The Gawker hamsters are messing with the formatting of articles today :(

Can someone throw out some numbers.

Like a xxx credit score + xxx down payment + xxx salary = ???

Does a high credit score, down payment of 5,000, and a salary of 55,000 get you a loan? And of how much? Also, I am right on how the process works?

@taney71:

For a standard 30 year fixed loan I believe you typically are looking at 20% down and your mortgage payments generally can't exceed about 30% of your monthly pay.

I am not an expert, this is just what I recall from going through this not too long ago. I can't speak on what credit score is required. That whole deal is black magic as far as I am concerned...

So.... you can only get a mortgage if the bank thinks you can actually pay it back? What a novel idea.

@wgrune: Actually, they only require 5% down, but you'll still need to pay PMI until you reach 20% equity.
Typically, you can qualify for a home loan of up to 2.5 times your annual salary, and as you said, a monthy payment of about 28% of your gross pay, so for Taney, that would be $137,000 mortgage, amortized over 30 years, for a monthly payment of $821.38

@B: Assuming a 6% interest rate, which apparently you can get if you've got a top FICO score.

Ah, this fresh breeze of fiscal responsibility blowing through must be the end of the Bush/Republican years and their era of "fiscal responsibility." Thanks for tanking what was left of the US economy - heck of a job.

Hypocrites, one and all.

@wgrune: I think it really varies from bank to bank. My better half does real estate and loans and had a client buying in one of still hot areas on town so places are appreciating. These people had above-800 credit scores, were putting $150,000 down (on a $400,000 house) and had hundreds of thousands in reserve (they could have paid cash but didn't want to deplete their liquidity). They STILL had to jump through hoops, provide records, documentation, detail why they didn't want to put more down, etc. They got fed up and went to another bank that was easier to deal with. It's great that banks aren't so loose anymore, but some seem to not want to loan ANY money. That is a core part of their business isn't it?

Thanks guys. I am clueless on these things.

Shameless plug here:

Naca.com

@dweebster: That was totally OT. Why is it that some people feel like they've got to turn every article in a political argument? Are they really so incapable of turning off the ideology for a minute?

@Franklin Comes Alive!: That used to be the way things were done in the "old days" of 10 years ago and before.

What's so frustrating about this is the Ponzi scheme is exposed, but housing prices are still priced as though the Ponzi scheme is alive and well. Working class houses never sold for $400,000-$800,000 before this scam started, and it'll take a long, slow slide of the dollar before people eeking it out on $10-20/hour can have any hope of owning a home.

Inheritances, trust funds and lottery tickets are the rockbed of our future.

My fiance and I are finishing up purchasing our first home through NACA and have nothing but good things to say. No points, no closing, no downpayment, no pmi, credit score (more on the credit issue in a minute) not a factore, 30yr fixed.

Re: credit, they don't require "perfect" credit, but do get up your tailpipe about your income, expenses and credit history. You cannot be in default now or go into default before you close. They require a three to six month backup of bank info and income proof before their underwriter pre-qualifies you, then you shop, put in a contract, and go through underwriting with citi.

I knew some guys who bought houses about five years ago. They waited in line for subdivisions to open so they could buy the first lot on the block to have their house constructed. The banks whisked them in and set them up and treated them like royalty. And how brilliant, they would tell me that evening, they were for buying their home before they got priced out.

Obviously I don't need to tell you that their houses are all sitting on the market right now....

My girlfriend and I are already looking at starter homes (for after we get hitched). I am finishing my engineering degree and she is graduating amongst the top in her law school. I can't wait until these loan officers start giving us unneccessary hassle about getting a loan on a $150K house. I've already told her I plan on walking out of at least a few banks after they want to start having ME jump through hoops because they didn't perform their due dilligence with deadbeats a years ago.

@B: I got a below 6% rate back when we did the paperwork and (free) rate-lock on our mortgage. In fact, after paying a point and a half, it was down to 5.5%. I don't think that's doable very easily anymore, unfortunately.

These standards are similar to what the housing co-op has had for their rules for years. I looked into buying at the co-op, and they require a 10% down payment that has to come from assets, it cannot be a loan. Of course, it worked best when these houses were 50-60K, now they're closer to 200K, but I'm not seeing too many foreclosures in that neighborhood. However, there have been plenty of for sale signs lately...

My husband and I want to buy our second home next year. I am more worried about selling our current home than I am about qualifying for a mortgage on our next. There are a LOT of houses for sale in our general neighborhood and if we walk away with any profit at all, I will be surprised.

I was lucky enough to get my mortgage in May 2006 when anyone could get one because I don't think I could get one now, which is a shame because I have no problem with the monthly payment.

