Author Topic: Questions about Buying a House  (Read 1733 times)

hoyahoyasaxa

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Questions about Buying a House
« on: July 28, 2013, 06:40:04 AM »
I'm 28 and my wife is 27.  We collectively take home $5500 per month and spend about $3500 per month including $1525 (oh, hi, New York City housing) for rent and $400 on a loan repayment.  We have ~$129k in assets and ~$35k in liabilities as follows:

Assets:
$42k in savings
$31k in CDs (maturity date of 10/2016, but extremely low early withdrawal penalty with Ally Bank)
$33k in my Vanguard Roth IRA
$6k in her Charles Schwab Roth IRA
$2k in her TIAA Cref 403b
$6k in my Lending Club account
$3k in her savings bonds
$6k in other assets, including a 2001 Jeep

Liabilities
$35k in my wife's student loan at 0% (her parents bought out the loan from her before we got married)

We are hoping to buy a house in the next year (my wife's big, wonderful family all live within a few miles of each other in the Rockland County, NY area) and feel like we don't even know where to start.  A few questions:

1) I have no debt, but also didn't have any credit accounts until I graduated from college.  I had two credit cards (paid balance in full each month, never missed a payment) until Bank of America closed their card (which was my oldest account, opened in 2007) without warning last year because I hadn't been using it.  We just got our annual credit reports, and my score is 640 while my wife's is 780 (her father wisely had her as an authorized user on his cards while she was growing up which built her credit nicely).  My understanding is that banks will base their loan on the lower score when we apply for a mortgage.  Is this true, and if so, how can I build my score in the meantime?  We've talked about adding me as an authorized user on her credit card, and I've thought about getting a few new cards, but I worry that this is going to hurt my credit in the near term while we're trying to get a mortgage.

2) Besides PITI, what other costs should we be aware of when looking at homes?

3) Do we need to shop around for the best rate before getting pre-approved?  Or can we just go to our bank and get pre-approved and then, if we get to the point where we actually want to buy something, see if anyone will give us a better rate then?
 
4) We're not required to use the lender who pre-approves us, are we?  Finally, even if we're not required to do this, do you think it's best to have pre-approval from the lender with the best rates before we get to the point where we're shopping around? 

5) And the big question - how do we even go about finding who will give us the best rates, anyway?
« Last Edit: July 28, 2013, 06:43:29 AM by hoyahoyasaxa »

Daleth

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Re: Questions about Buying a House
« Reply #1 on: July 28, 2013, 02:00:11 PM »
True, banks will generally use the lower of the two scores. I see two options here:

(1) Build up your score. I highly doubt it's just the lack of old credit accounts that's got your score so low. A big part of it is the fact you only have one credit card. When BoA canceled your card, you lost $X (whatever your credit limit was) of available credit. The ideal situation from a credit-score perspective is to have a ton of available credit that you're not carrying month to month--in other words, the highest possible credit limit and the habit of using your cards but paying them off in full each month. That basically indicates that you don't have financial problems (since you're not maxing the cards out or carrying debt month to month) and that you're trustworthy (since you were trusted with $X and didn't use it, and since you pay your bills).

I've read here and there that the ideal number of credit cards to have (again, this is purely from a credit-score perspective) is 3. Too few and it looks like no one trusts you with credit. Too many and it looks like you have a shopping addiction or something.

Long story short, get two more credit cards with the highest balance they'll give you; use them every month and pay them off. I wonder if it would help if your wife made you an authorized user on whatever account of hers is the oldest. That would be the best of both worlds--more available credit that you pay off each month, and an old account (maybe--I don't know for a fact that your credit report would reflect how old your wife's account was, but it might; I suggest googling that).

And...

(2) If this doesn't produce the desired result by the time you want to buy a house, could your wife qualify for the mortgage herself? This is what my husband and I did when he was a student. I bought our new house, I got the mortgage myself, and then right after closing we executed a deed where I transferred the house from me to both of us. (For that paperwork part you would need like a half hour of a lawyer's time and maybe another half hour of a paralegal's time to record the document--we didn't but that's because I'm a lawyer--but that won't cost you much at all.) So we both own the house (i.e. we are both on the deed) but only I am on the mortgage.