Think any bank would give me a house loan?

[thedarkwolf]

I am a 25 year old single male with no debt and very little credit history.

Heres the deal for the last 3 1/2 years or so I have been living/renting with a married couple while we were all going to school. Now we all make decent money and are getting kinda tired of living together. I make around $20k before taxes a year so I am not exactly rich but since I have no car payments or anything I do pretty well. I was just planning on renting again for around $400 a month but most of the houses that go for that are maybe $25k-$35k houses and generally are not that nice, plus I want my dogs and most places don't allow pets. I figure I can get a pretty decent house around here anyway for $30k-$40k and get a 30 year loan and have pretty low payment. I have atleast another 3 years of school to go and probably closer to 5 so I figure it would be a hell of a lot cheaper to just go ahead and buy. Then in a couple years if I for some reason decide to keep the place I could refinace it for 15 years and actually pay the thing off. Also I dought the house would be worth less in 3-5 years unless something drastic happens and I could just turn around and sell it when I am done. The problem is atleast right now I don't have much for a down payment but in a couple months I could probably come up with $5k or so. I am also in a credit union and have payed off 2 small loans from them so I would probably try them first.

 

[Harrald]

Try to come up with about $12k. That's 20% down and closing costs. That will make you a better risk. Also don't buy a car or build up and monthly payments until after you buy the house. They will look at your monthly payments also. The credit union is the best place to start. The closing costs should be about $3k-$5k depending on points and other (to many to mention here) things.


Good luck

 

[Rudee]

<< I figure I can get a pretty decent house around here anyway for $30k-$40k >>



$30k-$40k????? That's unbelievably cheap. Where do you live?

The average price of homes here in Calgary, AB is $160k. I purchased my condo for $129k two years ago, and I only earn $45k/yr

 

[thedarkwolf]

Didn't even think of closing cost. It would probably take me awhile to come up with $12k unless I go to Granny for a loan which I could probably do but don't want to. My parents seem to think its an ok idea but also said I would probably need $10k down too. Luckly I just bought a 93 nissian truck and paid cash and its in really good shape so I am probably set vehicle wise for atleast a couple years. I am in no hurry to move yet so I am just floating ideas out there at the moment.


edit
I live in Wv and housing cost here are pretty low . My parents about 3 years ago bought a 3br, dinning room, 2 car port, out building, about a half basement, hardwood floors, large yard, ect for $40k. We had to put about $10k into but its still pretty good.

 

[Rudee]

5% down should be the minimum. Shoot for 10. Owning a home isn't cheap. The price of natural gas here in Calgary has doubled in the last few months, and these Canadian winters can be hard on the fuel bills. Don't forget about property taxes.

 

[thedarkwolf]

Didn't think of home owners insurance either. About how much does that cost?

 

[kranky]

Homeowner's insurance isn't very much. Probably under $200 a year.

 

[rahvin]

Things that make up a mortgage.

The mortgage payment, this includes interest and principle payments.
Private Mortage Insurance (PMI, it's required if you have less than 20% paid off, typically $50-100 a month)
Fire and theft insurance.
Flood insurance if you are in a federally designated flood plain.
Property taxes.

Things in addition to the mortgage:

Utility bills.
Maintenance items (like lawn mowers).
Furniture (want an empty house?)
etc..

General rule of thumb is the bank won't loan you money if the loan payment is more than 40% of your salary, exceed that and they will bump the interest rate or make you carry PMI longer (if they even loan it to you).

 

[Anyone2u]

OK, I'll be happy to help you out as I do this all day long (and have for the last 13 years). There are three &quot;variables&quot; that determine whether you will get a mortgage or not: Credit, Assets, and Income. There are also two basic types of loans out there: Conventional: FNMA (aka Fannie Mae) and FHLMC (aka Freddie Mac) and Government:FHA and VA. Since I personally can't stand dealing with government loans (think of a bank run with all of the government red tape), I will only be addressing conventional loans.

Credit: When you say &quot;very little&quot; credit, what do you mean? Most loans are usually underwritten to FNMA and FHLMC guidelines as they are the ultimate &quot;purchasers&quot; of most mortgages (~75%). Both agencies require a minimum of three credit references to obtain financing. Obviously most revolving credit cards are acceptable sources of credit, as well as any installment loans(ie school, auto, personal, etc.). But there are other &quot;alternative&quot; means of credit. Do you have any utilities in your name? Cable, telephone or even an ISP works. I have even gotten references from auto insurance companies and child care providers. If you can prove (either by a letter or cancelled checks, etc.)that you have made timely payments (no payments over 30 days late) then this will usually work. I cannot tell you how many loans I have done using this type of documentation. One or two 30 day lates isn't the end of world, but if you only have three credit items and two of them have late payments then you may have problems...