@theblackdog: Question for you (a bit OT, I apologize to everyone else), what exactly is a Co-op? I'm beginning to look into real estate to maybe buy next year, and this co-op description has appeared a time or two. How is that different than a regular house or condo? Thanks for any info...

@taney71: i think the "magic number" in terms of credit score is ~680, but it differs from lender to lender. from my experience, at that number you shouldn't have to "buy points" to reduce your rate.

but for underwriting standards (pre-craziness), the score was not as important as most think. people actually looked at the individual elements of a person's report (credit utilization, outstanding debt, monthly obligations, etc.) & plugged them into underwriting engines to determine if your credit was sufficient or not. the score was more for explanation once a loan was approved or denied & was sometimes used in rate factoring.

@Erwos: Completely ON topic AFAIC.

If you don't see the political roots of this problem, you'll continue on supporting and voting for the same people that make the decisions to "deregulate" and "get government off our backs," etc. As evidenced again and again- whether it's Enron, Bear Sterns, the housing market, or other areas: "self regulation" results in these outcomes.

It was a political decision during the Roosevelt administration to regulate these markets, and it was a political decision during Reagan through 'Shrub' to let loose the wolves of unrestrained criminal corporatism.

When I bought my first place, the mortgage lender was deep up my colon requiring me to justify an outstanding $2.57 charge on a department store charge card. When I heard that people were getting loans on these "$800,000" homes by just telling the banks they made enough income to qualify, I knew the organizations making loans had drunken their own "deregulation" kool-aid far too long.

actually the seeds of this were planted by the repeal of the Glass-Steagal act, pushed by disgraced McCain "economic advisor" Phil Gramm, and signed by Pres Clinton in 1999.

there's blame to go around on both sides of the aisle, but the one take-away from this disaster is: unregulated banking is a bad idea. greed (or its semi-respectable stepsister, pleasing The Street) overwhelmed risk management. now we pay. privatize profit, socialize loss.

@alexander: I looked into co-ops when we were buying our first house (thought we could only afford a condo, and most of the condos in my neighborhood are actually co-ops).

In most cases, the building is owned by a corporation of some structure. The stock of that corporation is fully owned by the residents of the building. There are permutations of all sorts.

It's been my experience that even during the booming early 2000's, banks steered clear of coops except for their best customers. Something about being unable to perfect a first lien.

@B:

I got 5.375%, but that was locked in April.

@alexander:

In a co-op, the building is actually owned by a corporation, and all the shares of that corporation are owned by the occupants of the building. Technically, each occupant rents their apartment from the corporation on a long-term lease.

Functionally, it's pretty much the same as a condo, except:

1. instead of writing a check for condo fees to the condo and property taxes to the town, you write a "maintenance" check to the co-op, and it pays property taxes (since the co-op actually owns the property).

2. co-ops tend to be tougher about rules and applications than condos - mine required 20% down minimum, applications packet with 3 months of all financial statements, letters of reference, etc., and a board interview (which can reject your as a purchaser without recourse or reason, so long as they aren't doing it for racial/disability/gender/etc reasons)

3. one benefit of co-ops (at least in New York) is that the sale of a co-op isn't technically a sale of real estate (you're selling shares in the corporation), so you don't pay the 1.75% transfer tax.

DH and I have a unique problem. We're helping our son to purchase a home. He'll graduate from college in December and we've found a great property close to where he will be working (tons of jobs in his field in an area where there are few affordable housing options). The property is only $100,000. We're putting in $17,000 cash plus any closing costs, and he's putting in the additional cash to make up a downpayment of 20%. We own our home outright, have well paying jobs, a good credit score (I suppose...we don't puchase much on credit and have no current outstanding loans). The deed will be in all of our names, and we'd like for the loan to be in his name and our names as well so that he can begin to build up some credit. So far, though, we've not had any luck in finding a mortgage company that will add his name to the loan as he has no credit and no long-term employment history. (He's a college student and has always worked, but at part-time positions). Any advice?

@EJXD2:

I agree with you on that. My wife and I bought a house in 07 just at the end of the housing bubble (actually I think it was near the next month when the first rumblings started). The sad thing is now we know that we would never qualify for a loan. We don't look good on paper but we pay our payment on-time every month (actually our bank gives us a 1/4 decrease in interest rates if we have our mortgage payment automatically deducted from a bank account at thier bank).

I'm just glad I have my VA loan. I can finance 97% of the property's value as long as that value is under $417,000. And, no PMI because it's Federally insured.

