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I have been wondering about trying to obtain an FHA loan for a while now, and would like some input from some of you guys before I begin to the process. Here are my qualifications:
I'm 23 years old, live with my parents in the SF Bay Area (east bay, near richmond)
I will graduate from a California State University in three months with my BA degree in Human Development/option in Gerontology
I have $60,000 in my bank account that I intend to use for a downpayment
I have been working for my father as a property manager in his real estate property management company for three years, and I make about $15,000 a year (although previous years it was about 6,000 a year as an assistant).
I have absolutely no credit-never owned a credit card, never made a cell phone payment or paid for internet or any other bills. However, I am going to try and get a credit card in the next few weeks.
My parents are willing to co-sign an FHA loan if they have to.
I don't know exactly how much I will qualify for, therefore have no idea where i'll be able to live (The SF bay is pricey, so I may have to move to Sac or elsewhere) therefore I am not going to apply for any other jobs unless I know exactly where I can afford to live. So when I apply for an FHA loan, I will just have that one job, but it's certain since it's with my father and I've been working with him for so long.
My question is: With the above qualifications how much could I qualify for without a co-signer under an FHA loan? With a co-signer?
Are there any other loans that might be of interest to me?
My father worked as a mortgage lender for World Savings (then wachovia, now wells fargo) for 20+ years and says I could probably get anywhere from 50,000 to 80,000 depending on how they treat my credit and my employment history. He retired before the recession and the collapse of all the banks so he is not that up to date with current standards, and never did FHA loans.
Any input? What do you guys think? Thanks so much.
Last edited by BayAreaGuy87; 05-10-2011 at 07:12 PM..
When you have a co-signer on an FHA loan both their income and debts help you qualify for whatever you are trying to qualify for. It is no longer an issue of what only your income could qualify you for.
A separate issue is what can you afford. With no formal credit, I'd strongly recommend you take a homebuyer education course so you'll have a very good idea on what type of expenses will come up, how to budget for them, as well as get tips about the homebuying process. It'll also show an underwriter you are serious about homeownership. Further, an underwriter won't allow you to purchase in an area where you don't have employment. If you work in Richmond for your father's company, it's not reasonable for you to purchase a home in Sacramento and continue to commute to a job making $15k/year. The normal route things take, which isn't always the best for everyone, but a lot of people think it is, is to have your career job lined up first before you purchase a home.
Last issue, which may be the biggest, is that if only non-occupant co-borrowers (your parents) have credit scores, then pretty much every lender will require the loan to be manually underwritten using non-traditional credit for the occupying borrower (you) - 3 non-traditional trade lines of 12 months each, one of which can be rent and the others either utilities, non-payroll deducted insurance, school tuition, 12-months savings pattern evidenced by non-payroll deposits, personal loans, etc.
But to answer your question, on how much you could qualify for using FHA financing, if you have a lender OK with your credit history, and assuming your parents have zero income and zero debts, with a $60k down payment... would be about a sales price of $94k. With a $60k down payment, with taxes, insurance, and mortgage insurance, the payment would be about $382/mo, which is a hair under 31% of your gross income of $15k/year (assuming an underwriter uses that to qualify, with a family owned business you have to prove that the pay increase was due to a job responsibility change or a scheduled raise, and not just upping the income in an effort to qualify for a mortgage) - and that is FHA's housing ratio threshold when being manually underwritten (tad higher than that on a case by case basis with some underwriters).
When you have a co-signer on an FHA loan both their income and debts help you qualify for whatever you are trying to qualify for. It is no longer an issue of what only your income could qualify you for.
A separate issue is what can you afford. With no formal credit, I'd strongly recommend you take a homebuyer education course so you'll have a very good idea on what type of expenses will come up, how to budget for them, as well as get tips about the homebuying process. It'll also show an underwriter you are serious about homeownership. Further, an underwriter won't allow you to purchase in an area where you don't have employment. If you work in Richmond for your father's company, it's not reasonable for you to purchase a home in Sacramento and continue to commute to a job making $15k/year. The normal route things take, which isn't always the best for everyone, but a lot of people think it is, is to have your career job lined up first before you purchase a home.
