Financing in Chattanooga>Question Details

DDay, Home Buyer in Chattanooga, TN

Need advice before I apply for a loan...

Asked by DDay, Chattanooga, TN Wed Jan 23, 2013

I'm hoping to apply very soon for a loan to purchase my first home, and was hoping someone could offer a bit of advice. I've got my income tax refund coming back in a couple of weeks, which should be just under 2.5K, and about 4K that I could pull out of savings towards my down payment. According to the myFICO website, my lowest FICO score is just north of 730. I've got one credit card that we put our Christmas purchases on that's got about $4000 on it (with a $5000 limit, and that's currently reflected on myFICO, so I guess the 730 score is taking that negative hit into account). Should I take my $2500 income tax check and some of my savings and pay that card down to little/no balance, wait to save the 3.5% needed for an FHA down payment again, and THEN apply for a loan (hoping interest rates don't go up), or should the 730 score high enough to just go and apply for financing as soon as that check comes in and use it and what I've got in savings for my 3.5% down?

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Diane Burke’s answer
You have gotten some very good answers. I would recommend meeting face to face with a loan officer so they can best guide you and answer your questions. They can look at your situation and recommend what is best for you and your situation. I work with alot of Buyers and most if them are first time home buyers and speaking with a lender always help them before you get into the process.

If I can assist you further please contact me.
1 vote Thank Flag Link Wed Jan 23, 2013
I agree with Shane there is no reason to wait. I would shop around and find the Lender that you are comfortable with and has a program that you are interested in. Most lenders have similar programs but there are different programs out there with specific lenders. If you would like names of Local Chattanooga Lenders let me know and I would be happy to give you a list of names and numbers.
423-774-7703
0 votes Thank Flag Link Thu Jan 24, 2013
There is no need to wait until you get your tax refund when you initially speak with loan officers - as any loan officer who is capable at doing their job can add your tax refund amount to the current amount you have in checking/savings right now. Plus you just need your tax refund before you close, not before you actually get pre-approved. The terms won't differ based on you having your tax refund now vs. later.

Credit inquiries for mortgages won't impact it more than once if the credit inquiries are done within 30 days of the initial credit pull. However to speak to loan officers you don't need to have your credit checked if you can supply the loan officer with your credit scores and a list of your debts & their minimum required monthly payments. For the pre-approval a credit check is needed, but not to have initial discussions.

Explore at least 3 options, and preferably at least 1 mortgage broker, 1 mortgage loan officer who works for a bank, and also one that would work at a smaller direct mortgage lender (not a broker, and not a bank, just a mortgage lender who arranges loans and sells them afterwards - usually to the banks)... it wouldn't be a bad idea if you had the time to interview up to 6. That way you can get a feel for how each does business, because not every mortgage broker is the same as another mortgage broker, etc.

You'll want to ask what the pre-approval process entails and how long it takes. Will the underwriter who will be allowing your loan to close be the person reviewing your file as part of that process? Will it just be the loan officer reviewing your information? Will they even ask you for documentation?

You'll also want to ask what types of programs they offer, and once your documentation has been thoroughly examined you'd want to get what options would then apply to you, as well as ask what your loan officer thinks would be the best loan program for your situation.

You'll want to ask what type of fees & costs you could expect to incur along the way (credit report, earnest money deposit, home inspection, appraisal fee, closing costs, etc.), how much those costs are estimated to be, and when they are expected to be paid (at the time the service is performed, at closing, etc).

You'll also want to ask what type of loan terms can they offer you if you were to lock in your interest rate today.

You should also ask when & how they will be available - are you someone who likes to discuss things after the normal work hours on the phone? In person on a Saturday? Through email?

There are more variables to think of, some will be important to you and others will not, however I truly believe that you will have a feeling inside of you of pure comfort when you have found the loan officer who will be the perfect fit. You will leave the conversation having a full understanding of the road ahead and what is expected of you, as well as you'll feel the loan officer has left no stone unturned when going over your situation.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes Thank Flag Link Thu Jan 24, 2013
Okay, fantastic! Thank you all for all of the help. It sounds like the smartest thing to do at this point is get with a loan officer and see what options are available to us.

