Another edition of ‘Carmen Answers’ today—Thank you so much for your great questions and comments. Keep ‘em coming!
My husband and I are looking to buy our first house. We know that the market is really difficult for buyers and sellers alike. My question is, are there any programs out there for first time homebuyers with not so perfect credit? Is there anything that we should be doing, other than working on getting our credit scores up; which is what we are currently doing. What should our credit score be, realistically, to even be considered for a mortgage in this difficult time? --Nicole
Nicole—I’m giving you a high five for working on getting your credit together and asking good questions about heading into your first mortgage. And yes, there are still mortgages out there for nearly anyone if you look ‘low’ enough—meaning subprime—but that’s exactly what you want to avoid. You want a straight-up 30-year fixed mortgage or even a 15-year fixed. Adjustable rates and interest only are gambles that most can’t afford to take right now, or ever. Let’s leave funky mortgage products to the pros and set ourselves up with the most solid, sure and recession-proofed thing, a fixed-rate mortgage.
If you check out MyFico.com you can see that a credit score above 760 tends to get you the best interest rate. Anything at or under 600 slams you with substantially more interest (an additional $1,000 or so every month on a $300k, 30-year mortgage). Realistically, I’d love to see your credit score at or above 660 before you start mortgage hunting. And in terms of programs for first-time buyers, head to the FHA which has specific programs to help out first-timers.
Remember: Don’t buy too much house! Make sure your mortgage payment, taxes and insurance are around 30% or less of your take-home monthly income—more than that and you won't have enough wiggle room for monthly expenses plus saving, getting rid of debt and investing. Keep me posted! --C
Last year I lost my condo to foreclosure with Wells Fargo. My job was outsourced and I could not recover fast enough. I was wondering how hard it is going to be for me to purchase another home in the future and is there anything I should be doing now to prepare? --Chris
Chris—Keep up the fight. If you stay on any loans or debt you have now--pay everything on time, every time, bring your debt levels down and work on accumulating some cash--you’re going to be in great shape soon. In the past, foreclosure was a 10-year Scarlet “F”. You wouldn’t be able to own a home for another decade. Times have changed and the lending market has adapted. With three million homes foreclosed in three years (you are far from alone)—many not due to greedy borrowers with eyes bigger than their wallets but to personal setbacks or a lack of understanding of terms—foreclosed-on home-buyers are welcome back into owning after two to three years.
Note, however, that you may not get the best mortgage terms after a couple of years because your credit is not the best yet. But at least you’re not frozen out for what seems like a mighty long parole. Time, and diligence, can heal many wounds, including this one. Good luck! --C
Thank you, thank you, thank you, for providing the "back to fundamentals" answer - - buy what you can afford and know what that amount is for the life of the loan....be prudent and smart and ....."fix" it!!
It's an ugly market for some - now is the time to be smart.
Thanks again. --Doug, MN
Posted on: 15 Jul 2008 9:45 P.M.
You gave great advice telling a 1st time buyer to improve their credit score. You should know that scores under 720 are subject to a higher rate; the rate increases at 680, 660, 640 and 620. FHA still allows you to out down approximately 3%, but with mortgage insurance. I do have to ask why you even mention a 15 year loan? Most people are struggling to qualify on a 30 year ammortization and most likely would not be able to handle the significantly higher payment. They would be better of taking that diference and having and funding an emergency or savings fund. Thank you. --Florian, IN
Posted on: 16 Jul 2008 6:29 A.M.