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First-Time homebuyers not approved for mortgage loan

My husband and I were not approved for the first-time homebuyer FHA loan that provides assistance for the down payment and closing costs because we make too much money combined. Also, my husband's credit score is a 603 and mine is a 643. My husband had a delinquency on his credit report that he cleared up (it was a misunderstanding), and he got a credit card to improve his score. I would qualify for a mortgage loan on my own, but my debt-to-income ratio is too high. Since we have to save money for a 3.5% down payment, we have started putting money away. We have $1,000 right now and I was planning to use my 401k, which is $1700. The house we are looking at is $159,900, so a down payment for that house would be $5,600. We are willing to look at other houses and/or save enough money for a down payment, but does anyone know of any other options for first-time homebuyers? We also looked into a lease purchase option on the home. They would want $1200 in rent (a portion would go to the purchase price) and $2000 down payment. Any advice would be greatly appreciated!
  • February 25 2011 - Nashville
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Answers (7)

Ask your lender or talk to another lender about any other first home buyer programs. USDA which is a rural program is another option but may not be an option for you. Before taking out your 401K and suffering substantial penalties, talk to your tax advisor first. What you pay in penalties may not be worth it. The lease option is possible if you are sure that's the house you plan to purchase and you can accomplish your goals in the allotted time frame. If you don't you will most likely loose your down payment. I would highly suggest you keep up what you're doing and keep saving for that down payment. When you have that in place, you will be in a much better position to proceed forward with your purchase. In the meantime there may be new first-time home buyer programs that may come up. Develop a relationship with a lender you are comfortable with and check back with them often.
  • February 25 2011
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The way I see your issue, you need to start with a Consumer Credit Counseling Service to start a Plan in savings for Home and Retirement. The monies you have mentioned is not enough to maintain home expenses or emergencies nor have enough for financial stability.
Seek a Non-Profit Counseling Service in your area that has Workshops, counselors and First Time home Buyer programs. 
Google: Consumer Credit Counseling Service

  • February 25 2011
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How long will it take you to save the down-payment? Consider crafting an offer with a far out closing date, maybe 75-90 days out. To get the seller to seriously consider a delayed closing, you might make your earnest money deposit non-refundable. Don't forget to ask the seller to pay for closing costs (It sounds like you'll need the help). And ask your lender if you can make payments toward your earnest money/down-payment every week or two until you've saved enough. I've had a buyer successfully do this previously.

I'm betting you tried to qualify with THDA and were disallowed based on income. Unfortunately that's the only closing assistance program know about in our area. USDA was mentioned earlier, but it is not going to be available in most parts of Davidson County.

Do you have a Realtor who can help you craft an offer?
  • February 25 2011
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At this point in our market (Nashville Metro) there are two primary downpayment assistance programs that are available(THDA and the Housing FUND).  DTI and credit score are going to be an issue for both program.

Work with your lender on getting your husband's credit score up. If you need any further help you can contact me. I've had alot of experience coaching clients in getting their credit score to where it needs to be.

  • February 25 2011
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Be very cautious about dealing with Consumer Credit Counseling many lenders consider it the same as filing bankruptcy. You need to have at least a 640 middle score for both of to be able to qualify for an FHA loan. I would advise speaking to another lender that could make suggestions on what to do to improve your scores and be willing to be patient to get there.
  • February 25 2011
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Profile picture for wetdawgs
It sounds like you are at the stage where you are jumping towards purchase a little bit too quickly.   The problem with moving too quickly is that it can be quite easy to purchase a home, but it can be harder to maintain the home as the challenges of home ownership (read $$$$) and life's challenges (read layoffs) happen.

Therefore, even if you can find a way into a home with nothing down, will you be able to keep it? 

What is a step by step approach?   Part is saving sufficient money for downpayment (>/=3.5%), closing costs (several percent) and some emergency money to cover home maintenance surprises over the next year.    I would suggest saving a minimum of 10% of the home price before going looking, more would be prudent.   A 20% downpayment will save you from paying for mortgage insurance each month, a significant savings.

As  you are saving, it is an excellent time to work on repairing your credit score.  Repairing is simply understanding why so low and why your debts are so high.   Pay every thing on time, don't use too much credit (pay down debts),   etc.   Review your credit with a lender for specific suggestions for your situation.

  • February 25 2011
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There is a program out there with 1% down payment, which will free up some money to pay down your debt.  There are some income restrictions , but they are higher than FHA.  Its not a USDA  program, so you can live ANYWHERE as long as you are under the FHA guideliness Loan limit...I know alot about it and its available in most of the USA...  Hope this works for you feel free to repost
Hory and Melissa Team
Unique. Different. Better 

  • February 25 2011
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