I did not expect to be thinking about a mortgage so soon, but when you live in a house as small and filled with people as I do, changing your living situation is pretty much first and foremost on one’s mind. And due to the number of pets we have, renting really wasn’t an option.
So after buying my car, I started looking into what I’d need to do to get a mortgage. The first thing that had me cursing was the fact that I couldn’t ride the wave of my boyfriend’s 700 credit score, since I’m the primary wage earner. That was a bit of a kicker.
Then came the mortgage crisis
Because I had a lower income year as I was ramping up my business (I’m self-employed), I was looking into a stated-income loan based on the last six months of my income. That would have gotten me a mortgage with a comfortable DTI (debt-to-income ratio), and I would have been able to move into a new house fairly quickly.
Then the mortgage crisis happened, and stated-income loans went out the window (along with other options that made it a bit easier for self-employed borrowers). I said a lot of not-so-nice words that were mostly four-letter in nature, and then went on to Plan B.
Plan B required me to wait another six months, and then go the traditional two year’s income average route. I was still hampered a bit by the lower income year, but not so much that I couldn’t get a house within my price range.
A blessing in disguise
I watched as house prices dropped like a rock, and the interest rates followed them down. Although I was annoyed at the wait (because I am really not a patient person by nature), it has ended up benefiting me financially. Since a stated-income loan was out of the question, and a conventional loan was just barely beyond my reach, I put my eyes on the FHA loan.
The FHA loan is a government-backed loan that tends to have a slightly higher interest rate than a conventional one (along with higher closing costs), but it accepts credit scores as low as 620 without rate increases.
My down payment
The other big advantage to the FHA loan is that it allows the borrower to put down as little as 3.5%. I could certainly do a much higher down payment. But if there’s one thing I’ve learned over the years of struggling with my credit, is that it’s better to have a safety net at first because you’ll probably need it later. Not putting as much money down will cost me more in the long term, but it will also save me from having to put home repairs on my credit card (like if the furnace spontaneously explodes, which would be just my luck).
At this point, I’ve been through automated underwriting which went through without a hitch (color me surprised). Now I’m just trying to find the home of my dreams. There are plenty of nicely affordable houses in my area, but finding just the right layout and features is taking more footwork than I expected.
Given that only a few short years ago my credit score was in the 400s, I’m amazed beyond belief that I’m actually at the point that I can own my own home. What a journey it’s been…Now if only I could just get a credit limit higher than $1600 on a card!
This guest post was contributed by Tiffany Garden. Tiffany is a freelance writer who has a love / hate relationship with credit, and isn’t afraid to say so