Y'all are a bunch of wankers!


I am 31 years old, married, with one small child. We would like to purchase a home in the not too distant future. But I don't know anything about the process of getting a mortgage.

Obviously, every situation is different, but I am wondering if I would qualify: Although my FICO score is 780, which is good, we have about $7000 in credit card debt, which isn't so good.

What else will the financial institutions look at? Based on the above, could I qualify for a decent mortgage?

Thanks for the advice.
Permalink Renter 
August 23rd, 2005
If its your 1st mortgage, you can qualify for an FHA loan. http://www.hud.gov/buying/insured.cfm
Often you'll get a better interest rate with lower closing costs going this method.

Your $7K of debt amounts to some kind of minimum monthly payment. Whatever that minimum is will be taken off your max monthly payment allowed for your monthy mortgage payment - thus reducing your overall loan amount.

Unless something changed, this is how they will account for your debt.

You need to find some way of increasing your savings rate. When my wife and I were young, we dealt with just one car for this reason. I either car pooled, or rode my bike to work. A car amounts to $3K - $10K in expense per year and is likely the easiest place to save money.
Permalink hoser 
August 23rd, 2005
$7k isn't bad at all if you make a decent wage. The key is your debt ratio, which is the total minimum monthly payments / gross monthly earnings. Only include credit payments, revolving credit, car, etc.), not utilities, groceries, etc.

Unfortunately, I can't remember the upper threshold for it - I think 45%, but it could be 35%. If you don't qualify ubnder that, you could still qualify for a non-conforming loan at a slightly higher interest rate.

When looking for financing, make sure you shop around for the best deal. Avoid brokers - they're just middlemen who tack on an extra fee.
Permalink Nick Hebb 
August 23rd, 2005
7k is WAY below the national average...
August 23rd, 2005
Research and compare alternatives. Spreadsheet the effect of all charges such as:

Establishment fees.
Monthly fees.
Interest on amount outstanding.
Exit fees.

- as well as the repayment period and repayment schedule.

Often (like credit cards) a competitive offering loses appeal when fine print penalties for missed payments are factored in.

Conversely a redraw facility is nice - allowing windfall sums to be tipped into prepayments and accessed later if desired. Ideally you should be able to have your salary paid in directly and redrawn for groceries, but I'm not certain if this is available in the US.

$7k in the hole isn't deep.
Permalink trollop 
August 23rd, 2005
They'll look at your past payment history, which with a credit score of 780 must be excellent.

Typically they'll use the 28/35 rule

28% of gross goes to mort/tax/ins
35% of gross goes to all monthly debt.

Also if you have money in the bank (down payment), they like that,  20% will get you out of paying PMI.

I think a general rule of thumb is not to have a mortgage that is > 2.5x your yearly gross income
Permalink Yo 
August 24th, 2005
<<I think a general rule of thumb is not to have a mortgage that is > 2.5x your yearly gross income>>

i thought it was 4x?
Permalink Kenny 
August 24th, 2005
4x seems a bit low -- mine's around 6x which I think is more or less average. (Although the house is now worth 18x my salary due to crazy house price inflation. If it weren't for the kids I'd sell the damned thing, move to somwhere warm and cheap, and make an attempt to live a rural life.)
Permalink Mat Hall 
August 24th, 2005
First rule is to shop for money *before* shopping for a house. This lets you find out how much house you can afford, and you can set your personal expectations.

Also, just because the bank will loan you a third of a million dollars, that doesn't mean you have to spend that much. They always seem to ignore the fact that you'll have decorating expenses (like adding blinds, etc).
Permalink example 
August 24th, 2005
A few comments from my 15 years in the mortgage technology business:

The debt ratios (called front end and back end) used to be 28/36 but now are much higer due to higher real estate prices. Same for the 2.5% guideline.

Get a pre-approval, not a pre-qualificaion, from a lender. A pre-qualification is nothing more than looking at your income and running a credit report. A pre-approval subjects you to the financial body cavity search that is required of getting a mortgage.

With a 780 credit score, you should qualify for a low rate. You didn't indicate how much your down payment would be (what percent). I'm assuming that if you have $7000 in credit card debt, you're not putting down too much. Keep in mind that these days you can borrow up to 100% of the purchase price. Whether you do that in 1 loan (paying PMI) or 2 loans (80% first mortgage and simultaneous 20% second w/ a higher rate) depends on a number of factors, not the least of which is how long you intend on staying in that house.

If you want details on the mortgage process, go to www.mtgprofessor.com. Jack is well known in the mortgage industry and is NOT trying to sell you a mortgage.
Permalink GML 
August 24th, 2005
In the UK the maximum mortgage used to be 4 times annual income.

Because property prices in much of the UK went through the roof, and financial institutions need to lend money if they are not to go broke, they have taken advantage of low interest rates to extend the sum lent to six or seven times monthly income.

An increase in interest rates would lead to a lot of repossessions.
Permalink Stephen Jones 
August 29th, 2005

This topic was orginally posted to the off-topic forum of the
Joel on Software discussion board.

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