I am wanting to make a home purchase at the end of 09' beginning of 2010. I've been working for a few months

Asked by Chase Harris, Sacramento, CA Fri Jan 16, 2009

now and I make about 36k a year right now. My credit sits at about a 750. Would I be able to qualify for a 200k mortgage? How much down would I need? FHA 3.5%?

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Eddie Martini, Agent, Auburn, WA
Sat Apr 20, 2013
Did you end up buying a home or are you still in need or Real Estate services?
0 votes
Joshua Durrin, , Roseville, CA
Thu Jun 4, 2009
Wow Plano. Reading these posts, I can see your point. Being in the industry, I can't bring myself to assign blame to the agents (mortgage or real estate), however, because I'm a big believer that every person needs to take responsibility for their own well-being... no one is going to look out for number one better than number one. So, get yourself educated on your options and find an option that works for you... or better yet, create an option that works for you.

In starting the home buying process I advise my clients to talk with a lender and get pre-qualified... and then get real. Just because the bank (or their software) shows that you can afford a loan doesn't mean that you actually can. The percentages that you see below are based on a persons gross income, which is often far different than a persons net income. And, lenders don't take into account a persons future financial goals (i.e. 401k savings, kid's college, Murphy's law, marriage, divorce, children, etc). You, as the person signing the contract for purchase need to lay out your plans and really determine (and sometimes discover) whether you can afford the house you want or not.

You don't have to be good at math either. Write down your net income on one side of the paper for a standard payment cycle (often a monthly cycle). Then write down your expenses on the other side. If you're like most people the expenses side is going to much longer (which is why I encourage my friends, family, and clients not to be normal)... but make sure that it is all inclusive (i.e. groceries, lights, cable, electricity, credit payments, car, savings, investments, vacations, vehicle repairs/registration, etc.). Also, compare what's written to what you're actually experiencing. If your paper shows a huge surplus at the end of the month and your bank account is showing the opposite, then the list isn't accurate. If you're not truthful with this exercise, you're only hurting yourself.

There are mortgage payment calculators all over the web and including my website. You can use one to determine what a mortgage payment is for a total purchase price... and you can find ones that calculate a total loan price based on a monthly payment as well. But that estimate should come from your determination of what's left in your budget... not what the bank "thinks" you can afford. You can also set a payment goal and find areas in your budget to cut costs to make it affordable... but perhaps more importantly, sustainable.

Something to consider is that the national household average annual income for a neutral family is somewhere between $40k - $45k with very little savings. I would encourage you to strive for better than normal. Normal in the "golden" years is living on social security with underfunded healthcare and the lack of funds to pay for family visits. I so don't want to be normal and I wouldn't wish it on anyone... Don't overextend yourself and get stuck in the rat race (yes, I read Kiyosaki).

Oh, and the responders were so "helpful" because you have a key phrase in your question... "wanting to make a home purchase." Be careful of free advice and make sure that you find a professional with the heart of a teacher to help you find your home.

Best of luck.
Web Reference:  http://www.durrinrealty.com
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Plano, , Plano, TX
Sat Jan 17, 2009
I feel like this is WHY we are in the economy we are. Agents aren't being realistic when educating buyers for one, and buyers are biting off way more than they can chew. $36k a year is not enough to buy a $200k house. I make $38k a year, 780 credit score, no other debt besides a car payment, 4% down and 10% in my checking account for reserves. I was approved for $120k. I ended up buying an $85k dollar house in Plano, Texas. $1800 a year in taxes, HOA of $210 a month which covers my HOI and my mortgage is still $714 (NOT including my HOA) at a 6% interest rate. (I closed like 4 days prior to the huge drop in rates). So unless your taxes are next to nothing a year and you get a rock bottom HOI then I do not see how you are going to get a $200k dollar house at a payment even close to something thats affordable... keeping in mind that you will also be paying private mortgage insurance since you are not putting 20% down. So you are looking closer at $1500+ a month in payment. And at $36k a year, thats 1.5 paychecks a month.
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Chase Harris, Home Buyer, Sacramento, CA
Sat Jan 17, 2009
Thanks to all of you for your help! I never expected this much help with my question.


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Jim Walker, Agent, Carmichael, CA
Fri Jan 16, 2009
I read both 29% and 31% as housing ratio guidelines. For quick math, and not bringing out the calculator, It will be easier for me to use a rounded 30%,

So 30% of $3000 per month is $900. That is enough to carry a $150,000 mortgage. There are many things that could bump up the amount a buyer with your income could borrow. #1 is first time buyer (fthb) program subsidies. such as the $7500 fthb federal tax dredit for 2008 and 2009. #2, Some cities such as Roseville have low and moderate income subsidiy programs. There is a new home subdivision on my street that offers this.

