8

I am eager to buy a home within the next year. My husband and I are in the process of fixing credit. I am interested in learning more about the USDA loans and think that this would be the best type of loan for us because we do not have down payment money. The last bit of our funds on hand will go towards cleaning the last bit of our credit up. I have a current credit score of 663 and my husband has a 600. We expect this to rise a lot soon due to the final clean up on our credit and the purchase of a new car with a loan of 15,000. I was told once monthly payments are paid on time to this loan expect a great leap on our credit scores.

I make 36,000 a year. My husband makes 46,000 a year. I have a monthly car payment of 271.00. My husband has weekly child support payments of 115.00. We both have a credit card (each) with less then 60.00 total due each month. Credit card payments are made before due date monthly.

I have 36,000 worth of student loans. I make monthly payments right now of only 50.00 a month.

How realistic is it that I will be able to get a home within the 250,000 range in the next year or so? And, from this quick snap shot of our finances, does it look like we would be able to qualify for a USDA loan?

I hope that someone out there can help me. No one in either of our families have ever purchased a home and we are trying our best with our limited knowledge to make this dream come true for us and our children.

Thank you

  • 3
    How many people are in your family and where do you plan to buy the house. Based on your income it is likely you make too much money to qualify for a USDA loan.The location will also affect the max loan you could get.Also, are you making minimum payments on your credit cards? – JohnFx May 12 '16 at 15:24
  • 1
    $115/week is almost $6k, or $500/mo. That's quite a bit... – Canadian Luke REINSTATE MONICA May 12 '16 at 21:57
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    "once monthly payments are paid on time" do you have late payment on your credit report? This doesn't just fall off the day you start making good payments, it will be there for 2 years, at least. – JTP - Apologise to Monica May 13 '16 at 14:58
  • @CanadianLuke: Depending on where they live, the child support payments might actually be on the low side. – NotMe Sep 7 '17 at 15:26
  • @NotMe Personally, that scares me... When I was making under $30,000, my child support payment was only $250/mo – Canadian Luke REINSTATE MONICA Sep 7 '17 at 17:34
48

IMHO you are in no position to buy a home. If it was me, I'd payoff the student loans, pay off the car, get those credit card balances to zero (and keep them there), and save up at least 10K (as an emergency fund) before even considering buying a home.

Right now you have no wiggle room. A relatively minor issue with a purchased home can send you right back into trouble financially. You may be eager to buy, but your finances say different.

Take some time to get your finances on track then think about buying.

You can make a really good long term financial decision with no risk: pay off those credit cards and keep them paid off. That is a much smarter decision then buying a home at this point in your life.

21

If you even qualify for a no-down payment USDA loan, which I'm not sure you would. It would be extremely risky to take on a $250K house loan and have near-zero equity in the house for a good while. If property values drop at all you are going to be stuck in that house which likely has a pretty high monthly payment, insurance, taxes, HOA fees, maintenance costs, etc.

My rule of thumb is that if you can't come up with a down payment, then you can't afford the house. Especially with that much debt hanging over your head already. If one major thing goes wrong with the house (roof, A/C, electrical, etc.) you are going to put yourself in a world of hurt with no clear path out of that financial trap.

My suggestion: Keep renting until you have enough money for a downpayment, even if this means downsizing your price range for houses you are considering.

18

You probably won't get a mortgage.

UDSA has a 41% ratio of monthly debt to monthly income limit, and a score of 660 or better.

A 250,000 mortgage at current rates for 30 year mortgage is about $1560/mo. (included in this figure is the 1% mortgage insurance premium, the .4% annual fee, the current rate for a 660 credit rating, the 2% points fee added at the front of the mortgage, typical closing cost added to transaction, and the .5% fee for over-mortgage insurance for the first 3 years since your mortgage will be higher than the value of the house due to these additional fees)

Credit card payments = $120 ($60 times 2) Car payments = $542 ($271 for your car, $271 for the car you will be getting) Student loan = $50/month Child Support = $500/month Total = $2772/month

Your income per month is 82000/12 = $6833/month

$2772/$6833 = 40.6%... This is awfully close to the limit, so they likely would also look at your ability to save. Not seeing savings in the above example, I assume it is low. USDA site

One mortgage help site breaks down some of the requirements into layman's language.

Not knowing your exact location (county/state) and how many children you have, it is hard to be sure whether you make too much to qualify. This link shows the income limits by number of people in the house and the county/state. There are few places in which you could be living that would qualify you to any of their programs unless you have a several children.

As others have posted, I suggest you get your debt down.