@taney71: That could probably get somewhere between 160,000 to 180,000. And that's only *if* you can find 0% down. 6 months ago, maybe. Now, I'd be surprised if anyone would lend with under 10% down. And even if you can find a 5% down program, you'll be paying at least $150/month in PMI. A 10% down payment would cut that in half, effectively letting you borrow about $30-40 thousand more for putting an extra $15-20 thousand up front. To put things in perspective, a $350,000 condo with 20% down and a $250 HOA would have an income requirement around $90,000/year to satisfy the traditional debt-to-income ratio. (and for disclosures sake, I have no tie to the mortgage industry. I am just a fellow knife catcher that reads a lot and likes playing with calculators. Actual quotes will vary based on lenders and all my information/advice is worth as much as you've paid for it)

@taney71: Credit score > 675, 20% down, total payment amount (PITI) 28% or less of your gross income.

Thanks to everyone that explained the co-op thing! Much appreciated.

I just find it interesting that those that barely qualify end up with higher interest rates. It's almost as if the bank is purposely trying to make it harder for you to pay, while still giving you the loan.

We do VA loans at my bank--100% LTV plus a funding fee. This financed fee is what you are paying in place of standard mortgage insurance.

NACA had an event this weekend in DC where they had free counseling sessions for people with subprime mortgages. They'd use your full documentation and reasonable spending estimates to determine the mortgage payments you should be able to afford. They'd send it to your bank (for your first mortgage, if they are different) and offer a restructuring deal with them. Most people were in and out in about 2 hours with brand new deals.

Their thought is that this isn't the buyers fault for the most part...The brokers tell you that you're getting a good deal and you can afford this. After 5 years or 3 years you can refinance it so that it's fixed before it amortizes. Most people got second, third, forth opinions from people who agreed that it was a good deal. 3 years later, house prices plummet so that home owners who got "great deals" are now upside down in their mortgage so that they can't refinance, the rates are about to change and principle is due. They trusted the professionals and shot themselves in the foot.

Traditionally, foreclosure happened due to personal circumstances, you lose a job, your income gets cut in half, a death in the family, or someone just decided to be a deadbeat. It happened rarely, so it worked for the bank to take possession of the house and sell it plus they worked under the assumption that the person was a deadbeat and would not try to make the payments. They're still making money from all the rest of the loans and it was the buyer's fault, even if it was unforseeable. Now, foreclosures are happening even though personal circumstances remain the same. I spoke with people who had tens of thousands that they'd saved for years eaten up trying to pay for their now variable rate interest payments, while their jobs stayed the same or they even got raises.

When a bank forecloses on a house they stand to lose a lot of it's value. If we change the system a little bit, have the banks look at what they've told the buyers: you can afford this. Suddenly, due to having the wool pulled over their eyes and not getting a real professional look at it, they can't afford it. the banks are losing millions due to foreclosures. If they look at each case, most of the people were able to pay until the loan amortized, then they couldn't. Forebearance does nothing to help, it actually makes it worse. If they worked with people to give them a new loan that the people could afford, they'd stand to recoup hundreds of thousands of dollars in 90% of these foreclosures.

Gotta Say Bullshit here. I just closed on a 30 yr the combined my 80/20 sub prime high interest loans with one that's;

Fixed Rate in the 6% range
For $130k on a home I purchased for $93k in 2003.
My credit score is in the 600-630 range depending on who you check.
Zero cash out of pocket for closing other than a termite inspection prior to close.
And no I haven't won the lottery lately.

Part of the effort you need to put in is to find a GOOD lender. Personally I went to Churchill Mortgage who is promoted heavily on Dave Ramsey's radio show. Since Churchill didn't have license in my state they sent me to Realty Mortgage Corporation and they got me this killer loan in just a smidgen over 30 days with no hassle.

So if you have a variable APR there is hope. Mine wasn't variable but was still a murderous interest rate. Start at someplace like [www.daveramsey.com] and work through someone he recommends who isn't out to fleece you.

my rant above should be tempered by the fact that these people buying houses making less than 50K a year per house hold with 0% down SHOULD have known better.

The professionals SHOULD have known better as well. A lot of these people were actively marketed and lied to.

If you purchase a home at a discount (ie: short sale, foreclosed property) and the value of the property is at least 20% higher than your payment -- do you still need a payment?

For example, if I purchase a foreclosed home for $200K when it is valued at $300K, do I still need to pay a down payment since, right at the start of the mortgage, there will already be greater than 20% equity?

@Erwos:

That was totally OT. Why is it that some people feel like they've got to turn every article in a political argument? Are they really so incapable of turning off the ideology for a minute?

Can we add "politics must stay out of non-political posts" to the Consumerist Comments Code?

@B: The whole "2.5 times annual salary" thing really sucks if you're in an area where the real estate market is still hot. A starter home in the Seattle area still goes for $250,000 or more, so you'd better be swinging six figures if you want to own a home under those guidelines.

@Chune: What ever the last line is for what you owe (purchase price + taxes + fees) you need at least 20% of that down to avoid insurance. The appraisal is so that the bank knows that value of the property is reasonable (ie not 80% less than the amount financed) and does not fit into the 20% down thing at all.

