Quote:
Originally Posted by TheNasty
This was linked http://www.tfproject.org/tfp/tilted-...l-finance.html
So, lets start off with a question!
I'll be graduating in May with a Masters degree, I'll have $49,000.00 in student loan debt.
($39,000.00 in Stafford at 6.8%) and ($10,000.00 Perkins at 5%).
I will have a 6 month deferment period starting in May.
In August I will hopefully find employment, with a salary of between $38,000.00 and $45,000.00. For purposes of this discussion lets assume the lower figure.
I have no credit card debt, and no credit cards. No cell phone, and I own my car. Insurance is $300/3 months.
Now to the question:
What determines if I qualify for a home loan? With the figures provided how much would I be approved for? Using conventional wisdom how much could I safely afford for a house?
In previous threads you've mentioned that generally lenders look at your debt to income ratio to determine eligibility, but that post was made in 2003. With the current lending climate, have things changed? What am I looking at?
Thx! |
A variety of factors will determine if you qualify for a home loan, but primarily it's going to boil down to Credit History (including credit score), Loan to Value Ratio (How much of a Down Payment you are putting down) and Debt to Income Ratio (Amount you Earn vs. Debt Obligations on a monthly basis)
As far as how much you should spend
safely on a house, it really boils down to your lifestyle. The current fad is that your PITI (Principle, Interest, Taxes and Insurance) coupled with your other monthly credit obligations is no more than 50% of your total monthly income. However, I would add that to do it
safely you should not only utilize that formula, but spend no more than a total of 1/3 of your income on housing.
It will depend on your actual repayment terms of your educational loans, but roughly I'm coming up with a net income of approximately $2215ish per month (after taxes and insurance) In your situation, I would have my mortgage payment (PITI) be equal or less than $730 a month or so. Note: You likely will qualify more, and depending on where you live that might not come anywhere near what would be required to buy a liveable house, but going over that may make it difficult over the long term.
One thing people often forget is that it's a
30 YEAR commitment (or whatever, depending on your loan term) and that you have to plan for every eventuality. $730 a month might seem like a breeze now, but how does the next 30 years look? There are a huge number of factors that you need to potentially plan for - going back to school, losing your job, a wife, kids, what have you. A lot can change in that length of time, and you want a reasonable shot of remaining comfortable until it's paid off. It's much better to go a bit smaller than you think you'd be comfortable with and be able to pay it down faster than the alternative.
Quote:
Originally Posted by TheNasty
Are Credit Cards the only reliable way of building credit?
I've seen what Credit Card troubles do to people, family and friends are still living with them and dealing with the 20%+ interest. If at all possible I'd like to continue living cash only.
I've been in this apartment here for 6 years, have never missed any utility payments etc. Has the credit report market changed at all to where that is reported at all?
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No, credit cards are only one reliable way to build credit. Now remember, this is based on your short post, but you seem relatively conservative when it comes to finances. Perhaps you'd be more comfortable taking out a secured loan for $500 or something. Yes, you will be paying interest, but consider it an investment - very few things in life will net you over your lifetime as much savings as having a good credit score.
You can read more at
NoSoup's Guide to Obtaining and Maintaining Excellent Credit
As far as utilities are concerned, they are not reported to the Bureaus. Nor are cell phones, Netflix, or anything else that you don't have to fill out a credit application for. Length of employment is, but only has a significant impact if you are employed at the same place for greater than 5 years.
Quote:
Originally Posted by Baraka_Guru
Don't forget you can (usually) get a free credit report if you snail-mail in a request to a credit bureau. I think you build credit with student loans, utilities, etc. Best get a report to see what's going on and then go from there.
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Indeed - but now it's even easier. You can obtain free credit reports (One from each Credit Reporting Agency per year) at
www.annualcreditreport.com
It's nice to see this thread getting a bit of interest nowadays - if any of you folks have any more questions, please let me know!
Thanks