Qualification amount

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  • #40400
    kirkan1981
    Member

    Help! I just left my first intake meeting and wow is all I can say. I don’t have a lot of action things to complete which is great but I only got approved for under 100k for a home. Their is no home in my area for that amount. I also need to be in a great school district as I have two boys. What are my options at this point? I know I’m not taking in a lot of money but I thought I made decent money. I know my carnote is a nice chunk out of my take home but I also get yearly bonuses and monthly bonuses. Can someone please point me in the right direction on what to do next?? I don’t want a home that I cannot afford but I know I can afford more than a 70k home.

    #40403

    If you’re receiving monthly bonuses and yearly bonuses, you can use those to buy down your interest rate, effectively allowing you to purchase a more expensive home for the same monthly payment. Work with your MC to come up with the numbers you’ll need. For a 30-year loan, each 1% of your desired purchase price will reduce the rate by .25%. It may take you a while, but that’s the way to work with your income limits and still get a higher priced home.

    As you also mentioned, you could think about slashing your debts. Could you trade this car in for something cheaper, either to lower your monthly payment or to buy a used car outright with the difference?

    Here are some things my husband and I did to pay our credit card debt off and then start saving our buydown. We went a little crazy, so just pick what would work for you:

    — cut out netflix and all internet subscriptions (we never had cable, but obviously that too)
    — cancel landline and get cheapest internet in town
    — cut out any other monthly bills that aren’t necessary purchases
    — call for lower car insurance quotes (we got a much better quote with Geico than we had with State Farm)
    — slash your data and go with a different cell company. Cricket, T-Mobile, O2, etc. Combine into a family plan. We now pay $30 per line for 2gb data. (and could do even less, but this plan suits us well).
    — buy groceries in bulk. Expensive at first, but saves money in the long run. Sam’s Club/Cost-Co, etc.
    — stop eating out, including takeout/pizza
    — stop buying clothes
    — invite friends over instead of going for drinks or dinner
    — cook cheaper meals. Rice dishes, bean dishes! bulk oats for breakfast instead of packaged cereal.
    — DIY haircuts. This sounds extreme, but I learned on Youtube how to cut both my husband’s and my dog’s hair, saving us $600/year, after a $45 investment in clippers and shears second hand on ebay.
    — turn down the heat/AC; dry clothes on the line/rack. You can actually save measurably that way.
    — make more money with odd jobs. We tried Rover pet sitting, but a dog bit me first go, so that didn’t take off. My husband sells his blood for research ($50 every other month, his beer money). (We were both doing it, but apparently I have a heart valve problem, so I had to stop). Plasma donation is a related quick way to get spending cash, for example.
    — stop giving gifts that cost money. We told everyone we were in savings mode, and gave them homemade jam/baked goods or a nice card instead of gifts whenever the gift-giving occasion would allow it.

    good luck!

    #40405
    kirkan1981
    Member

    She told me that even buying down to the lowest on a 30 year loan would not get me much more. She didn’t even mention one thing about slashing debt. I asked her what steps can I take to qualify for more? She said I need to earn 1k more a month. After I told her about my yearly bonus she said that ups my income some. Along with the monthly bonus. I have three credit cards one is almost paid off the other two I am working on. She said that since the amount of them is so low it really does not matter. She said I can refinance the car. I just got the car last year before I even thought about this program. I have already cut Netflix and not above cutting anything more but she made it sound like that wouldn’t help. Do you know the ratios? I’m going to have to add my paycheck stubs up and look at my dti. Is dti based off of net or growth? My mind is just all over the place. I feel like my American Dream is going down the toilet!

    #40425
    kirkan1981
    Member

    Anyone?

    #40426

    Refer to p. 18-19 of the homebuyer’s workbook (from the workshop) for details.

    Your max is 31% of your 12 months of income — add up the gross (pre-tax) amount on your paystubs. Alternatively, since it’s tax season, you can look at your total income on your 1040 if you’ve filed already.

    If you make $50K a year, $50000 x .31 = $15,500 per year on mortgage(with taxes/insurance/interest) = $1291 per month.

    Also, add up all your monthly debt obligations (student loans, credit cards, personal loans, car payments, etc). Your total monthly all inclusive mortgage payment combined with your monthly debts has to be less than 40% of your gross income.

    So if you make 50K a year, your total mortgage payment + monthly debts cannot be more than 50000 x .4 = $20,000 per year, or $1666.67 per month.

    So if your debts are less than ~$376 per month (1667 minus 1291 = 376 — based on this 50K hypothetical income, not your actual income), then it’s not affecting your affordability. But if your debts are more than that, debt reduction would really help.

    If debt reduction isn’t the problem, then focus on increasing your income and saving extra money, which you can put toward the buydown, perhaps get matching grants from your community or the bank, and also put extra toward principal reduction (down payment).

    Other loan programs might allow you to go up to 36% of your income, but that’s really risky when you are at the lower end of the income spectrum be because it doesn’t leave you a ton of flexibility when emergencies or home repairs arise.

    Good luck!

    #40429
    kirkan1981
    Member

    Thank you for taking the time to write all of that. From my calculations (not sure if I did it right and I used the amount off my taxes as I already filed) I should be able to afford the amount I was looking for. But I guess my other question is what is considered “debt” what about the fluctuating bills like lights, water? Do I include those? Or only my car note and credit cards? So if it includes bills that fluctuate I go back to my original question as to why my MC didn’t go over eliminating some of those bills to qualify for more? I’m just confused on what all she used.

    #40432

    You are welcome! I ask a lot of questions on the forum, so I try to give back some of what I’ve learned. (Also, I am procrastinating from other pressing work tasks that are less fun than thinking about homes.)

    My understanding (someone correct me if I’m wrong), is that monthly debt is not your utilities and expenses, just debts that could go to collections if you don’t pay them.

    For example, we paid our cards off in advance of starting the program and our car is 14 years old (knock on wood) and long paid off, so our only debt is student loans. My debt per month is listed exactly as my minimum student loan payment (flat rate). Maybe there are some other kinds of debt I don’t know about that count, but that’s my example.

    #40433

    I wonder if the difference is because, as you mentioned, your pay stubs are different from your 12-month income because of overtime and bonuses. Because that income does fluctuate, it could be part of the confusion.

    I have no idea how those get factored in, so that could be a clue to follow up on. Good luck.

    #40436
    yassieyas
    Member

    @kirkan1981 I’m not sure what state you are in but have you checked to see if you qualify for any grants?

    #40437
    kirkan1981
    Member

    @yassieyas yes she gave me HUD and another one to look into. I am in Alabama and the one program they promote is thru the housing authority and NACA is not one of the preferred lenders (neither citi or bofa) I stayed up all night looking and hit more dead ins then I care to think about!

    #40438

    Sometimes NACA won’t be listed as a preferred lender on the website, but will still with the grant program in question. Keep following up and check in with your MC to confirm before ruling out any grants.

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