First Time Homebuyer - No Money Down and ... (Is this wise?)?

Question

I have one credit card with 15k in debt at 5% and pay $300 per month. I will also be a first time homebuyer and will most likely not be putting any money down. Was thinking of doing a 30yr fixed 80/20 loan (if numbers work out to be better than full 100% w/ PMI). Ideally, I would like to pay off my debt before buying a home, but cannot in this situation.

Would it be possible... and what do you think about bumping the mortgage amount up 15K to pay off the debt? In essence, I will most likely be paying more in interest since the mortgage interest rates are higher and amortized over 30yrs, but a 15K increase in the mortgage amount over 30yrs at 7% is approx. $100 according to the mortgage calculators.

That would free up an extra 200 that I could use to go towards the mortgage.

First, do you think it would even be possible for the lender to do this for a first time homebuyer program with no money down? And second, do you think this is a good idea?

Thanks

Answer 1

Hey Dude,
don't think of the short term. I would just buckle down and payoff the credit card.
with the mortgage, Do what you plan with no money down. You can always refinance. The last thing you want to do is incur more debt onto your mortgage by adding credit card debt. It takes longer to pay that off. It you can, just cut some things out of your life here and there and you will payoff the credit card. But don't just pay the minimum.

Try this.
Advice from someone that owns a home and did what u r thinking. Hindsight is always 20/20.

Good luck
-ar

Answer 2

FYI the numbers will definitly work out better on a 30 yr fixed 80/20 loan. If you put 20% down you will get the best interest rates (assuming your credit is at least decent). Also, you will not have to pay PMI. Also, your payment will be much lower because you are borrowing 20% less!

Even if you do qualify for a 100% loan, you will pay a higher interest rate and more in closing costs and fees. And no lender will ever lend you more than 100% of the cost of your home. By the way, you may not qualify for a 100% loan if you have a lot of other debt. $15,000 may be too much, depending on how much you are planning to try to borrow.

The best idea is to pay down your credit card debt on schedule--it's at a lower interest rate than you can earn in a savings account right now and a lower rate than you can get on a mortgage too. Don't worry about it unless the rate is going to go up soon.

Answer 3

I bought my first house with an 80/20 loan. Both are fixed rates, which is good at the moment because rates are going up. I had about $2k in credit card debt, but $75k in student loans and $20k in a car loan. Granted, I'm married and we are both in high paying jobs, but we live in a very costly area. In an ideal world we would have had a down payment. But this isn't ideal. Our apartment building was closing for renovations and all the apartments would have been equal to or more than our monthly payments now even including the interest, taxes, and insurance. If you can wait, I would recommend doing that. There are closing costs, inspections, etc. that have to be purchased before you buy the home. If you are in a situation where you can't wait though, buying the house won't be the worst thing. I would just recommend paying down your second mortgage diligently. You'll pay less interest and when you sell you'll have built up the equity you would have had with a down payment. Put all of your extra money into that second mortgage. (And I don't mean after you buy your fancy meals and clothing for the month. You'll need to cut down on lots of things you may think you "need" in order to make it work when you buy with no money down.) Good luck and just remember not to rush into anything. Weigh the options carefully.

Answer 4

I highly doubt a lender would go for that. The only collateral the lender has is the house. If you default (which you would be considered very high risk with 100%+ of a loan), the foreclosure on the home would not cover their principle. And if you do find a lender willing to do that, expect to pay ridiculous interest. And the PMI is gonna be included too....plus property taxes!

Your best bet is to pay down the debt FIRST. If you are living in an apt or whatever your doing, keep doing it and pay off that debt first. If you cant pay down 15k in credit cards, how do you expect to pay off a multi hundred thousand dollar house?

Answer 5

You will not be able to get a loan for far more than the house appraises for. Even if the lender agrees in principle with what you are suggesting (and they may), if the house doesn't appraise for more than the selling price, the loan will fall through.

Answer 6

That would be very difficult to do. Contact me and I'll try to work something out.