Trying to Buy First House But Feel Like My Loan Just Isn't Right

Submitted by Eldengames t3_z8skzs in personalfinance

So I'm trying to buy my first house and I have 20k in federal student loans and 7k left on my car. I make 40k a year currently and have a credit score of 789. I'm not in a huge hurry to buy a house but was recently prequalified for a mortgage through Rocket Mortgage of 100k.

The loan type they gave me however is an FHA, I have about 10k of money to split between closing and down payment but at a fixed 30 year loan they are saying before taxes and other additions on my payment per month at the full amount I'd be paying roughly 800 a month at the full 96.5k loan.

Is this rate too high for my credit score currently? I'd really appreciate any advice on any aspect of this honestly

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Concerned-23 t1_iyd04ms wrote

Well you didn’t say your interest rate, but rates are high right now ~6%. Not to mention your income is low and you have 27k debt.

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Eldengames OP t1_iyd1caq wrote

I had to go back to the cheat sheet I wrote down while on the phone haha! They hadn't given me an actual interest rate to go off of. When we talked about the price per month my agent had just said about the cost being 600-700 a month on the loan itself.

The other thing is I'm qualified for the loan forgiveness to erase up to 20k in my student loans. Financially it won't effect me either way since the payments are only 50 a month but will it adjust my rates enough to wait? My wife is in the same boat however her credit score is too low to be counted as a source of income.

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Bama_Peach t1_iyd1xbh wrote

You need to ask your loan officer for a loan estimate that will clearly state what the rate is along with other items such as what they charge for closing costs. Any reputable lender will provide you with this document with no issue (most provide it without you having to ask for it).

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Eldengames OP t1_iyd2n4f wrote

I'm going to send an email to see what the rate is that they have gotten for me, this is mainly why I made the post. I'm not exactly sure of all the workings with mortgage loans but I still feel like a fixed rate loan they should be able to give me an exact amount. For example if I borrow exactly 100k then I should pay an exact amount on the loan principle, not a range.

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Concerned-23 t1_iyd1u86 wrote

Well the federal loan forgiveness is on pause so don’t bank on that. Also, have you found a home for 100k?

With a loan amortization schedule on a 30 year mortgage my guess is your got an 8-9% rate.

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Eldengames OP t1_iyd33g7 wrote

I'm definitely not banking on that haha! I actually just paid off my private loans recently so my federal ones don't scare me too much any other time they just look scary on my credit reports.

My wife and I are just starting but in our area they won't show you a house until you have a prequalified rate. I was wondering though if I get a house that I want to put an offer on am I still able to shop around with other lenders or am I stuck with this one until it runs out?

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Skinder506 t1_iyd0k11 wrote

What's your interest rate? Interest rates are higher right now. If its around 6-7% then your monthly payment checks out mathematically.

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Eldengames OP t1_iyd1zr3 wrote

I was actually going to look up a formula to calculate it when I got the chance, I just wanted to find one that wasn't a marketing tool. I was just given the monthly payment at the highest loan amount I can take out.

For the first 12 months they cover 1% of the interest and my payment is around 500-600 but after this it will go to around 600-700.

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Skinder506 t1_iyd3mp3 wrote

Knowing what the interest rate is probably one of the critical pieces of information you need to know when deciding on a mortgage. Be sure to find out that information and make sure you completely understand the consequences of whatever interest rate is part of this mortgage.

It's good that they cover 1% for the first 12 months, but what happens after that?

Also while your credit score is great, you have $27k in debt and $40k in annual income so that debt to income ratio isn't good. That's another reason why your interest rate might not be favorable.

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the_journeyman3 t1_iyd5yhz wrote

Don't forget insurance and property tax.

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Eldengames OP t1_iyd9zao wrote

That's always a concern haha, financially my wife and I are alright with the payment I just don't want to get ripped off. We're lucky month to month we really only pay on rent and car expenses along with food, I'd just like to make sure we get this as low as possible so we can enjoy life more.

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lucky_ducker t1_iyd35ib wrote

$800 month principal and interest payment on a $96500 loan is a rate of 9.35%, much too high given your credit score and the current mortgage market.

However, you're putting down less than 20% on an FHA loan, so you are going to be paying Mortgage Insurance Premiums (MIP), the FHA equivalent of PMI (Private Mortgage Insurance), and that may account for the difference. MIP on FHA mortgages stays for the life of the loan, there's no way to have it removed short of fully refinancing.

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MikeWPhilly t1_iyda0qu wrote

Was going to write a post but Lucky has. It’s more that’ll likely the MIP. Which is probably $150 or so a month. So that’s likely the difference maker. Also lucky’ s point about not being able to remove the MIP is a key piece of info. $100k is really not much a house in most parts of the country (or even condo) without knowing what home price ranges Op is looking at it’s hard to make any recommendations but realistically OP might be better off with a traditional and 20% down. Hard ot know what starter homes go for with no info. Eldengames - what how price range are ou looking at?

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Eldengames OP t1_iydahin wrote

I'm thinking of getting a new job here shortly and I'm probably expecting to move my income up to around 60-70k. We just wanted to move first because my wife and I currently drive (carpool) 45 minutes to work. Is a conventional loan something I should look into instead? Or can I refinance into that later?

They did offer the ability to refinance on their dime as long as its within 3 years so that would fit my time line for a new job and my wife's credit score should recover as well. Do conventional loans have MIP?

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lucky_ducker t1_iydjwv0 wrote

Conventional loans (generally) require the equivalent PMI if your down payment is less than 20%. Most of them allow you to drop the PMI once your loan balance is less than 78% of appraised value, or in some cases, the original purchase price.

I originally financed FHA in 2007 (only did 3.5% down) and in 2020 refinanced into a conventional loan at 2.5%. No PMI or MIP now.

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alexm2816 t1_iyd3si6 wrote

What is the loan term (30 years or 15) and what is your interest rate?

For a $96,500 loan to end up at $800 a month before taxes you're talking about 9.375% on a 30 year or 5.75% on a 15 year.

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Eldengames OP t1_iyd4okf wrote

The loan term is over 30 years, I'm working right now with the agent to find the interest rate so hopefully I'll be able to let you guys know here shortly.

Would it be best to shop this around before finding a house or is the process short enough with other lenders that I can do this after finding one?

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alexm2816 t1_iyd5l6n wrote

If you're being extended a >9% rate from a lender I'd be bailing on them ASAP. That's a bit of a joke even in today's mortgage market.

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sephiroth3650 t1_iyd5hkb wrote

What is the interest rate? Does that payment estimate include projected taxes/insurance? What are you being charged for PMI?

Running the numbers, if you have $1250 in annual property taxes, $350 for homeowner's insurance, $5k down, and a 7.235% interest rate....the payment calculates out to $842/month. Hell, the base mortgage payment on a $96.5k loan at that interest rate is $657/month. And that ignores the taxes/insurance/PMI. So a monthly payment hovering at or just above $800/month sounds about right.

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