#3 The down payment of 3.5% is simply a minimum amount, If you are able to save up more during the year, you may qualify to borrow much more.

$150K is still the low end here in Roseville. However, looking at our neighbors: Antelope and Citrus Heights - and Lincoln. I see a lot more inventory in the $150K price range.

Steve, Amy Jane and Ute also gave good answers to your question.
0 votes
JANE WHITTEN, , Long Beach, CA
Fri Jan 16, 2009
Chase: I am a Mortgage Broker who can answer your questions ... Yes you need to have 3.5% of your OWN funds in the transaction, and if your credit remains as it is (720 Fico and above), and if you have any funds available AFTER the close of escrow such as a 401K or savings account which would be considered as reserves, have stable income and 12 months of timely rental history, then most underwriters would more than likely consider your credit profile acceptable. The ratios that FHA uses to qualify a buyer are not set in stone. FHA loans are "make-sense" loans. If you exceed the "standard" debt-to-income ratios then you can offset that by compensating factors such as the items I mentioned above ... liquid assets as reserves, a clean credit profile, good FICO scores, a stable employment and earning history.

Interest rates are very low right now and hopefully may remain so for a while, which means you would be able to acheive your goal of homeownership. If you would like more pre-purchase information or home buying tips, please feel free to visit my website. You are welcome to be a looky-loo for as long as you like until you are ready to buy. Good Luck!
Web Reference:  http://www.janewhitten.com
0 votes
Steven Ornel…, Agent, Fremont, CA
Fri Jan 16, 2009
Chase, the two maximum ratios for a FHA loan are:
Housing Ratio of 31%
Total Debt Ratio of 43% (see link below)

Calculated as follows:

Housing Ratio: [Principle+Interest+Prop Taxes+Hazard Insurance+Mortgage Insurance+HOA (not all may apply)] / Monthly Gross Income

Total Debt Ratio: just add Total Monthly Recurring loan/credit-based debts (credit cards, car payment, etc.) to the top half of the Housing Ratio Calculation.

Ute may be right, 200K may be too optimistic when you pull in all of the payments that make up the Housing ratio; however, don’t lose faith. Do keep in mind that FHA loans also allow Automated Underwriting Systems that allow one to go over the standard manual underwriting ratios provided above.

The best advice throughout all these posts is the same: See a mortgage professional for advice and guidance!

0 votes
Ute Ferdig, Agent, Newcastle, CA
Fri Jan 16, 2009
Hi Chase. Honestly, I don't think a $200,000 loan is realistic with a $36,000 annual income. Assuming the interest rates will remain as favorable as they are right now (and that's a big IF in my opinion), the total payments on a $200,000 loan would exceed the allowable debt-to-income ratio and that's also assuming that you have no other monthly debts such as credit card and car payments. Your credit score is good, but your annual income will have to come to be able to qualify for a $200,000 loan. The current maximum debt to income ratio for an FHA loan is 29%. Below is a link to a site that explains this in more detail and shows examples of how to compute the debt to income ratio. As the others have already suggested, you should consult with a mortgage broker who can run the numbers for you and tell you what your options are. Since you are not planning on buying for almost another year, there may be a few things that you can do to increase your chances.

Best of luck to you,
Ute Ferdig
0 votes
Steven Ornel…, Agent, Fremont, CA
Fri Jan 16, 2009
Chase, Amy is right, you should sit down with a mortgage professional to review all options. I'm not solely advocating an FHA loan, many FHA Brokers/Bankers do have the capability to broker non-FHA loans as well so many of your options can be discussed by finding a FHA loan professional with that capability. -Steve
0 votes
Amy Wall, , Rocklin, CA
Fri Jan 16, 2009
Hi Chase,
I would stongly suggest that you speak with a Mortgage Broker regarding your situation. There are several scenarios that may work for you, and depending on whether or not you have a degree and a job in that field of expertise, you may not need the entire 2 years worth of work history. FHA loans are great programs for buyers that do not have a lot of down payment, but there may be other options. Again, I suggest that you speak with a local, qualified mortgage broker who can go over various loan possibilities with you. Best of luck. Amy
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Steven Ornel…, Agent, Fremont, CA
Fri Jan 16, 2009
Hi Chase, you will need to document at least a two-year work history to qualify for a loan, especially in these credit-stressed times. Your credit sounds great. If you have the two-year work history, then it does look like you could qualify for at least a $200K loan (assuming a 5.5%, 30Y, 3.5% down FHA loan) from a "debt-to-income" ratio perspective. However, you really need to contact an FHA Mortgage Broker/Banker to be 100% sure as much more information would be required from you. Although your timeline for purchase is the end of the year, you should start the pre-approval process now to have time to correct any potential issues that may delay your purchase if not handled up front.

Best Regards, Steve
0 votes
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