First time home buyer, questions

[Cowspot28]

Hi,

My husband and I are looking to buy our first home and have several questions about the process. I've been reading and have spoken to several mortgage people, but I would also like some mustacian advice.

Purchase price: HCOL area 400-450k
Job situation and income: moved cross country last month and currently staying with family, starting part time job of 20-24 hours/week at $48/hr next week, husband will make $95K with unknown start date (govt contractor), VA disability income of $20K/yr, good credit


I have read all the debates about paying down mortgage vs investing with the math favoring investing  so we don't have much cash saved because I thought we should invest it since we can do a VA loan (no PMI, no downpayment). I'm not sure this was the best decision in hindsight.

1. How much should we try to put for a downpayment when we can do a VA loan?
2. Where should money come from and what are tax/financial implications? We have about $35k cash with $10k coming in another month, Roth/traditional IRA and brokerage account, all invested in VTSAX. I know you can always take out Roth principle and gains after 5 years tax free, but how do you know what is what? We transferred to Vanguard midway through. Also, are we missing any long term advantages by doing so?
3. Spoke to USAA who said no difference in quote do interest rate by putting 0 down or 20% down and VA loan had more favorable terms. Is this always true or will you typically get more favorable terms with more money down? How do you do the math to determine if taking a slightly higher interest rate is better if you are investing the difference?
4. Concerned about job situation affecting mortgage approval. Broker I spoke with said that my job being part time is considered variable income. I work in healthcare with a set schedule. The variability comes from getting paid per patient (patient doesn't show, no pay). Does this matter? I was hoping we could qualify based on VA income and my income since they said we need a letter stating husbands start date which he doesn't know yet. Is it better to wait until we have husbands start date? No idea when it will be but he wants to start working ASAP.
5. Any other tips/suggestions?

The alternative would be to wait several months while staying with family or rent for a year first, but we really would prefer to get a house.

Thanks for your help!

[August26th]

Answers to your questions IMHO:

1. VA loans are awesome in that they are the best zero-down loans out there (THANK YOU veterans!) There is no benefit to any kind of down payment, except for the fact that it would lower your monthly payment by putting more down.

2. What is your ideal comfort range for a down payment, AND for an ongoing monthly payment? If the zero down loan is comfortable, then do that and max out other investments, or rather keep them where they are and don’t liquidate.

3. USAA is correct... no difference in rate on a VA loan with varying down payments.

4. I would not plan on being able to use your part-time income, UNLESS you have a demonstrated 2-year history of receiving part-time income in the same field. If you meet that standard, then you should be able to use it. But you likely won’t need it. For now it sounds like you have $7916 per month of gross income from your husband’s salary, and at least $1666 for his disability.  In actuality, the disability can be grossed up by 25% for qualfiying purposes because it is not taxable income.

So as of now, you have at minimum $9582 of monthly income, and even more when you gross up the disability. VA is very lenient on debt-to income ratio guidelines, so if you have good credit and not much debt, the payment on a 450K loan with zero down should be affordable at your income level.

I see no reason to wait to buy. Interest rates are rising and home prices will likely continue with modest increases (though I don’t know your area of the country.)

Best wishes!

[Cowspot28]

Thank you so much for your response.

I just wanted to clarify the job situation. Husband was working up until end of July at regular job. He has an offer for contracting without a set start date. He has no idea when he will actually start. Mortgage people said he needs to have a letter from employer with actual start date in order  to count income. I was full time at different job until mid July. I will start next week but new job is part time hourly but in the same field. Can I use my income to qualify or do we need to wait for a firm start date for him? I'm just worried we will find a great house but not be approved for a mortgage due to income and lower our credit in the process with Liam applications, etc.

[August26th]

Several tricky issues here, and I’d recommend you speak to your lender about them.

First, a question. Is your husband becoming a contractor, as in a 1099 employee? Or will he get a W2 but is working for a contracting firm? That is an important distinction. If he is 1099’d then that is considered self-employment, and you won’t be able to use his income at all for 18 to 24 months.

Assuming he will be a W2 employee, you definitely need a start date on the letter. It also needs to have his job title and his rate of pay, and typically needs to be signed by the employer. I don’t see a way around this. Seems like the employer could simply amend the letter once there is a start date agreed upon.

For your income, the letter of the law would say that you cannot count that income until you’ve been part time for 2 years in the same field. But talk at length to the lender and have your mortgage person ask an underwriter to see if they will consider it. You never know... but I have a feeling it won’t work.

I would not plan on making an offer on a home until you have these issues sorted out. As of today, you are not ready by any stretch because there are a lot of unknowns.

[Kierun]

I would wait until your husband has a firm start date, even though you could potentially use your PT income it's likely not sufficient to meet the DTI ratio.  Even though the DTI ratio is quite high for VA loans ~40%+ with a 400-450k purchase price your gross from your PT job is about 4.6k.  I'd imagine that without using your husband's income in the calculation it'll be borderline.  Assuming 400k purchase and 4.5% rate for 30 years, not including taxes and insurance it'd be about 2k/mo.  With 4.6k gross income you're looking at a DTI ratio of about 43%.  This is also assuming you have no other debts.

There is a VA funding fee, but it could be assumed that the veteran was discharged for disability in which case the funding fee is waived. 

[Cowspot28]

Thank you for your help. I will call around to different lenders, but it sounds like it will be better to wait to buy until our situation is firmed up a bit. Appreciate the replies.