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Advice When Applying for a Mortgage

With breaks for first-time home buyers and the market being the way it is, is this a good time to apply for a mortgage?

Here is our situation: married, 4 young children, living for many years in a home owned by my mother-in-law for $350/mo. I stay home with our kids, but will be back to work FT in the IL public school system beginning in 2011 when my youngest starts kindergarten (I'll have my masters). My husband currently makes $93,000 as a tenured public school teacher. We have approx. $12,000 in CC debt which we are just swimming with(not accumulating new debt, just unable to cut into balance by much). We also have a car payment. For several reasons, we feel the need to leave our current living situation. Yes, it is cheap to live here, but it is too small and we are somewhat living under my MIL's thumb. The house is old, and we pay all bills and almost all repairs anyway. Someone suggested that we would be better off in many ways by purchasing our own home, which is a dream and a plan once I'm back to work full time (and have paid off debts). This person suggested figuring out a way to do it now while things are more affordable, and with breaks for first-time home buyers. I guess my question comes down to this, knowing our income will go up approximately 50%+ in two years, should we just suck it up and wait? Should we find a way to incorporate our CC debt into a mortgage and benefit from lower interest and tax breaks? I hope I'm making sense and that you're not rolling your eyes in your head right now. The suggestions have been coming from someone I trust. I never thought it possible to be a homeowner until I'm back working, but now I've gotten a new perspective and glimmer of hope of getting out of here. I've done enough stupid in my day, I want to do smart now. I'm guessing almost any mortgage broker would find us a way to get a mortgage now, as long as they're profiting, but I don't want that unless it's smart.

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Bill's Answer
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Looking at the US financial system in a disarray as it is today in October 2008, I would suggest that you hold back on the home purchase. The mortgage sector has a long way to go before it reaches its bottom. I know the idea of owning your home seems to be a very enticing proposition, but it is because a lot of people opted for poorly thought our mortgages that the industry is in the state that it is now.

There may be good reasons to wait for your individual situation. If you can use the time you're waiting to improve your financial and/or credit situation, it may be a good idea to wait. In other words, if you can increase your savings from a 3% down payment to a 5% down payment or even 10% or 20% in the time you wait, you'll be able to get a lot better deal on the financing. Similarly, if there are things on your credit report that you want to clean up, those will take time as well and may pay off (even just time passing with paying all bills on time will increase your score). Moreover, you will be in a much better position, income wise to qualify for a better deal once you start to earn. I would use the 2 years till then to plan out a budget and really save as much as money you can to put down as a down payment when the time comes for you to buy your own home. Seems like you have a good deal on your living situation.

Also, keep in mind that you just can't roll your credit card debt into the mortgage. That can happen only in the scenario that you opt for a 125% LTV loan, which is basically borrowing more 100% of the value of the home, which I personally believe is something no person in his/her right mind would do.

I wish you the best in finding your dream home and hope that the information I have provided, helps you Find. Learn Save.

Best,

Bill

www.bills.com/

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