My husband and I are now in the point of our lives that we want to buy a home and expand our family. I am looking at the homes that are out there

Asked by Claudia Hurtado, Hacienda Heights, CA Wed Jul 6, 2011

and have found a hand full that I am interested in. My credit score is 635 and my husbands in the 650s. I am disputing some information in both my husbands and my credit report but I want to know how far away my dream of a move in ready chef kitchne huge backyard house with no pool is. The houses I am interested at in the range of 400-450 our combined monthly income is 170k per year. I can put down 25k. Can we get pre approved for a loan in the next 3 months?

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Emily Knell, Agent, Huntington Beach, CA
Thu Jul 7, 2011
Hi Claudia,

FHA will be more lenient with your credit score issue. My own mortgage lender may be able to assist you with these disputes you have on your report & once resolved point you in the right direction on how you get the credit bureaus to take the negative marks off your credit or mark them as SOLVED.

Please email me directly & we can get started with this.
562-430-3053 c
Realtor Since 1996
Main Street Realtors
1 vote
Gerard Carney, Agent, Spring Hill, FL
Thu Jul 7, 2011
Work the credit score and get the corrections done every point gained makes a difference. as far as the rest is concerned, yes you will have the chef style kitchen, huge back yard. But be true to yourself on the price and the monthly payments, you said you wanted to start a family so make sure you can handle the down side on one income when you do start the family! Good Luck with the home and the new Family! :)
1 vote
Tina Lam, Agent, San Jose, CA
Thu Jul 7, 2011
The gating factor is your down payment. Right now you have about 5% while barely covering closing cost. Some banks may do 5% down up to $417K. Also you should check out FHA loan. Work with a loan broker to find the best options for you.
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1 vote
Melissa Krch…, , Rancho Cucamonga, CA
Thu Jul 7, 2011
Good evening, Claudia!

You sound like you're on point and are doing exactly what you should be doing. If you're looking in that price range, you can expect to put down at least $15,000-ish (3.5%) on an FHA loan. Everyone's finances are different but a good rule of thumb is that for every $100,000 you finance, you'll pay $700/month so this would make your payment no more than $3,000/month.

My lenders would be happy to help you and give you a specific guideline of what to do next, how much you'll need for the down-payment and how much you can afford to pay for a home. There will be no guess work and at the end of your 3 month timeline, you'd be ready to start writing offers and working towards home-ownership.

I've attached a list of all the people I work with and you'll find a section entitled "Lenders". Call one or all of them and they'll start you on the path. Please let me know should you have any further questions and have a great night!
0 votes
Bill Mota, Agent, Monrovia, CA
Thu Jul 7, 2011
Claudia, Now is a great time to buy: prices are down, and interest rates are at all time lows. This makes buying a home much more affordable. BUT, lending guidelines are stricter than ever. I would live to work with you (I have lived in Hacienda Heights and Avocado Heights for over 20 years), but the first step should be to find out what you qualify to buy - then, my job is to find you the best home that fits within your budget.

Give me a call and we can get started - it really is NOT that complicated if you have an experienced agent to guide you thru. I look forward to hearing from you.

Bill Mota
626) 233-0190 cell email
0 votes
, ,
Thu Jul 7, 2011
Q: Can we get pre approved for a loan in the next 3 months?
A: So far nothing you have said indicates you would not be able to be approved.

However what is on your credit that is bringing your scores down to a 635 & 650 would need to be gone over, as that is equally as important as the credit scores themselves. Also, account disputes often need to be ended prior to having your credit checked, not always if you are applying for an FHA or VA mortgage, but they do need to end if you are planning on using Fannie Mae or Freddie Mac conforming financing.

With FHA financing you'd just need to put 3.5% down, which even on the $450k sales price is only $15,750. VA financing is 100% financing in case you or your husband are a Veteran. Conforming financing can just require at least 3% down, but it's usually recommended to put at least 5% down for better financing terms.

If you were considering a loan term longer than 15 years, then FHA & VA financing would result in the lowest interest rates since they aren't so sensitive to your credit score. Conforming financing is very sensitive to your credit score - to put it as an example, if you were getting an FHA mortgage with a 635 FICO score you could expect your interest rate to be about ~4.5% with no points (not a quote, just illustrating where rates are at with most lenders today). With Conforming financing, a 635 score, and 5% down, the rate would be approximately .25% higher plus you'd have to pay an additional 2.25% in points (that is 2.25% of your loan amount) just to get the .25% higher interest rate.

Loan term of 15-years or less (read: 15-year fixed or shorter term), then conforming interest rates are the same .25% higher than FHA & VA interest rates, but since conforming interest rates are not sensitive to the score at 15-year terms or less, there wouldn't be the 2.25% in points to get the conforming interest rate, it'd be 0 points. Since your income level is pretty high compared to the amount of mortgage you are looking to finance, a 15-year term option may be something to strongly consider.

With FHA financing you have an annual mortgage insurance amount (divided into monthly payments) of 1.1% to 1.15% (.25% to .50% on a 15-year term or less), as well as an upfront mortgage insurance amount of 1%. So the mortgage insurance can really add up over time. VA financing doesn't have any monthly mortgage insurance, but it can have a VA Funding fee of 2.15% (exempt with most service related disabilities).

Conforming financing requires private mortgage insurance (PMI) when you are financing over 80% of the home's value, however you have a few different options for mortgage insurance -
#1 the standard monthly amount that most people are familiar with (this is only guaranteed to drop off once you pay the loan balance down to 80% of the home's value when you obtained your mortgage, some lenders may allow you to get an appraisal before then to prove you have the 20% equity, but it's not required for the lenders to do)
#2 an upfront amount you pay instead of the monthly amount (this amount is usually equivalent to 2-3 years of #1, the monthly mortgage insurance, and so if you are scheduled to pay the monthly mortgage insurance for many years based upon your initial down payment and how long you anticipate to have your loan balance above 80%, this option can save you a lot on the mortgage insurance over the life of the loan)
#3 a higher interest rate where you don't have to pay either the upfront amount or the monthly amount (but that higher rate is for the life of the loan, this is usually a good option if you only plan on having the mortgage for a short period of time, 2-3 years, and you know you will be paying it off or refinancing, since you aren't paying the "higher interest rate" for very long).

Those PMI requirements currently call for having at least a 660 qualifying score (even higher if you are putting less than 10% down), meaning the lowest middle score out of all applicants on the mortgage - and so your 635 & your husbands ~650 scores would be below that threshold. Perhaps after your round of disputes you are doing it'll eliminate some of the delinquent items on credit and your score could get up there. On July 11th a new PMI program is coming out that only requires a 620 score up to 97% financing.

If you can find a home at (Fannie Mae's REO inventory), then with a Fannie Mae HomePath financing program you do not have to pay PMI, but the rates adjust upwards to reflect that - it's similar to option #3 above.

So as you can see, there are many options to consider, and with your credit still being worked on, what is a better option right now may not be the better option after your scores change (hopefully for the better).

If you need help, have more questions, or want more information, feel free to let me know.
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