Last issue, which may be the biggest, is that if only non-occupant co-borrowers (your parents) have credit scores, then pretty much every lender will require the loan to be manually underwritten using non-traditional credit for the occupying borrower (you) - 3 non-traditional trade lines of 12 months each, one of which can be rent and the others either utilities, non-payroll deducted insurance, school tuition, 12-months savings pattern evidenced by non-payroll deposits, personal loans, etc.
But to answer your question, on how much you could qualify for using FHA financing, if you have a lender OK with your credit history, and assuming your parents have zero income and zero debts, with a $60k down payment... would be about a sales price of $94k. With a $60k down payment, with taxes, insurance, and mortgage insurance, the payment would be about $382/mo, which is a hair under 31% of your gross income of $15k/year (assuming an underwriter uses that to qualify, with a family owned business you have to prove that the pay increase was due to a job responsibility change or a scheduled raise, and not just upping the income in an effort to qualify for a mortgage) - and that is FHA's housing ratio threshold when being manually underwritten (tad higher than that on a case by case basis with some underwriters).
Thanks for all this information,you have been very helpful. I just wanted to give you a bit more info: The work I do for my dad includes bookkeeping and leasing, which would require me to commute down to the bay area only once or twice a week. I co-manage and do all the bookkeeping/tax prep work on all the property he owns (which is quite a lot). So I could move to Sacramento and get a job up there and still commute to the bay area on weekends, but I would prefer to live near Richmond.
Now, here is some important info about my parents: My parents are retired (I do most of the work managing my father's properties), but still have a $160,000 a year income through property investments which they have maintained for decades. Cash flow is about $13,000 a month from their property. They also have little debt (in the ballpark of $15,000), and mortgages on all of their income property are $2,000 a month. They have very good credit. They have liquid assets of $260,000 and property equities of 4 million dollars, and an IRA totaling $400,000. If they co-sign, does this mean that I could get a higher mortgage, possibly in the ballpark of 100,000-150,000? If I stay in the bay area, I have another part time job in property management lined up through a friend my father knows. I'd like to live near Richmond and homes around here cost 150,000 minimum just to get something decent.
You said, "When you have a co-signer on an FHA loan both their income and debts help you qualify for whatever you are trying to qualify for. It is no longer an issue of what only your income could qualify you for."
If i'm understanding you correctly, you are saying with their co-signatures and both their and my income level combined, I could qualify for a mortgage in the ballpark of $100,000 or more? Would I still need to get non-traditional credit in my own name to qualify? If I was able to get a mortgage of 100,000 or more and bought a house for 160,000, I understand my own income wouldn't be enough to live on, but my parents are willing to help me out temporarily with whatever expenses I need until I have another job lined up.
Last edited by BayAreaGuy87; 05-10-2011 at 11:29 PM..
Welcome. Based on the numbers, yes if they co-signed then it sounds like you could qualify for a home in the $160k range or so with the down payment you are anticipating. You would still have the battle of finding a lender who doesn't require you to have some traditional or non-traditional credit history though.
OP, ask your father to add you to two or three of his accounts as an authorized user. Pick accounts that have never been late ,and have little to no balance, and are over 3 years old. You should have a score within 60 days. Without a credit score, you will require a manual underwrite (most lenders want a computer approval to fall back on) and your choice of lenders will be very limited. This is something you can do now that is cheap and easy, but do take care in selecting the accounts. Applying for credit cards right now will only add to the inquiries on your report and could actually result in an undesired result.
I would think with that large of a down payment, you shouldn't really need a co-signer. How about renting for a year to save up even more, and also establishing a payment history?
I'm against co-signing for anything, but that's just my personal opinion.
OP, ask your father to add you to two or three of his accounts as an authorized user. Pick accounts that have never been late ,and have little to no balance, and are over 3 years old. You should have a score within 60 days.
That is a great idea. It never occurred to me that applying for credit cards would have that outcome. My father is going to put my name on a phone bill, a utilities bill, and a credit card account. All of which have never been late and have been paid for more than three years. Do these sound like good accounts to add me to?
I understand college graduates often get two years work history except if they have a job and its related to their field of study. My job is not related to my field of study, but I do have 2+ years of work experience working for my father's property management company.
So, I wouldn't even need to have my diploma yet in order to apply for an FHA loan? I do graduate in about 3- 4 months but i'd like to apply as soon as I get this credit score, which will be in 60 days.
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