Should I Wait a Few More Months Before Buying A House?

Hi,
First Time Home Buyer…lots of questions!!!
-Found a fantastic Home for 312K
-Current County Assessment is 293k-should I start here as an asking price
-Own 30acres of land outright valued at around 120k-Does this help when getting a mortgage, can it be used as collateral when buying a house?
-Have about 10-15k to put down-everyone says save the cash, go for {content} down
-I live in VA-we are first time home buyers- are there any Programs available to us?
-We have no debt
-We make 115k a year
-Our FICO Scores are in the 660’s (our child had cancer hit a rough patch)
-My husband will be getting a 20k inheritance in about 4 months
-We have about 80k in retirement accounts
-We have about 8k in a Money Market Fund
I guess what I am saying, is I know the scores could be a little better, but will a lender take everything else into consideration?
-Also, we rent and pay 00/month on time all of the time, can our Landlord reporting this to the Credit Bureaus improve our scores, and id so, how do we do that?
I know it’s a lot, but we need the facts, we really want to stop wasting our money on rent and need the tax breaks due to our income and really love this home. Thank you for your assistance.
Desperately Seeking a Home of Their Own in VA
Also, how do FHA loans work? Is this my only option for a first time homebuyer?
Would trying to get my score up to the 700’s be that much more beneficial?

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1 Comment

lightupthesky25 on June 26, 2010 at 3:10 am

FHA is not the only option for a first-time homebuyer. However, it’s usually the best because they require a low down payment (3.5% of the purchase price), and a minimum credit score of 620. You can try to go conventional, but without a 20% down payment you may not be able to. If you got the home for $300K, a 20% down payment would be $60K but a 3.5% down payment would be $10500.

You will not be able to get a 0 down payment without really amazing credit, if at all. So, since you have $10-$15K for a down payment, I would go with the FHA loan and only put down 3.5%. You’ll have to pay for mortgage insurance, which is really wasted money – but if it gets you in the house…!

I ran a mortgage calculator for you and it looks like you should be able to easily afford the mortgage unless the property taxes or insurance are a lot higher. You have plenty of income, lots of assets, and enough of a down payment. The credit scores will not be a problem for FHA. They may be a problem for a conventional loan though. The only thing those credit scores might do for you that would be bad is you might get a higher interest rate than someone with 700 or 800 scores.

FHA loans are simply insured by the government, which allows a lender to lend to someone they consider a higher risk and might not have lent to otherwise. That is the major difference between FHA and a conventional loan. With an FHA loan, you also must pay an upfront mortgage insurance premium at closing, and you are charged monthly premiums for either five years or when your loan-to-value ratio reaches 80%, whichever is longer. On a conventional loan, if you put down less than 20% you would have monthly mortgage insurance premiums but not an upfront one at closing, and it would be removed as soon as your loan-to-value reaches 80% (though you would have to contact the lender to have it removed).

Your landlord cannot report your rent paid on time to credit bureaus. The credit bureaus are only going to look at things such as credit card accounts, car payments, previous mortgages (which you don’t have), and student loans. The only way anything such as a utility payment or rent payment would make it onto your credit report is if you didn’t pay it and it was sent to collections.

Your purchase price should not be a reflection of the county assessment price. The county assessment prices are not true market values. Many assessors do not even go out to the homes to revalue them – they simply adjust the prices of all homes in the neighborhood based on the average fluctuation in the market. It’s also possible that a previous homeowner protested their value (in order to lower their tax bill) and the current assessment value is artificially low. You will need to talk to your realtor and have him/her run some comps for you in order to get a better idea of where to start your bid.

lightupthesky25 on June 26, 2010 at 3:10 am

FHA is not the only option for a first-time homebuyer. However, it’s usually the best because they require a low down payment (3.5% of the purchase price), and a minimum credit score of 620. You can try to go conventional, but without a 20% down payment you may not be able to. If you got the home for $300K, a 20% down payment would be $60K but a 3.5% down payment would be $10500.

You will not be able to get a 0 down payment without really amazing credit, if at all. So, since you have $10-$15K for a down payment, I would go with the FHA loan and only put down 3.5%. You’ll have to pay for mortgage insurance, which is really wasted money – but if it gets you in the house…!

I ran a mortgage calculator for you and it looks like you should be able to easily afford the mortgage unless the property taxes or insurance are a lot higher. You have plenty of income, lots of assets, and enough of a down payment. The credit scores will not be a problem for FHA. They may be a problem for a conventional loan though. The only thing those credit scores might do for you that would be bad is you might get a higher interest rate than someone with 700 or 800 scores.

FHA loans are simply insured by the government, which allows a lender to lend to someone they consider a higher risk and might not have lent to otherwise. That is the major difference between FHA and a conventional loan. With an FHA loan, you also must pay an upfront mortgage insurance premium at closing, and you are charged monthly premiums for either five years or when your loan-to-value ratio reaches 80%, whichever is longer. On a conventional loan, if you put down less than 20% you would have monthly mortgage insurance premiums but not an upfront one at closing, and it would be removed as soon as your loan-to-value reaches 80% (though you would have to contact the lender to have it removed).

Your landlord cannot report your rent paid on time to credit bureaus. The credit bureaus are only going to look at things such as credit card accounts, car payments, previous mortgages (which you don’t have), and student loans. The only way anything such as a utility payment or rent payment would make it onto your credit report is if you didn’t pay it and it was sent to collections.

Your purchase price should not be a reflection of the county assessment price. The county assessment prices are not true market values. Many assessors do not even go out to the homes to revalue them – they simply adjust the prices of all homes in the neighborhood based on the average fluctuation in the market. It’s also possible that a previous homeowner protested their value (in order to lower their tax bill) and the current assessment value is artificially low. You will need to talk to your realtor and have him/her run some comps for you in order to get a better idea of where to start your bid.