mortgage 15 down
Tuesday, August 17th, 2010
I have about 15,000 saved for a mortgage, but i have bad credit?
My wife and I have 550-ish credit scored, but we have about 15,000 saved for a down payment. I know this isn’t 20% of a 110-120K loan, but would it be enough to qualify for a mortgage anyhow?
Most banks won’t lend to someone with this low a credit score, unless they charge you a huge interest rate. If they do lend, they will charge you much, much more.
To give you an example, if you had a very good credit score (above 720) you could get a 30 year fixed loan for $120,000 at 5.25% and pay $662/month for principal and interest (real estate taxes and insurance are extra, of course). At your score, you are probably looking at 10%, which is $1,053 a month (almost $400 a month more!). And this $400 a month more continues for the life of the loan unless you pay the loan off faster by refinancing, which has costs of its own.
I would first pull your credit reports for free at www.annualcreditreport.com and find out what is going on to make your score so low. If there are negative items on the report that should not be there, get them removed by sending a letter to the creditors stating that under the fair credit reporting act this item does not belong on your credit report.
If there are negative items that are there and are correctly there, then you have to decide if it is worth paying them off to improve your credit score.
If some of this $15,000 could be used to clean up mistakes of the past and boost your score, you will save much much more over the long run by getting a lower interest rate.
If you find paying a few things off to improve your score will still leave you with enough for a 5% downpayment, then try shopping around for banks, especially credit unions as they tend to be more forgiving about people’s situations.
Also, if this interest in buying a house is to get the $8,000 tax credit, you might be too late. That deal is only good until November 30, 2009, and if you don’t already have a house lined up, you probably can’t get one closed and financed in two months.
Sorry, wish I had better news.
It is great that you saved up the downpayment, but probably better if you use it to improve your credit score and continue renting for a while.
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