What steps can we take to maximize the mortgage amount we qualify for on our first home?
My husband and I will be buying our first home in about 8 months, at which time my husband’s mother will be moving into the new home at the same time. This means that the house needs to be large enough for 3 adults to have their own privacy. Also, the house needs to require very little in the regard of repairs, as we just will not have the money or time to invest in remodeling as we will need to live in it immediately. When we pre-qualified last year we were approved for 5,000. The range for a 4/2 home (in livable condition without major remodels needed) is 5-225,000. This is a large gap that will require a lot of work to close. Our goal is to do everything we can within the next 8 months to ensure we qualify for as large of a mortgage possible when the time comes. His mother will be paying ,000 for the down-payment/earnest money (over the 3.5% required for the FHA loan we qualified for last year) with the majority of the money she gets from selling her mobile home.
These are the steps we have been taking so far:
a) Aggressively paying down our credit card debt.
b) Making sure that all bills are paid on time and not opening/closing any accounts in attempts to raise our FICA score as high as possible, to allow us to qualify for the lowest mortgage rate (crosses fingers).
c) Saving up in order to pay for moving expenses, inspections, closing costs, credit reports and other expenses (not including down-payment, which is already covered as earlier stated). We estimate we will have saved up about 00 when the time comes.
d) His mother will be contributing 0/mo toward the mortgage, but her name will not be on the mortgage itself.
Now my questions are:
1) Besides an increase in income (which we are working on as well) what other things can we do to better our financial situation? credit? chances of finding a suitable home? mortgage amount we qualify for?
2) We are concerned about the amount his mother will lose to taxes in the sale of her home, are there any tricks to keeping as much of the sale amount as possible?
3) I believe we can count the money from his mother each month as additional income, is this correct?
I am really hoping that I can get some advice, tips and tricks I haven’t thought of yet. Thank you!!!
We have spent the last year preparing for the pinch of adding a mortgage, by limiting our budget now. We have been following a tight budget and have been putting all additional money towards debt and savings. That way, not only are we bettering our financial situation but by the time next year rolls around we will already have a working budget that we have been following for 2 years. Between our current rent and the extra money we are putting toward debt and savings we are paying out ,700 a month, that will switch to being a mortgage payment once we buy the home. Add in his mother’s contribution of 0/month and we are currently living at a budget for our home of 00. A 5k home @ 5% interest is only ,100. Even adding in mortgage insurance, property tax, etc. the total home payment each month will fall below the 00 we are currently alloting each month. I am confident that we will be able to afford the home, the only issue is qualifying for it.
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May 3rd, 2011 at 9:03 pm
Okay, I am a mortgage lender. You cannot use the money you will get from mom as income to qualify. There’s just no way to prove something like that. One really good thing is the rates are way lower than they were a year ago (if they stay low like they are that automatically allows you to qualify for more now). Pay off your highest monthly payment debts first when paying off credit cards. Example: if you have 2 cards one with a 10,000 balance & 200.00 per month payment & one with a $5000.00 balance & $225.00 monthly payment pay the higher payment one first, regardless of the balances. Ask your seller to pay ALL your closing costs and pre-paids. This is very common & most sellers expect the buyer to ask for it. Do not bounce any checks for the 2-3 months before applying. An NSF fee on a bank statement is an automatic denial of your loan. Start looking at homes well in advance (even now) it will allow you to get a feel for how much house you can expect for the money. With foreclosures so common you might just walk into an awesome deal anytime. When looking at the listings out there many people put in their top price as the maximum, but I suggest looking at homes on the mls site that are up to $5000.00 more than you plan to pay- just because if something has been listed a long time the seller may jump at your lower offer thereby giving you a much nicer home. Good luck, sounds like you are on track!
May 3rd, 2011 at 9:03 pm
If your mother is a senior and is living off of a pension (including SS) there is no capital gains or taxes to be paid on her sale of her primary residence, if she moves in with you and you make her a 3rd partner in the purchase of the "dream house" – her income also will be counted as part of the package you bring to the purchase of a new house. Talk to some bankers & realtors in your area for more enlightenment.
May 3rd, 2011 at 9:03 pm
You should NEVER buy a house that costs the maximum amount for which you can qualify. Although it’s not quite as bas as it used to be before the housing bubble, lenders will qualify you for bigger loans than you can realistically afford, because they want to make the maximum amount of money off you that they can. They don’t care about the fact that you need to, yanno, eat.
A conservative general guideline for home purchasing is that you should not buy a house that costs more than 2 years worth of your current income. By that guideline, if you want a $225,000 house, then your combined income with you and your husband (don’t include Mom as a factor) should be MINIMUM $112,000 per year. Is it? Because if you and he earn less, then you’re buying too much house.
My husband and I have stayed within the 2-year guideline with both of our houses, and even though we bought waaaay less house than we qualified for, our mortgage/taxes/insurance/interest are still a distressingly large part of our post-tax income. You need to be able to pay your monthly mortgage/tax/insurance/interest payment without strain, and ideally on only one income. If you overstretch yourself on your mortgage, you’ll come to regret it.