Los Angeles

[Joe-D]

Hi Everyone,

I'm new to Redfin, and looking to make my first home purchase in June.  I have 2 questions you might be able to help me with.  I've read quite a few posts on the Redfin boards during the past week, and look forwarding to contributing as I move forward with my home purchase.

1)  Can I still qualify for a mortgage if I've only worked for the past 13 months?  I heard the requirement is 2 years of work.

1997 to 2007 - Steady employment, computer engineer

2007 to 2010 - Lived on savings, didn't work at all

The past 13 months - Steady employment, great job, computer engineer

2)  This is the mortgage I want to get.  Does it sound feasible?

$520K house around Toluca Woods

$20K down - FHA 3.5%

$500K mortgage

I have zero debt of any type, I own my car title, no divorces, no kids, no school loans, high salary.  790 credit score.

However, I also have no savings other than about $20K for the downpayment and a $3K extra.

Due to my salary and credit score, I think I can qualify.  On the other hand, I have a 3-year black hole with no work and no income whatsoever from 2007 to 2010.  Can I quality for a $500K FHA mortage 30-year fixed 3.9%?  Thanks for reading this!

- Joe D.

[thebfg]

I have a variable income because I work freelance and in the pre-approvals I've done, they've averaged my two years of income (and also didn't like it when it declined year to year).  I've submitted a few FHA offers, none taken, including one that was $18k over the final selling price.  If you're dealing with a bank (REO or Short Sale), it seems they don't like the FHA offers.  Probably due to the stricter guidelines in regards to the condition of the house.  If you're looking at houses that are pristine and perfect you might have better luck.

With 3.5% down and $125k income, you're at 31% front end debt to income (mortgage, taxes, PMI, insurance) and obviously this will be higher if you get a higher interest rate.  Limits I've seen are 29% for FHA and 28% for conventional.  FHA is supposedly more flexible, but I think they offer more flexibility in the back end (all your monthly expenses).  If they average your income, you'd be at 41% front end.

And I've read you should estimate 3% for closing costs, which you don't have.  You can ask for 3% back in closing costs in your offer, but that also weakens the offer.

I stopped looking for a while so I could save up a 20% down payment and do a conventional loan.  If you can wait until 2013, at least you'll be able to show 2 years of income at $125k.  They don't seem to care about stuff prior to 2 years (I've tried to show them that I have consistent work over the past 10 years, but they only took into consideration the past 2 in my pre-approvals), which I think is a little odd in this stricter mortgage market.

[Joe-D]

Wow, Thanks!  Your response is very helpful.  I'd really like to buy in the next 4 months, because:

- I'm not sure 3.9% interest rates will stay around for long, and I'm planning to NOT move out or refinance for decades.

- I think we are moving from buyers market to sellers market later this year.  Economy and employment both improving now.  I don't want to be fighting a bunch of other bidders when trying to snag a home in an appreciating real estate market.  Other people think we are years away from that, but I think it will be here before next year.

Thanks for the advice about the FHA loan.  I'm not crazy about it either, because of the 1% fee, higher mortgage insurance, and inability to remove the mortgage insurance for 5 years. However, I heard that if you want to buy a house for $500K without an FHA loan then you need at least 10% down.  Traditional mortgages with 5% down max out around $417K, and I didn't see houses that were all that great in that price range.  

I think my best strategy is to wait until June and then apply for the FHA mortgage, by then I will have 18 months of steady income, and more money saved up for closing costs, as you mentioned.  There's no way I will have 10% down payment saved up anytime soon ($50K !!!!!!)  So looks like I'll be stuck bidding for properties with an FHA loan, which is a disadvantage.  

I wish you the best of luck in finding your property!!

[LoansbyJW]

You can finance now, Fannie/Freddie, or FHA. The key isn't length of employment, but type of employment. If your new income is W-2, not commission or bonus driven, most lenders want 1 month full employment minimum, 3 months is preferred, with a well composed letter of explanation why you chose not to work.  If you were under-employed or un-employed for that length of time that's not a barrier to being qualified for a home financing. Stability of current income is important to document.

Someone who works 1 year at Company A, 2 months at Company B, changes employment type (accountant to sales), works at Company C, then returns to financial services at Company D 6 months later represents a greater risk to an Underwriter than someone who has been out of the working world for an extended period of time.

Thanks for reading,  

[Joe-D]

Hi John,

Thank you for your helpful response.  Yes, my income is W-2, steady, salaried, non-bonus, and it's in the same field that I have 11 years experience in.  I was hoping that this would matter.  I had to write a letter about my unemployed time to get my current job, a family health emergency is related, and I can re-use much of that letter.  Do you have any opinion about my choice to go with FHA for the loan?

$520K house choices:

1)  FHA loan : 3.5% down , around $20K

2)  Traditional mortgage : 10% down , around $52K

Choice #2 is basically impossible for me.  A traditional mortgage with 5% down maxes out around $417K, so an FHA loan is basically my only choice, right?

Have an awesome weekend.

- Joe

[bobsinla]

Joe I feel like if you won't qualify, then nobody will!

We're in roughly the same boat (salary, timeframes, home price, percent down).

Though you situation sounds a bit better than mine so please keep me posted on your purchase.

[NolanSame]

Thanks Joe-D! These are all very viable questions that would be best answered by a Financial Expert.  You may want to contact your Lender or financial institution and see whether or not you can be pre-qualified for a home.  All these questions are part of your loan application, and will determine on whether or not a home purchase by June of 2012 is likely for you.  Hope this helps, and if you need to find a lender you may email me at nolan.same@redfin.com and I can refer you to our preferred lenders.

[LoansbyJW]

FHA underwriting is not that much easier (or rougher for that matter....) than Conventional. Risk is still the issue. Mitigtion of risk by documentation is your best bet. I'd suggests a Conventional loan, but if that cannot be completed by the lender you're working with, try another lender, or move forward with FHA.

Loan terms are an important consideration, but closing trumps most of these issues.

Thanks for reading,