Assets Just about everyone can get away with putting 5% down these days. The only problem with putting less than 20% down is that you must insure the loan against default if you put less than 20% down. This insurance is called PMI (Private Mortgage Insurance) and with 5% down adds approximately .75% to your interest rate(before you complain, prior to the advent of PMI you had to put at least 20% down to buy a house)! So you decide whether you want to give your money to your landlord while you try to save 20% or bite the bullet and get PMI. There are some ways to avoid PMI, and some programs with 0-3% down, but I'm trying to keep this simple. You should also note that the 5% you are putting down, must be your own money (ie in YOUR bank account for at least 60-90 days). There is an exception to this rule though: If you put at least 20% down then the entire amount can be a gift from a blood relative.

Income: This is a little more tricky because there are a couple of variables that I don't know. How much are the property taxes per month/year? I have taken a wild guess of $100 per month. Insurance where I live is (very roughly) $400 per year, but that is on a house worth anywhere from $200,000 - $400,000. Insurance covers more than rebuilding the house if it is destroyed. It covers liability of other people on your property, theft, etc. In your case I have used a figure of $240 (based on a complete guess)per year ($20 per month) until you check with an insurance agent. You also mentioned that you don't have too much other debt so I will assume a figure of $50 per month. This &quot;other&quot; debt includes revolving charge cards, installment loans, student loans that are due within one year, loans taken out against your retirement plan that show up as a deduction on your paycheck, alimony/child, etc. etc. etc. This &quot;other&quot; debt does not include installment loans with less than 10 payments left, utilities, daycare or a loan from your parents, friend, or any other &quot;non-credit&quot; reporting company that you forgot about .

Calculation Time:Your monthly debts including the mortgage principle and interest (called P&amp;I), property taxes, homeowners insurance, private mortgage insurance (PMI) and other monthly debts can be approximately 40% of your gross income. In your example you stated that you made ~$20,000 per year or $1667 per month. Multiplying that amount ($1667) X 40% equals $667 per month. Now you must subtract the taxes ($100) insurance ($20) and the &quot;other&quot; debt ($50). This leaves you with $497 for the P&amp;I and the PMI. Allowing .75% for the PMI, you could qualify for a mortgage of $65,000 at a rate of 7.25% for 30 years. This would require a downpayment of $3421. The total payment for the house would be $605.66 (PMI isn't &quot;exactly&quot; .75%, it's less) and your other debt would be $50. $655 divided by your monthly income equals 39% so it checks out. Increasing the rate to 7.5% only changes the payment to $616.74 so there is no need to panic if rates go up a little (most of my clients contemplate suicide before they find this out). You can also extrapolate up (or down) allowing approx. $9 per quarter percent change. As far as the loan amount is concerned, borrowing $1000 at 7.25% equals $7.47 (including the PMI) so if you want to calculate how much a mortgage of $30,000 would be (assuming taxes and insurance remain the same), just multiply 30 X $7.47 which equals $224.10. Add to that the taxes and insurance figure of $120 and your mortgage payment would be $344.

Obviously there are certain items I have missed and, as someone else had mentioned, your utilities and other monthly expenses should be taken into consideration. Hopefully this gives you a rough idea of where to start. Unfortunately I won't be able to respond to any questions or other scenarios that this may have raised until later tomorrow, but I doubt that you will be attempting to buy a house tomorrow...this morning! Feel free to email me with any questions that you may have that you don't feel like posting here.

EDIT: I just noticed that you live in Canada and since these are American &quot;rules&quot; I'm not sure if they will help you out. Maybe someone can use this information.

 

[OS]

<< I figure I can get a pretty decent house around here anyway for $30k-$40k >>



That'll buy you maybe a telephone booth anywhere where there are people in CA

 

[Rudee]

It looks as though he doesn't want to tell us where he lives.

 

[thedarkwolf]

I live in West Virginia and by pretty decent I mean pretty decent for a sigle guy . A real small 2 br house that needs a little work and isn't in the greatest area. I guess everybody missed my edit in my second message.

Thanks Anyone2u thats a whole lot more info than I was expecting.

Last night before I went to bed I found a house for rent that will hopefully meet my needs and I wont have to worry about this.

beautifull country setting 2br, 2 car gar, w/d hookup, kit furn, cent h/a $380 a month.

Now if it just has a decent sized fenced yard and allows dogs it will be perfect. It would also be nice if it isn't a $hithole but allows dogs and fenced yard are a lot higher up my need list and the garage would be a huge plus.

 

[RoadRuner]

to get a decent rate, make sure your credit score is top notch.

you should have about 2-3 credit cards, all with near balance, perhaps about $15-20,000 in available credit.

The banks will bless you with low down and low interest which is what you need to pull it off.

shouldn't be hard.

btw, what house is $30k? I can't imagine anything around here (atl).
even in the stix houses are like $150K, a small 2br house down here is well over $300k/

 

[thedarkwolf]

A REALLY nice 2br here goes for around $40k-$60k. Its one of the plusses of living in a crappy state.

Hopefully a link to our houses for sale clasified section