T Nation

Buying a House

My wife and I are looking into buying a house. Our credit isn’t quite ready to get a home loan without putting 15% down. I was looking at HUD homes because it seems they cater to those that need a bit of help in the credit area.

Within’ a year it’s quite possible that my credit will be up to par as we’re voraciously paying off past due bills. But I’d like to not spend another year on rent when it can go to paying off a house.

Has anyone had any experience in this area, and can offer some advice?

HUD is not where you want to go with this. If you are paying off on PAST due bills, the credit between the two of you probably has some scars on it, as you already know. Get your accounts (I’m assuming credit cards) up to date and for the love of god DO NOT close a credit card account once it’s paid off, keep it open.

The reason for this is a large portion of credit scoring is scaled by debt:available credit ratio. You pay off an account (good) but by closing it you really aren’t gaining any marks by the 3 agencies.

Get your accounts up to date. Save at least %10 up for a down payment. If this takes you a year or two so be it. Maybe move into a less expensive apartment to save more, cut costs wherever possible. I know the whole cut costs thing sounds cheesy, I personally hate that kind of language, but makes a world of difference.

But jumping into a house you don’t really want at a less than good rate isn’t what you’re looking for. Have patience, make saving/debt paying a priority and good luck.

From what I understand, the US has quite liberal mortgage terms available. But pay off your debt first and save for a good down payment. We bought our house 4 years ago and I am thankful that we had little debt plus savings. Something always comes up with a house that takes money to fix or upgrade. Taking that on plus having debt may leave you in a bigger hole than you can imagine.
The market won’t recover for a while, you have time to pay off your stuff and still get a decent home for a good price. And being debt free will allow you to make accelerated mortgage payments and build up more equity faster.
Good luck!

I’m not sure if where you are trying to buy a home so I’ll be speaking generally. Right now home owners that are trying to sell are taking a fucking beating. The average time on the market is anywhere from 6 months to over a year. This means very good things for any buyers.

1st: Like others have said get your credit in order.

2nd: Get 20% for down payment. This will qualify you for many more mortgage programs and better terms. Go to a mortgage broker and no you do not pay them a fucking dime or sign a contract. They are paid from the bank they hook you up with.

3rd: You and your wife need to find what you want in a home and create standards. Do you want good school districts? Entertainment? Quiet?

4th: Do not except anything less than your standards and don’t let home owners dick you around. You are in power and don’t let them fucking forget it. I’m not saying to be an asshole but if they give you shit about concessions you let them know you are gonna walk.

5th: Look at the comps for the area for the last 6 months or shorter. Prices are taking a dip and people will keep comps for 2 years to try and make it look like their high price is worth it.

6th: People are more willing to give you stuff other than lowering prices. They got a nice stainless steel kitchen…make them give you that shit. Everything is negotiable so they don’t want to drop below 150k…make sure to get more than 150k worth of stuff or make them pay all closing costs.

Hope that helps you out some. Oh and make sure to get a pre-approval letter from your bank stating how much you are approved for. This lets home owners know you arn’t dicking around and can come up with the funds quickly.

I am a lender, so I can give you my advice. The advice above is all good, but really nobody can really say without knowing your exact situation.

Your first step should be to meet with a mortgage professional, whether a broker or direct lender (a bank). The only fee you should pay them is a credit check fee, about $25.00

It is not possible for a lender to properly advise you without knowing your exact credit and income situation. One persons idea of bad credit is sometimes not that bad after all, and vice versa. As far as credit scores go, your score will determine the rate and loan programs available. For first homebuyers with little down payment money, and FHA loan is a good bet.

These had gone by the wayside during the fat times, but are making a strong comeback. FHA requires you to pay 3% down, as well as a monthly mortgage insurance fee. MI (mortgage insurance) is dependant upon the loan amount. The higher the loan, the higher the MI.

Contracts with lenders are 100% completely unbinding. As mentioned above, never pay a lender any money upfront, with the exception of the credit fee. Also, avoid letting several lenders pull your credit.

Multiple inquiries hurt your credit score. If you desire to meet with multiple lenders, obtain a copy of your credit and keep it with you when you meet with other lenders.

