Jimmy B asked:
1) My credit score is 612 (Im working on improving it right now), and my wife’s is above 700. We will be looking to apply for a home mortgage mid-2009. Our combined income is over 100,000, and we are first time home buyers. We plan to apply through our credit union for the mortgage. Will we be approved?
1) My credit score is 612 (Im working on improving it right now), and my wife’s is above 700. We will be looking to apply for a home mortgage mid-2009. Our combined income is over 100,000, and we are first time home buyers. We plan to apply through our credit union for the mortgage. Will we be approved?
2) Also, need help understanding debt-to-credit ratio. Will our student loans affect our chances of being approved? (we are not late on any payments)
3) Also, I am an authorized user for my wife’s credit card, so my debt-to-credit ratio is higher because she has almost maxed it out. Should I be taken off the card so my ratio goes down?
FLOYD
BORIS
your debt to income ratio is very important. What you do is take gross monthly income and compare it to monthly out go that reports to your credit file. Yes student loans will count as will car notes and card monthly notes. So if you have say 600 monthly bills with an 8300 income your current ratio is 7.2% then add in a proposed house note say 1000 then you will have 19% ratio. Only you know for sure what you owe but you just have to figure it out. As for the cards that are maxed out pay them down to less than 1/3 and your scores will go up very soon
Comment by golferwhoworks — June 19, 2009 @ 4:15 pm
CHRISTIAN
1) Keep working on your score. Your wife’s score is good, but you will get better rates if you can get above 720. You can still get approved once you are above 620, but will get much better rates the higher you can get your score. You said that you are first time homebuyers; make sure you do some research on the $7500 tax credit that you might qualify for. Be aware though that it is essentially a 15 yr interest free loan, and you will need to pay it back $500/yr on subsequent taxes. Credit Unions are a good place to start. They will usually approve members that have a harder time getting financing because they typically service the loan in house and they have history with you. But if your scores are 700+ you owe it to yourself to shop a few brokers/banks to see what else you can get.
2) Student loans will be calculated into your DTI (debt to income) ratio. If you make 100k then your monthly income would be $8333. The benchmark DTI right now is 36%. what that means is lenders do not want you to be paying more than 36% of your total monthly income towards debt (including your new house payment). So take your monthly income times 36% and you get $2999. Subtract what you are paying each month for car, personal loans, credit card, student loans, judgements/liens, child support from that figure and that is what you can afford for a house payment. Take that amount and divide it by 1%, that is the amount you can safely afford for a home loan. I emphasize the word “Safely”. Of course everyone wants more and will push that figure higher, do so with caution.
3) Most loans will look at both you and your wifes credit. Especially if you will be using both incomes. So regardless if you are taken off of the card, the balance will still come into play. I advise you to pay it down a ways, but dont pay it off or close it. You will want the history of payments if good, but it is also bad to show a lot of available open credit. Best to show some balance.
Comment by subijmt — June 21, 2009 @ 2:52 am
JAIME
1. Your credit score wouldn’t be enough to get a good rate on a mortgage, but your wife’s is pretty decent. The unknown part of this question is the amount of the mortgage. Could you get approved for $100,000 mortgage – most likely. A $500,000 mortgage – no way no how.
2. Your student loans will not affect your chances of being approved, but will affect the maximum amount you can borrow. Banks used to use the 28/36 rule and more are returning to it every day. This means that your housing payment (including principal, interest, taxes, insurance and PMI [private mortgage insurance, if needed]) has to be less than 28% of your gross monthly income.
All of your debt payments have to fit under 36% of your gross monthly income. If your debt payments (student loans, credit card minimums, car payments, personal loans, etc.) exceed 8% of your monthly gross income, it will start to reduce the maximum amount you can borrow. Your credit score plays a role here too, as the lower the credit score the higher the interest rate and that leads to less money being able to be borrowed for the same payment.
3. It shouldn’t matter anymore. The credit bureaus have stopped looking at authorized use/users because there was a lot of fraud going on there. The real issue is that is hurting her credit and the credit card payment will affect your maximum amount to borrow.
good luck!
Comment by Rush is a band — June 21, 2009 @ 8:03 pm