Should I wait to go see a loan officer until after my income tax check comes and clears my bank (so that if I do end up needing to go FHA after all, I have the whole down payment showing up in my savings account) or would the smarter move be to go ahead and get with one now, as I know that money will be here within less than a month? I wasn't sure if having that money already in the bank prior to having that conversation would help me at all in terms of getting financing or the rate I might be offered...

Also, how in the world do you pick a loan officer? Do I just pick one from the yellow pages, should I find someone online or locally? Should I just go to my credit union? I'm not sure if I'm supposed to shop around or just call someone. Are all loan officers basically going to offer me the same services and loan options? I'm sure I'll have the same question about real estate agents once I get the loan officer/Pre-approval stuff taken care of.

I'm worried about running too many inquiries on my credit by shopping around, which is one of the reasons that I ask. I've read it doesn't your score that badly as long as its not in excess, but I'd still like to minimize the number of hard inquiries performed. Can I talk options with a loan officer prior to them running my credit score, or is that required to estimate loan offers?
0 votes Thank Flag Link Thu Jan 24, 2013
Please call me to discuss, I don't need to run your credit to give you some options. 423-618-4867 - and yes I would recommend shopping around but don't let everyone pull your credit. I would also recommend using a LOCAL mortgage lender with a good reputation. Here is my website if you would like more information. http://www.bestinmortgage.com/clane
Flag Thu Jan 24, 2013
I recommend to go ahead and get with a Loan Officer. There are just too many programs out there and they can help you.
I just closed a transaction where the Buyer got a loan for $167,000 and had closing costs of $2500 and we got the seller to pay that.
I had another client get a CHIP loan thru BB&T. Look that up too to see if it is an option but I still recommend getting with a professional loan officer to help you.
0 votes Thank Flag Link Wed Jan 23, 2013
I'm leaning more towards Shane's response. Just based on the scenario alone, it sounds like a 97% conventional may be your better option. MI on conventional loans is FICO driven and will likely be less than that on an FHA. Find yourself a local loan officer.
0 votes Thank Flag Link Wed Jan 23, 2013
USDA financing (which is 100% financing) is available if you buy east of Oolteway-Ringold Rd, but has income requirements as well (1-4 person household is $74,750/year & 5-8 person household is $98,650/year)... but since you are only a family of 2 and make $80k/year then your income would be a little over that limit. There are certain deductions from the income such as if people under 18 years old, 18 years old & are students or disabled are living with you or if there are medical expenses for elderly family living with you... but you say "we" so I suspect that the family of 2 is you and your spouse, so likely wouldn't be eligible for those deductions.

Payments on a $179k home with FHA financing would be right around where you'd want to stay under. Conventional financing with 3% down would have a little higher payment than your target amount UNLESS you opt to pay the PMI in 1 lump sum instead of on a monthly basis - then with conventional financing & 3% down you'd be looking at around $100-150/mo less than your target payment. However with conventional financing there is a break on interest rates with a 740 score vs. a 730.

With or without the credit card payments your debt ratios look fine for the amount of mortgage you are looking to qualify for.

