“Dani” asks:
My score is right around 620 and I’m looking to get my first home. My question is, should I wait until I improve my score to buy and risk rates going up, or buy a home while rates are lower now? Together my husband and I make about $56,000 a year and want to buy between $120,000 and $130,000. But we want a 30 yr fixed rate and don’t have a lot for a down payment. We’re also wondering if that is possible to get one loan with private insurance instead an 80/20 loan with our credit score?
1. You indicate your credit score is around 620. I want to make sure you have checked your three bureau credit scores through MyFICO.com. The middle of those three scores is the one most likely to be used to qualify you for a rate and program. If you are using credit scores from another source, they are not the same scores that mortgage lenders use and will not be as useful. And since scores can vary widely between the three credit agencies, you’ll need all three to make sure you have the correct number. Make sure your husband has checked his too. Typically the lender will use the score of the person with the higher income, which may be you or your husband. (Our system will search mortgage programs using all three scores, and take into account each lender’s criteria for evaluating those scores.)
2. The price range in which you wish to buy sounds reasonable for your income, but the fact that you have little saved and lower scores does worry me. If you get too strapped with the purchase, you’ll have nothing to fall back on when the normal expenses of homeownership crop up. You may want to look for a real bargain (depending on prices in your area), even if it’s not your dream home, to keep your expenses low. Don’t worry so much about where rates are headed as whether you are ready to buy a home or not. If you feel pressured or rushed, you are more likely to make a poor decision.
3. You may well qualify for a low-downpayment loan with Private Mortgage Insurance (PMI) but don’t rule out a piggyback loan (80% first, 10/15 or 20% second). Compare both. The only way to know for sure what your options are is to find out what loans are available to you. In addition to using our mortgage search engine to compare mortgage loans at LenderRateMatch, I would also recommend you talk with a lender who offers FHA loans. These government insured loans are offered by private lenders, and can be more lenient on credit factors as well as offering a low downpayment. They had fallen in popularity in the past few years, but there is a resurgence in them now that other options have dried up.
We wish you the best with your first home purchase!
Q: My husband purchased our home one year before we were married. He refinanced it recently and told them that he was single, because our marriage has been rocky and didnt want my name on the house. Can he do that? What can happen? We are headed for divorce. I don’t want any part of the home but he wants to toss me out, before I can find a job and somewhere else to stay.
A: I am sorry to hear about the difficulties you are going through. Please talk with an attorney immediately. It sounds as if your husband may have committed loan fraud by telling the lender he was single when he was married. Some states have property laws that would require that the title be held jointly when he refinanced. At a minimum, if he had been truthful, he would not have been able to refinance without your involvement. You may not want anything to do with the house since he bought it before your marriage, but that should be part of your separation and divorce agreements.
In addition, I strongly recommend you sign up for online monitoring of your credit reports. If he is willing to commit fraud to get a mortgage loan, he may be willing to compromise your credit in other ways. I have seen it happen many, many times unfortunately. To protect yourself, I would also recommend you check out the book Divorce for Dummies by attorney John Ventura.
Good luck during this difficult time.
Q: I am interested in purchasing a FSBO (For Sale By Owner) home in my area. What steps must I absolutely not neglect in securing the best possible mortgage?
A: What a great question! The smartest homebuyers always think about the financing before they start home shopping. After all, while buying a home is expensive, by the time you pay off the home loan you may have paid twice that!
We have a number of articles on our site that should be helpful to you as you prepare to get a mortgage, but here are the most essential tips I can offer:
1. Get your three-bureau FICO credit scores from MyFICO.com. Lenders are becoming much stricter in their credit score requirements, and as a result, you want to make sure yours is as strong as possible. If you find any mistakes or incomplete information, give yourself plenty of time to straighten it out.
2. When you compare mortgage rates and fees, make sure you are comparing apples to apples. You always want to ask a lender to quote you the “par rate.” This is similar to the dealer invoice pricing, and allows you to accurately compare a rate against another. (Our mortgage rate search engine automatically does this for you so you.)
3. Get pre-approved from a lender in writing. This will give you negotiating leverage with the home seller, as they know you are good to go if all other details of the purchase work out.
And although these aren’t home mortgage tips, I’d also recommend you get a real estate attorney to write up or review your purchase contract, and that you get an independent home inspection from an ASHI certified inspector.
Good luck – I hope you find your dream home!
Q: I purchased a house in my name only several years before getting married. The title is in my name only. I expect to lose the house through foreclosure and my credit has been destroyed. Will my bad credit prevent my wife from being able to apply for a future mortgage in her name if she is the only person listed on the mortgage/title to the new home?
A: The fact that the mortgage and loan were in your name only means foreclosure should not appear on your wife’s credit report. If she has sufficient income, and meets the credit qualifications to support a new loan on her own, then she will be able to buy a home in her name only in the future. (She can get the loan herself and you both can still hold title jointly.) However, if your income is required to support the loan, then the lender will want to review your credit as part of the application.
Yesterday I happened to hear the NPR story describing how a Countrywide loan officer coached a prospective borrower to lie on her mortgage loan application. It’s a must-listen if you haven’t heard it.
If you think mortgage fraud problems — misrepresenting loan details, credit score manipulation, and overcharging — are a think of the past, this will remind you that you can’t be too careful when shopping for a home loan. Think about it. You have some loan officers who made a lot of money — a lot of money — over the past few years, who are now hurting for income. Do you think they all have just seen the light?
Honest loan officers had it more difficult during the heydey because they wouldn’t recommend inappropriate loans, or help their clients fudge facts. Now they find themselves telling some borrowers what they definitely don’t want to hear, “I can’t help you.” But that’s a lot better than telling someone to take out a loan that a couple of years down the line will only mean much bigger problems.
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