Credit for buying a house?

Question

My fiance and I are trying to decide what we need to do. I'm curious how those Mortgage Companies work. Our credit isn't exactly perfect (Mine is in the low 600s). Currently, for the past 9 months we've been renting a 1 BR apartment for $780/month. We're wanting a house. Renting a house in a decent area will be between $850-1000/month-- which is a house payment! It just seems to be a waste to rent. What do the mortgage companies consider when deciding to finance you? I'm just starting out in my career, but combined my fiance and I make just under $75K/year. We also wouldn't have a down payment but I see all the time homes with 100% financing. What are our chances of getting approved? We're going to look at a house tomorrow priced around $122k in the Memphis area. And is there something we need to watch out for when speaking with Mortgage Companies? Also, I'm fresh out of college with less than a year experience. Will my lack of employment history count against me?

Answer 1

Go to www.hud.gov, and find a first-time homebuyer's class in your area, and complete it.

There are always exceptions, but some standard guidelines when applying for a mortgage: Your monthly payment should be no more than 28% of your gross income. Two years of job experience, preferably at the same job. The average FICO credit score is in the area of 673 - 720, so you are below average, referred to as sub-prime. They'll lend to you, but you'll pay a significantly higher interest rate over the life of the loan (tougher to stay below 28% of gross income) and pay tens of thousands of dollars more over the life of the loan. If you can't put 20% down, you'll pay them Personal Mortgage Insurance (PMI), and you're required to have it until your equity is over 20%. Many banks and government organizations have special deals for first-time homebuyers. Ask for them.

Do as much as you can to clean up your 3 credit reports: if you've been sent to collection agents, the message boards at www.creditnet.com can help you fight back. Get an attorney if you need to.

Go to www.myFICO.com and read the articles, especially the articles, "What's In Your Score" and "What's Not In Your Score." FICO doesn't pay attention to your employment history, but your loan officer might.

What to watch out for: Get all promises, rates and guarantees in writing: spoken words are worthless in court. You'll look like a much better candidate if you pay down your unsecured debts before you apply for a loan. Once you're ready to apply for a mortgage, make all applications within a 30-day period. Each application requires a hard inquiry of your credit report, which costs you a few credit score points, BUT, if you keep all those hard inquiries (i.e., applications) within a 30-day period, FICO will count them as only one inquiry, which is good for your score. 10% of your FICO score involves inquiries.

Please vote: Did this help?

Answer 2

Here's a couple of pretty decent websites that help explain what a lender looks at and ways to start improving your score.

As the person above me said, don't apply or sign up for anything right now that is going to make a query on your credit report. You want to keep it as clean as possible until you apply for the mortgage loan.

With no down payment though, you may have a problem. You might want to wait and get your score up a bit higher before applying for a mortgage loan.

Pay all bills on time
Reduce your debt - meaning get credit cards paid off.

Those two things, over 6 months or so will improve your score. You need to be putting some money into savings for a down payment too. You'll have a lot easier time getting a loan if you can put 10% down.

Answer 3

Many people prefer to get a home loan with 100% financing or do not want to make any down payment. But if you are thinking about going for this type of loan, refer to these points while considering various mortgage options.

To be eligible or 100% financing on a purchase mortgage loan, it is necessary that your credit score must be minimum 600 or more. If it is in the range of 600-650, you might have to apply for 100% finance through a subprime mortgage lender.

For a credit score more than 650, you can be eligible for the mortgage from most mortgage lending companies online and get the loan approved.

If you have credit score is in range of 580-600, you may have to make a down payment of at least 5% to get the loan from a subprime mortgage lender.

Answer 4

Lenders generally use the debt to income ratio for deciding how much house loan someone can afford.
Pre-qualification letters are done for free by lenders ( your bank , credit union, broker etc).
Ask several of them to do one for you , then you will know how much loan you will get.
If you have less than 20% down you will have to pay an additional sum for mortgage insurance called PMI. This may add another $150 - $200 to your payment.
(principal + interest + property taxes + house insurance + mortgage insurance)
Only your lender can give you a real estimate but because of your low FICO you may have to carry a higher % rate on the mortgage loan.
On the plus side, home inventory is at an all time high and some sellers may be willing to do financing just to get rid of the property.
Good Luck

Answer 5

they look at your credit,work history, money in checking or savings acct.
do you have at least three months of reserves?
in lows 600 you are looking at 7 to 7.5%
yes your lack of work history will be a problem
if you are looking for 100% finance some lenders are looking with credit score at least 700 and above
whatch out for mortgage insurance.
also for prepay penalties from 1 to 3yrs on the loan this is a penalty that the lenders also offer to the mortgage consultant when a rate is being offer to them the better the rate the longer penalties.

Answer 6

for 100% financing, ANY back debt will have to be paid off first. ALSO, you'll be paying PMI ins. on top of your mortgage with 100% financing, so look at adding an additional 60-100.00 on top of that, plus your prop. taxes on top of that. They'll look at your credit score, which will have to be in atleast the 600's to even be looked at, your years at your current residency, your years at employement, your credit score, your debt to income ratio. lendingtree.com is pretty decent to start with, but if you have back debt that needs to be paid off first then don't bother having someone run your credit. go to transunion.com and get a copy of your 3bureau credit score yourself. it doesn't hurt your credit. good luck

Answer 7

Whoa! Sloooooowwwww doooooowwwwwnnnnn! You guys aren't even married yet, you are barely employed & you have said nothing about a down payment. Are you sure that you should be buying a house...especially together? Paying rent for a few more months isn't going to ruin your financial life forever, but a badly executed home purchase may screw it up pretty severely! Please get a copy of Dave Ramsey's "Total Money Makeover" & read it before you guys do something you may very well live to regret. DH & I have been following it for close to 3 yrs. It has revolutionized the way we spend/save/invest money. (We QUIT borrowing.) Dave will show you how to get into a position to finance a house or buy one with cash w/o a bunch of silly tricks & w/o straining your finances.

Best wishes.

Answer 8

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