So you'll have options, and like I said before, it'll be worth comparing the details of an FHA mortgage vs. conventional so you aren't pigeonholed into one or the other.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes Thank Flag Link Wed Jan 23, 2013
Thanks all for the responses, I've just learned quite a bit! The only reason we haven't applied already is because of the down payment. That's also why we were looking at FHA (low down payment). The houses we've been looking at as candidates online all seem to be advertised as between $174,999.00 and $179,000.00, so my math says that we'll need between $6200 and $6400 just to cover the FHA 3.5% down payment (let alone any other expenses). Are there potentially any other loan solutions that would allow us to put less down on a home of that size in Hamilton County or Collegedale/Ooltewah? I looked into the THDA stuff a few minutes ago, but as we made more than 80K last year as a family of 2, it looks like we won't qualify for that. I'm just hoping to stay below say $1200 a month with principal + interest + taxes + insurance + PMI with a fixed interest rate 30-year mortgage on a home in that price range while the interest rates are still low. At last look, we spend just under 10% of our monthly gross income on car payment/credit card payments according to my credit monitoring website, so hopefully that's low enough to not negatively impact our chances of getting a loan.
0 votes Thank Flag Link Wed Jan 23, 2013
It sounds like either Conventional or FHA would be the best route for you. USDA and THDA have income limits and with a family of 2 you would be over that. On an FHA loan, you can receive all of the down payment or a portion of it as a gift from a family member. With the price range you are looking at and being in the county (no city taxes) you should be perfectly fine in that price range to stay below $1200 per month. In most cases if the price is right, sellers are willing to pay closing costs for buyers so you would just need the down payment. Please let me know if you have any further questions. You can email me directly at clane@chattmortgage.com or call 423-618-4867. I am located in Chattanooga. Thanks! Christina Lane
Flag Thu Jan 24, 2013
A loan officer can help better than a Realtor. They can run different scenarios to see which loan would work best for you. There are 100% loans, 3.5% down, 5% down. You will avoid PMI if you have 20% down
0 votes Thank Flag Link Wed Jan 23, 2013
Hi DDay,

Your credit score is really good! There is no need to wait if you are ready to buy a home. The rates are so great right now.

Being that you seem ready, I would take your income tax refund and add it with your savings for your down payment if you choose to go FHA.

Also, know that there are loans that do not require that you put down 3.5%. There are many different banks that have in house products that go up to 100% loans , some even have no or very little private mortgage insurance. If you are looking for a home that is in the area that is zoned as rural development there are are 100% loans for that as well. These loans do have guidelines and income caps but are wonderful programs if you fit in the parameters.

Happy House Hunting!
0 votes Thank Flag Link Wed Jan 23, 2013
DDay,

Don't pay the credit card down because you are going FHA.

Unless your credit is below 640, there is no difference in rates or underwriting.

Best of luck!

Fred
Web Reference: http://fredglick.com
0 votes Thank Flag Link Wed Jan 23, 2013
730 score will definitely be high enough to qualify for FHA, as most FHA lenders are just looking for a 620 or 640 FICO score to qualify. There are breaks on interest rates the higher the credit score, but looking at several lenders rate sheets the highest score to get a break on rates for FHA programs is 720 and you appear to already be there.

Another question is would the payment on your credit card prevent you from qualifying for the house price you want? It would make sense for you to discuss your income, debt payments, etc. with a loan officer before the actual credit report would be run, in order to make sure the debt to income ratio would be acceptable. If not, then paying off the credit card and it reflecting a $0 balance before credit is checked could be a wise move - it'll eliminate that payment from the debt ratio and as an additional bonus your credit scores should increase.

Further, with that credit score, conventional financing is available with just a 3% down payment. So one thing you should ask your loan officer is to compare FHA vs. conventional so you can see the differences in monthly payment, the down payment and your "funds to close" figure.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes Thank Flag Link Wed Jan 23, 2013
Hello! If you are going to be applying for an FHA loan, as long as you have atleast a 640 credit score you are ok. Now, you get a little better rate for having over 700 score, and it sounds like you are ok there. So, if you are leaning towards the FHA, you should be fine without paying down the credit card.

There are several different loan options available other than FHA. Depending on what area your are looking in and your annual income amount, you could possibly qualify for 100% financing.

Please let me know if I can be of further assistance. I would love to meet face to face and answer any other questions you may have. Purchasing a home is one of the biggest financial decisions you will make and I am available to help you every step of the way.

Thank you,
Christina Lane
Sr. Loan Officer
Peoples Home Equity
423-618-4867 Cell
clane@chattmortgage.com
0 votes Thank Flag Link Wed Jan 23, 2013
It's best to use the tax refund and money you currently have as rates are low now. It's hard to know when they may begin going up. 730 is a very good score and shouldn't cause you any issues or rate reductions.
0 votes Thank Flag Link Wed Jan 23, 2013
It's completely up to you, but your score is high enough to qualify for a loan now.
I would be happy to help you. :)

K.C. Jones
RH Lending
214-432-0486
kjones@rhlending.com
0 votes Thank Flag Link Wed Jan 23, 2013
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