14. Figure another $200.00 a month for real estate taxes and homeowner's insurance and that brings you up to $1,464.14. Now, with less than 20% down (actually just under 11%) you'll need PMI which will probably run around $150.00 a month give or take. You're now up to $1,614.14 per month. (And in a condo or townhome there will be association dues as well that will drive your payments up even further.)

This puts you about $448.00 a month OVER the normal guidelines. Actually, you're at 48% of gross income. This is going to make it difficult to get approved even with excellent credit. While it may be possible to find a lender who will go that far, please remember that you will be severely over-extended every month.

You'll only have around $1,700.00 a month for all other expenses -- taxes, food, utilities, car expenses, entertainment, etc. This will leave you a slave to your home and even a minor financial burp -- say a major car repair or a blown furnace -- will leave you scrambling for cash to make ends meet. A job loss would leave you in forclosure fairly quickly.

At current interest rates, your price range is much closer to $200,000 IF you can swing 20% down. If you don't have $40k for a down payment on a $200k home you'll need to move down to about $180k as a realistic MAXIMUM price. Even at those price ranges, it's going to be fairly tight.

Some will probably recommend a so-called "no doc" mortgage (aka, liar's loan) where the lender doesn't require proof of income. Your credit rating might get you in the door but you'll probably be looking at another .5% to 1% higher interest rate. That will even further compound your misery on the first of every month.

Can you do it? Probably. SHOULD you do it? IMHO, no.

Answer 2

I do not work in the banking industry, but I do have a finance degree. From what I understand, what they really try to go for is the monthly payment to be no more than 30% of your net monthly income. Ideally, they would like it to be 25% or less. You do have 3 strong advantages with 20% to put down, excellent credit, and being a 1st time home buyer. And, if by saying that you have no other outstanding debt, you mean that you don't even have a car payment, that will work to your advantage as well. Let's take a look at the numbers. A $200K mortgage over 30 years by itself will run about $1200 a month at 6% interest. But keep in mind that they will add in homeowners insurance and any misc fees or costs. So, the actual payment may be somewhere between $1400 and $1600 monthly, depending on where you go. If you make $40K gross, you most likely bring home just over $2400 a month. This means that a $1400 payment would eat up 58% or your net monthly income, not leaving much for you to spare for unforseen incidents or emergency situations. This could be a problem. However, If I were you, I would definitely talk to someone in the business. You do have many factors working to your advantage. I hope I have been of some help to you. Happy holidays

Answer 3

You will not have a problem being approved for any mortgage with your credit score. With less than 20% down you will most likely have to carry two mortgages 80/20 or try for an FHA product.

But to answer your question directly, your odds are 100 out of 100. IF you have any further questions feel free to write me after the holiday at [e-mail]

- I answered the question of if he would be approved or not. And the answer is with a 760 FICO he could buy anything on credit with or without the income neccesary. Now in this case he would not be a conforming borrower because his debt to income ratio would be too high but that just means he would qualify for a non-conforming loan and take an 1/8 to a 1/2 point hit on the rate.

Answer 4

You cannot afford a $190,000 mortgage on such low income. Remember the Bush Tax Cuts (you know, the ones that were supposedly "only for the rich"?) expire next year and your income taxes in your wage bracket will more than double! You're looking for nearly 6 years' wages-worth of mortgage. That's more than triple what you can afford. Plus you have nowhere near enough down payment - you need 20%. That's $40,000. And closing costs - about $5000. Plus at least 3 - 6 months of reserves. Your employment history is a bit short, too. Typically they want at least 3 years track record on the job. Do yourself a favor. A whole raft of new foreclosures is coming up in 2010 - 2012. Save up and buy at the bottom of the market in 2013. Meanwhile, save up $1000/month for your down payment. By then, it might pay cash for the whole house!

Answer 5

More than likely you'll be fine. The 2.5 times you're talking about refers to total monthly debt, including mortgage payment (PITI) in reference to your total monthly income (gross). So basically, you're set with anything around $1350/month for a total payment. This should get you pretty darn close.

Remember, these are approximate figures, also. See a lender and give all appropriate information and let them come up with what you're able to do.

Good luck!

PS - as to the answer mrimpact77 above gave - would you rather be a slave to someone else where you're not building any equity, nor taking any interest write-off? Buying a home is the best way to start preparing for your retirement. Don't listen to bogus replies such as that one. You're on the right track.

PPS - and as to Aviator10 below, unless your taxes and insurance are somewhere around $900/month, you're going to be nowhere near $2000/month PITI. Should be somewhere around $1300/month inclusive, of course depending on interest rate, taxes, and insurance. Where do these people come up with this crap?!?!? Try here for accurate payment info: http://realestate.yahoo.com/calculators/payment.html

Answer 6

First of all let me applaud you for being a responsible citizen and a trustworthy person with your creditors. You can still get a mortgage for $200k but you will pay less than interest only. It is called an option arm. With option arms your payments will be less than half than it would normally be. This is a good route to go if you are in a highly appreciating market, and you buy your home with some really good negotiating skills because you will end up with negative equity if you stay beyond too years or your market value goes down and not up.

Answer 7

You should read Dave Ramsey's Total Money Makeover book.

www.daveramsey.com

Before you get into a big debt like that.

You should be free from credit card and car loans before you get into a mortgage.

Answer 8

agree with all the others that your slightly off
but along with all those others..
if your living in an area with a slow market..
eg. houses sit for ap 6 months with no sales..
you may get an owner in reducing the price allow a lump to go to reduce your interest "interest reduction" for 3 years.. every $1000 in price is ap. 1% of interest reduced..

Answer 9

Chances are good; I deal with dozens of brokers who collectively are licensed in nearly every state. For this case I recommend United Home Funding. Call me at 419-360-1404 for more information.

Answer 10

You can probably get approved but do you want to be a slave to your mortgage? Do you want to live your life where if you get a bad flu you loose your house?