Anyone with bad (or not so good) credit buy a home

[miller824]

So DH and I are starting the process to look into buying a home. I filed for bankruptcy three and a half years ago, but since then have managed to get the rest of my credit under control, and my credit rating isn't awful considering the bankruptcy. We met with the bank today, and they told us that we did qualify for a loan that is about what we were hoping for, but that the bank would require something called a mortgage insurance fee that would be about $200 a month due to our credit issues. Has anyone else had to do this or something similar? Please educate me, I'm a newbie to all of this!

[kaylie]

You're talking about PMI (private mortgage insurance).

Are you putting down less than 20%? Everyone (even those with stellar credit) pays PMI if they put down less than 20%. There are some loans that are no-PMI, but they carry a higher interest rate (so one way or another, the bank is getting their money). The cost of the PMI is determined by the % you put down (you'll pay more PMI if you put 5% down than you would if you put 10% down) as well as your credit score. You'll have to pay the PMI until you have at least 20% equity in the home, but the bank is allowed to charge you for it until you have 22% equity.

Here is what I would consider based on the info you've included here:
- Can your DH qualify for the mortgage on only his income? Taking your credit out of the equation might help.
- Can you wait another year or so to buy? Your credit could make a substantial recovery in that time and you could really be shooting yourself in the foot by taking a higher interest loan out now. Interest rates should stay low for at least another year.
- If you're considering an FHA loan, don't unless it is your only option. The fees and insurance are absurd and a 5% down payment loan would save you a lot over the course of your mortgage. With an FHA loan you MUST pay PMI for a set amount of time (I believe 5 years minimum) but with a conventional you can get out of it after six months or so.

[vanillahip]

Jul 11, 2012 2:27:55 GMT -5 kaylie said:

- Can your DH qualify for the mortgage on only his income? Taking your credit out of the equation might help.

This is the only thing I see above that could really help you. FHA loans were specifically designed for people like OP, so don't discount them, definitely look into it. They're probably not the best idea for the average buyer but it would be stupid to just not look in to it, especially when you have a bankruptcy. And one year is not going to do much when your bankruptcy was just a few years ago. GL!

[jamesonontherocks]

Jul 11, 2012 2:27:55 GMT -5 kaylie said:

You're talking about PMI (private mortgage insurance).

Are you putting down less than 20%? Everyone (even those with stellar credit) pays PMI if they put down less than 20%. There are some loans that are no-PMI, but they carry a higher interest rate (so one way or another, the bank is getting their money). The cost of the PMI is determined by the % you put down (you'll pay more PMI if you put 5% down than you would if you put 10% down) as well as your credit score. You'll have to pay the PMI until you have at least 20% equity in the home, but the bank is allowed to charge you for it until you have 22% equity.
Here is what I would consider based on the info you've included here:
- Can your DH qualify for the mortgage on only his income? Taking your credit out of the equation might help.
- Can you wait another year or so to buy? Your credit could make a substantial recovery in that time and you could really be shooting yourself in the foot by taking a higher interest loan out now. Interest rates should stay low for at least another year.
- If you're considering an FHA loan, don't unless it is your only option. The fees and insurance are absurd and a 5% down payment loan would save you a lot over the course of your mortgage. With an FHA loan you MUST pay PMI for a set amount of time (I believe 5 years minimum) but with a conventional you can get out of it after six months or so.

Question about that - so we decided we are going to pay our PMI up front but don't have an exact amount yet. We know our home is going to appraise at least 25g above what we are paying for it, does this equity go towards this amount?

[kaylie]

Jul 13, 2012 19:31:14 GMT -5 jamesonontherocks said:

Question about that - so we decided we are going to pay our PMI up front but don't have an exact amount yet. We know our home is going to appraise at least 25g above what we are paying for it, does this equity go towards this amount?

Ask your broker to be sure, but in most cases the answer to that would be no - they are only concerned with the sales price compared to the percentage of that you're putting down. There is a time frame (six months to a year, I think) after which you could refinance and your equity would be based off of that appraisal.

Is there a specific benefit to paying your PMI up front? We were advised against it since it wouldn't save us anything (it was the monthly PMI multiplied by the number of months we were expected to pay it).

If you're not getting any benefit, you might want to reconsider. If you were to go with the refinance option I mentioned above, I don't think you'd get the pre-paid PMI back.

[kaylie]

Jul 13, 2012 19:38:56 GMT -5 @crackhabit said:

Spent two years repairing my score, paying off old medical collections and waiting for them to drop off my credit report.

When we were qualified, my credit score was over 700. It is possible.

:Y: :Y:

This is what I was referring to above. I got my credit from 630 to 730 in a year. That is a world of difference when it comes to mortgage rates.

[jamesonontherocks]

Jul 13, 2012 22:36:02 GMT -5 kaylie said:

Jul 13, 2012 19:31:14 GMT -5 jamesonontherocks said:

Question about that - so we decided we are going to pay our PMI up front but don't have an exact amount yet. We know our home is going to appraise at least 25g above what we are paying for it, does this equity go towards this amount?

Ask your broker to be sure, but in most cases the answer to that would be no - they are only concerned with the sales price compared to the percentage of that you're putting down. There is a time frame (six months to a year, I think) after which you could refinance and your equity would be based off of that appraisal.

Is there a specific benefit to paying your PMI up front? We were advised against it since it wouldn't save us anything (it was the monthly PMI multiplied by the number of months we were expected to pay it).

If you're not getting any benefit, you might want to reconsider. If you were to go with the refinance option I mentioned above, I don't think you'd get the pre-paid PMI back.

We are paying up front because minimizing our monthly costs to us is more important - if i put enough down to avoid pmi, my emergency fund would be getting too low for comfort. But my largest monthly cost is daycare for 2 (almost 1.5x mortgage and taxes).

[sillygoosegirl]

Can you wait to purchase until your credit is better and you have enough cash for 20% down plus a good cushion. In the long run, I think that's probably your best move financially.

[boiler717]

Jul 13, 2012 19:31:14 GMT -5 jamesonontherocks said:

Jul 11, 2012 2:27:55 GMT -5 kaylie said:

You're talking about PMI (private mortgage insurance).

Are you putting down less than 20%? Everyone (even those with stellar credit) pays PMI if they put down less than 20%. There are some loans that are no-PMI, but they carry a higher interest rate (so one way or another, the bank is getting their money). The cost of the PMI is determined by the % you put down (you'll pay more PMI if you put 5% down than you would if you put 10% down) as well as your credit score. You'll have to pay the PMI until you have at least 20% equity in the home, but the bank is allowed to charge you for it until you have 22% equity.
Here is what I would consider based on the info you've included here:
- Can your DH qualify for the mortgage on only his income? Taking your credit out of the equation might help.
- Can you wait another year or so to buy? Your credit could make a substantial recovery in that time and you could really be shooting yourself in the foot by taking a higher interest loan out now. Interest rates should stay low for at least another year.
- If you're considering an FHA loan, don't unless it is your only option. The fees and insurance are absurd and a 5% down payment loan would save you a lot over the course of your mortgage. With an FHA loan you MUST pay PMI for a set amount of time (I believe 5 years minimum) but with a conventional you can get out of it after six months or so.

Question about that - so we decided we are going to pay our PMI up front but don't have an exact amount yet. We know our home is going to appraise at least 25g above what we are paying for it, does this equity go towards this amount?

No, they use the lesser of the sales price or the appraisal for determining LTV. We were going to buy our PMI upfront, but because the appraisal is so much more I think it's going to work out better to refi later even though it means paying closing costs again.