Also if you are asking questions like this, you have no hope in buying a house after a sherif's warrant or what not. The banks have people that they have worked with in the past and they continue to work together. Typically these places are in really bad shape to begin with. Some guy with previous experience with the bank buys it for a low price. They get a loan for almost the full amount with a low interest rate for the first year, they secure another 15% loan with some other collateral, like their factory or nursery and then they fix the place as cheaply as possible. Then you get to buy it for basically the normal market price unless they are close to the end of that 12 month lower rate. Regardless of that, if you buy the place you end-up paying a small fortune for repairs soon after that.

The better 'deal' is to look for people that are already living in a new place, paying two mortgages, they priced their house way too much so it did not sell, and yo go to them right as their contract with their real estate agent is almost up.

"If you don't have any money you shouldn't buy anything."

"You mean we shouldn't buy something we can't afford?"

"Sounds confusing!"

"There's a whole section here on how to buy expensive things from money you save!"

"You shouldn't buy stuff when you don't have the money."

"I think I got it: I buy something I want, then I hope I can pay for it."

"No, you save the money, and THEN you buy it."

"Oh! And THEN I buy it.."

@iMe2: If only lenders acted like that instead of trying to convince people to buy a house on a 5/1 or 3/1 interest only that will fit into their current budget without regard for the future.

Surprised that no one has suggested FHA-insured loans yet. My girlfriend and I are currently have an offer pending on a house pending foreclosure in Michigan. This will be a first time home purchase for both of us. Together we make about $125k, her FICO is in the 740's and mine is about 640 (due to past business mistakes). We were preapproved for a $300k FHA loan, but are looking spending a lot less considering the deals to be found in the market. We actually have an offer pending on a really nice short sale; should know by the end of the week!

We're going after a FHA-insured loan because we've only seriously been saving for a house since Jan and only have $12k to put down (including closing costs). Plus, while my credit DQs me from qualification for a conventional mortgage, my payment history has been squeaky clean for about 18 months, which is all they really care about.

Seriously... look into FHA-insured loans if your income is a bit low, credit history a little shaky, or you have a limited amount of money to put down. The FHA recently doubled the max amount of the loan they'll insure (varies by county), which was previously one of the biggest negatives of the program: [www.hud.gov]

I was able to qualify for a loan through the U.S. Dept. of Agriculture's Rural Loan program (the area where the townhouses are being built are close to the city but still far enough away to be considered a rural area), through National City. I got 0% down (my first home purchase), financed about $140k, and got an interest rate of 6.25% fixed, 30yr. I admittedly do have pretty good credit, with no blemishes. The only downside is that you have to have an annual income of less than $50k, which luckily (?) I do right now.

@ZoeSchizzel: that's a toughie. first of all, i don't think lenders normally like to have 3 people on a mortgage & most likely, your son wouldn't even qualify for a loan (generally, people don't take out mortgages to build their credit - they usually build their credit to take out a mortgage).

you probably want to consult some experts in the field to get a better idea of what your options are, but if you want some completely free, anonymous, not-to-be-taken-as-expert advice, i would say a realistic alternative would be to purchase the home for your son, rent to him for awhile so he can establish himself with employment & payment history & then sell the property to him in the future. don't forget that you're on the hook for payments until he "buys" the house.

an accountant &/or a property lawyer will probably have the best knowledge in this field to determine what works best & how to adequately protect everyone involved - i would recommend sitting down with one for a consultation.

Through NACA we were approved for the max in our area (which before the recent rate fluctuations was $360k) and bought at $330k, no money down, 30yr fixed at 4.97, with all the "closing help" going to buy down our interest.

What is deal with NACA? Their website sounds as if Billy Mays should be advertising it on late night TV. Is it legit?

@mac-phisto: Thanks for the reply. I was just thinking that a mortgage company would be happy to have three people on the hook for the loan rather than two. It's one more person to go after should anything go wrong! If I were a loan company, I'd want as many people on the hook as possible. I also can't help thinking that there are many people in our position -- either buying a home with their kids (and wanting to have a stake in the properties they are helping to purchase) or buying a home with/for their aging parents. It seems that some company would come in and fill that emerging lending void.

I know we're responsible for the loan payments, but really, they'll only be around $700 a month even with hazard insurance, flood insurance and taxes, so even if the worst happens and he skips (which isn't likely to happen) we can very easily handle the payments and/or rent out the property. Plus, it's a fabulous investment property that we probably would have bought even if we weren't looking for a place to get our son settled. Hell, we're sending him just about that a month to cover his expenses in college!

@ZoeSchizzel: Don't buy the place. Have him establish a credit history by renting a place first. Even just a year will help. Plus the housing market will probably continue downward for another 6-12 months (or more), so you'll probably save some money and credit terms may loosen up.