“We want to purchase a home, and I want to know if we can get it. My husband currently has a mid credit score of 538, and mine is 678. He makes about 52,000 and I make 25,000. I’m still in graduate school full-time. We saved $4,000 for closing cost so far. We want the house by the end of October 2017 Can we get a loan?”
There are multiple ways to make this work – here’s Option 1:
Purchase a home using FHA, and have a non-owner occupied co-borrower on the loan with the borrower who has good credit scores. If you know that you can make the payments on your own, then having a parent, or other family member, on the loan will not be a burden to them. After you’ve made 12 months of payments (and by all account mortgage interest rates will still be low a year from now) you can refinance the loan and take the family member(s) off.
This is a GREAT program because the home still only requires a 3.5% down payment, and it is NOT considered investment property, so you can still write off the taxes and mortgage interest.
FHA requires a 3.5% down payment. The good news is that in this environment, in our area, we are seeing sellers pay closing costs. FHA allows sellers to make a 3% contribution towards closing costs.
FHA also allows you to get a gift for your down payment! We also offer the NCHFA First Time homebuyers Program in NC. This program now provides borrowers up to 3% for down payment or closing costs. This money can be forgiven after 15 years!
You can make an appointment to meet with us, and discuss your credit options. We are NOT credit counselors (like the ones you would see if you were considering Bankruptcy) but we “counsel” people ALL THE TIME on how to improve their credit scores. Often times it can be done in 90 days!
If the borrower has a 583 credit score , and they’ve had 12 months of making all payments on time – the thing most likely keeping their scores down (barring bankruptcy, short sale or foreclosure) is the gap between the balance owed on credit cards and the high credit limit. Taking the $4000 saved (in the example above) and paying down the balances MIGHT get the scores up 60 points or more immediately! The other thing that can happen would be to either be added to a credit card with a low balance, and on time payments – or to open a Secured Credit Card (or two).
We could talk about qualifying you for a mortgage based upon your household income, in some very specific geographic areas. With the newest roll out of the Fannie Mae Home Ready loan, there are provisions that allow us to consider the income of your husband without him actually being on the loan. It is a complicated formula, and it generally does not give us enough income to qualify you for the home you are hoping for – so it would be a sort f compromise. The program does have income limits that area based upon where you purchase a home. However in a situation where one borrower has income the other borrower has good credit scores, we CAN use that income to offset high DTIs, up to 50%!
That’s why I’m suggesting that you meet with (us) the loan officer. Most of us have a “simulator” available to us that tells us what will happen if you close an account, or pay down a balance, or pay off a collection. Again, I don’t suggest that you try to do this on your own… because a credit score is like a snow flake, each one is different, and each one is fragile. You might pay off a Collection that doesn’t have to be paid! Why waste that money??
So let’s say you take your savings, and work to get your credit scores higher… now you don’t have money for a down payment! What do you do then?
- FHA Mortgage Loans allow a gift for the down payment.
- Veterans don’t have to make a down payment. It’s part of your VA Mortgage Loan Benefits!
- USDA Home Loan Program does not require a down payment at all! USDA requires that you live in a “more rural” area. In North Carolina, we get rural fast, and in many cases, the whole county qualifies for USDA Home Loans! USDA also wants to be sure that your “household Income” is below the maximum for the County you are buying in. The USDA Loan program also allows us to use “Compensating Factors” to help qualify you for a slightly bigger home!
- NEW Fannie Mae Home Ready Program: NC Housing works with the Home Ready loan, and we can do a Down Payment Grant. There are several different kinds of programs out there – but the general “spirit” of the program is that if you live in the home for a certain period of time (which varies based upon the program), then the down payment is fully forgiven You make no payments on it and have no interest accrued.
If you or your family or friends are considering purchasing your first home, or if you have questions about what to do when one borrower has income the other borrower has good credit scores – please call Steve and Eleanor Thorne 919-649-5058. We pre-qualify, and counsel borrowers everyday, and we can help you purchase a home!