  • I wondered whether child support was included in the DTI calculation, but it seems that it is (at least for Fannie Mae, and I assume their rules are similar to USDA's). By the way, your "USDA site" link doesn't actually go to the USDA site, but to a third party. – Nate Eldredge May 13 '16 at 5:04
  • Fixed USDA link and added info about income limits. – Keeta May 13 '16 at 10:51
  • +1 for addressing the USDA qualification issue, which was after all the OP's question. – Karen May 13 '16 at 13:58
3

I'd like to suggest a plan.

First, I know you want to buy a house. I get that, and that is an awesome goal to work for. You need to really sit down and decide why you want a house. People often tell we that they want a house because they are throwing their money away renting. This is just not true. There is a cost of renting, that is true, but there is also a cost of owning. There are many things with a house that you will have to pay for that will add little or no equity/value. Now that equity is nice to have, but make no mistake under no circumstance does every dime you put into your house increase its value. This is a huge misconception. There is interest, fees, repairs, taxes, and a bunch of other stuff that you will spend money on that will not increase the value of your home. You will do no harm, waiting a bit, renting, and getting to a better place before you buy a house.

With that out of the way, time for the plan.

Note: I'm not saying wait to buy a house; I am saying think of these as steps in the large house buying plan.

  1. Look for homes for rent. Not apartments. Get your stuff together and find a house in your target area that you can rent for around $1,000 (it seems right for your income). The reason is that renting a home is like home ownership lite. You will get a taste for lawn work, and home repairs, and all that. Even if your landlord is handling the repairs, it's a much different situation than apartment living. You still have to wait for a plumber; there is not one on staff. Also, you get to put down roots in the neighborhood, you get to see what it's like, you get to know your neighbors, your stores and everything else. A lot of people buy without doing this only to find that they are in an area they hate. Bonus: After a few years your landlord may sell you the house you have been renting. Don't count on it, but it is possible.
  2. Get your current debt under control. Your credit score doesn't suck, but it's not good either. It's middle of the road. Your going to want that higher if you can, but more importantly than that, you want to get into a pattern of making debt then honoring it. The single best advise I can give you is what my wife and I did. Get a credit card (you have one; don't get more) and then get into a habit of not spending more on that credit card than you actually have in the bank. If you have $50 in the bank, only spend that on your credit card. Then pay it in full, 100%, every payday (twice a month). This will improve your score quite a bit, and will, in time, get you in the habit of buying only what you can afford. Unless there has been an emergency, you should not be spending more on credit than you actually have.

  3. Your car loan needs to get under control. I'm not going to tell you to pay it off completely, but see point 2. Your car debt should not be more than you have in the bank. This, again is a credit building step. If you have 7.5k in the bank and own 7.5k on your car, your ability to get a loan will improve greatly.

  4. Start envelope budgeting. There are many systems out there, but I like YNAB a lot. It can totally turn your situation around in just a few months. It will also allow you to see your "house fund" growing.


Breaking Point

So far this sounds like a long wait, but it's not. It also sounds like I am saying to wait to actually buy a house, and I'm not. I am not saying get your debt to 0, nor do I think you should wait that long. The idea is that you get your debt under control and build a nice solid set of habits to keep it under control.


  1. Start looking for a house, don't commit, don't waste other's time, but start looking. See what features are common, get a good feel for price range. If there are open houses, go looking. This phase can take months or years. Start looking, find what you like and what you don't like. Find what will be in your perfect house. There is no reason to settle. A lot of people settle, be patient, and educate your self (on houses) and you can learn to pick your perfect house. The great part is that you can do this while you're doing the other parts, and this will help keep you focused. Just make sure to let the agents know you're not interested in buying right now and are just looking. Don't waste their time. You will also be building a relationship with them, and you don't want it to be a bad one.
  2. Save the down payment. In addition to having your debt under control you should try to have a down payment. 10% - 20% down is a wonderful thing. That means you should try to save till 30k, but be ok "going" at around 15k. Now I know that sounds like a lot, but it's not. At your combined income, it's very doable in six months if you didn't have all that other debt. With your current debt it is going to take longer, but not as much as you think. And as I said, you will probably be looking for that long anyway. This is the crappy step. Every time you do something you have to say to each other "Do we want that house sooner, or shall we go out to dinner."

A look at your finances at this point

Now, at this point you still have debt, but your credit cards are at 0 and have been, every payday for a few months. Your car loan still exists, but you have money in the bank to cover this debt, and you could pay it off. It would eat your nest egg, but you could. You also have 15k set aside, just for the house. As you take longer looking for that perfect house, that number keeps growing. Your bank account now has over $25,000 in it. That's a good feeling on its own, and if you stick with your plan, buy your house and put down $15k, you still have plenty of wiggle room between credit cards that are not maxed out, and a $7.5k "padding" in case the roof falls in.

Again it sounds like I'm saying wait. But I'm not, I'm saying plan better. All of these goals are very doable inside one year, a rough year to be sure, but doable. If you want to do it comfortably, then take two years. In that time you're looking, searching and learning.