A few rules of thumb:
1)FHA is the most credit forgiving program. If you have above a 620 credit score, you can usually quailfy. If you have down payment money, you may qualify for lower rates and thus lower payments.
2) Never, ever deal with a lender that you cannot meet with face to face. This is a no brainer.
3) Lending is a referral based business. Lenders that are honest and do a good job build their business on referrals from past clients. Ask your friends, coworkers and family who they would reccommend.

Most lenders are very honest people.
Good luck and feel free to post any further questions.

40&Big, gives great info. He’s a good dude and knows what he talketh about.

D

[quote]Dedicated wrote:
40&Big, gives great info.
D[/quote]

I agree and would just like to add that in a year home values are equally likely to be about the same or lower than they are now, so no rush to jump in. You may very well not be wasting money on rent.

On a personal note. When I was single and buying a house on my own it was no sweat. Later, with a wife & kids, buying my second home, I had diarrhea for at least a month. Ohh the stress that comes with being responsible for others…

Or, maybe from writing a check for friggin’ 40 grand.

with the way house prices are falling, I’d hold off a little longer if you could.

I almost bought a house in Aug, but wasn’t ready financially. It all worked out for the best, because the bubble was starting to burst then.

It’s only going to go down for the next few years. Try to time it right and you can get a hell of a deal

google dave ramsey he is the T-Nation of finance

[quote]jehovasfitness wrote:
with the way house prices are falling, I’d hold off a little longer if you could.

I almost bought a house in Aug, but wasn’t ready financially. It all worked out for the best, because the bubble was starting to burst then.

It’s only going to go down for the next few years. Try to time it right and you can get a hell of a deal[/quote]

JF is right. I just bought a house 8 months ago and what will help is not rushing it. We were in pretty much the exact same boat as you. Just wait it out, its worth it.

[quote]celibrate2047 wrote:
Has anyone had any experience in this area, and can offer some advice?[/quote]

If you can afford to put 15% down then that is what you should do. Interest rates will probably start to go back up soon as prices begin to drop more so a good credit rating may buy you a few quarter points off the interest rate. That is the main thrust of a mortgage payment.

A mortgage payment works out to be about $10 per month per $50K borrowed per 1/4% in interest; for example borrowing $100K at 6% is roughly $500/month. Then you need to figure in PMI, insurance, and taxes to get your final monthly payment. With this example it will be somewhere in the neighborhood of $800 - $900 per month depending on where in country you live.

The situation is this: HUD homes are a good deal but don’t look at it as an quick and easy investment. It is a home first and foremost. If prices continue to drop and you get in too soon you could be sitting on and upside-down mortgage. This is a situation you do not want to be in and I suspect HUD homes will be hit first as prime real estate become cheaper. This means you will be committed to the home until prices become more favorable to sell again.

You have two option and two obvious risk factors. The first is to buy now while interest rates are low with the risk of an upside down mortgage. The second option would be to wait a year or so and bring your credit score up and for prices to drop some more with the risk of higher interest rates. If you can improve your score you may be able to swing a better rate. This is not a market for sub-prime borrowers right now.

[quote]LIFTICVSMAXIMVS wrote:
celibrate2047 wrote:

If you can afford to put 15% down then that is what you should do.[/quote]

If you can put 20% down, you can usually avoid PMI. Better to save longer, as PMI is just throwing money away.

Also, as this is your first house, avoid paying down points. Paying down points will reduce your monthly payment, but unless you are planning on staying a while it can be tough to recoup. I have paid points on every mortgage I have had, then ended up moving within 2 years, thereby losing money in the long run.

I need to read slower.
I thought the thread was called “Buying A Horse”.

If you are paying off PAST DUE bills why are you trying to buy a house? Call me crazy but people in the situation you are in buying houses caused the entire credit crunch. To be honest I am amazed anyone will even give you a mortgage.

Pay your debt off, get 20% to put down and then buy a house. If you can’t afford your bills and 20% down you can’t afford the house.
Also home prices are still going to come down (for the most part) and mortgage rates have not come off as much as you would expect given all the fed cuts. I would wait another year.