2

All the above advices plus this: For you first house, you should start smaller. Buy a 100k or less condo if possible, then grow from there. You sell every 5 years or so when the market is favorable and you will slowly get to that nice 250k house.

  • 5
    I don't like the condo idea. You could buy more home instead of paying the HOA fee. In most cases condos do not appreciate anywhere near the rate of homes. – Pete B. May 12 '16 at 20:23
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    A nice benefit of the low price home is it can be, and likely will be, a fixer-upper. With your sweat equity, you can do work yourself and add home value beyond your day jobs. Plus, that value gain is a capital gain when you sell, and that's tax free for the home you lived in. (in the US) – donjuedo May 12 '16 at 21:25
  • @PeteBelford, I agree with you about the home choice, a condo. It's easy to bleed a lot with those fees. – donjuedo May 12 '16 at 21:27
1

Just general advice but you should pay off your credit cards and car loans before buying a house. Or you may be able to add some extra on to the mortgage to pay off your credit card and car debt right away.

Credit card interest rates can be ten times the interest rates on mortgages and car loans are not far behind. The sooner you get them paid off completely the sooner you will have enough money for mortgage payments.

0

How realistic is it that I will be able to get a home within the 250,000 range in the next year or so?

Very unlikely in the next year. The debt/income ratio isn't good enough, and your credit score needs to show at least a year of regular payments without late or default issues before you can start asking for mortgages in this range. You don't mention how long you've been employed at these incomes, this can also count against you if you haven't both been employed for a full year at these incomes. They will look even more unfavorably on the employment situation if they aren't both full time jobs, although if you have a full year's worth of paychecks showing the income is regular then that might mitigate the full time/part time issue.

next year or so?

If you pay down your high interest debt (car, credit cards), and maintain employment (keep your check stubs and tax returns, the loan officer will want copies), then there's a slight chance.

And, from this quick snap shot of our finances, does it look like we would be able to qualify for a USDA loan?

Probably not. Mostly for the same reasons - the only time a USDA loan helps is when you would be able to get a regular loan if you had the down payment.

Even with an available down payment of 50k, you wouldn't be able to get a regular loan, therefore it's unlikely that you'd qualify for a USDA loan.

If you are anxious to get into a house, choose something much smaller, in the 100k-150k range. It would improve your debt/loan ratio enough that you might then qualify for a USDA loan. However, I think you'd still have issues if you haven't both been employed at this rate of income for at least a year, and have made regular payments on all your debts for at least a year.

I'll echo what others have suggested, though, strengthen your credit, eliminate as much of your high interest debt as you can (car, credit cards), and keep your jobs for a year or two. Start a savings plan so you can contribute a small down payment - at least 3-5% of the desired home price - when you are in a better position to buy. During this time keep track of your paycheck stubs, you may need them to prove income over the time period your loan officer will request.

Note that even with a USDA loan you still have to pay closing costs, and those can run several thousand dollars, so don't expect to be able to come to the table with no cash.

Lastly, there's good reason to be very conservative regarding house cost and size. If you can, consider buying the house as if you only had the 46k per year. Move the debt to the person making the lower income, and if you buy the house in the name of the person only making 46k per year, then the debt/loan ratio looks very positive. Further it may be that the credit history of that person is better, and the employment history is better. If one of you has better history in these ways, then you might have a better chance if only one of you buys the house. Banks can't tell you about this, but it does work. Keep in mind, though, that if you two part ways it could be very unhappy since one would be left with all the debt and the house would be in the other's name. Not a great situation to be in, so make sure that you both carefully consider the risks associated with the decisions made.

-2

Sounds feasible. I make $45000 a year, with two car payments, credit card and student loan debt. Also, my wife doesn't work. I was approved for a $116000 house with a USDA loan. There are limits or how much debt you can have when applying for a USDA (sorry, I can't remember off the top of my head) and you'll also be getting the house inspected under different regulations.

For instance, we couldn't get approved until the seller put a handrail on a set of exterior stairs. That regulation is specific to USDA along with a few others.

I'm living in southern Indiana and this just happened a couple months ago for us.

Make sure you have some money set aside for various things like a lawn mower and if the siding blows off the night after you move in (yup, that happened). Also, shop around for homeowner's insurance. We did some hunting, and we found a provider who was willing to price match and ended up saving some money on our car insurance as well.

  • 1
    Keep in mind that just because you are approved for some maximum amount doesn't necessarily mean that you can really afford that much house... I'm glad you seem to be making it with your situation, but I would suggest that an 80K income with the amount of payments OP already has, may not be enough to comfortably finance a 250K home... – sǝɯɐſ May 12 '16 at 21:01

protected by Chris W. Rea Sep 6 '17 at 16:14

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