Q: I’ve had a tough time lately and have had my hours cut on my job from 40 to 32 per week. But I do have some good savings and my employer promises full-time work by this fall. So I’m thinking I can actually afford a new home loan, unless it doesn’t cost me a fortune. With interest rates this low, and housing prices this cheap, I think it’s a good long-term deal. Any idea on how I can get a mortgage on the cheap?
A. A lot depends on how much you have in savings, how good your credit rating is, and whether you can prove to a lender that you’re a good long-term credit risk. Given your current job situation, it’s that last point that threatens you most, but let’s leave that aside for the moment.
Perhaps your best shot at a good, affordable mortgage loan is a Federal Housing Administration (FHA) loan. If you have a less-than-stellar personal financial story to tell, an FHA loan may be your only viable option.
While you didn’t give us your credit situation, the fact that your job hours have been cut could lead you down the road to what the FHA calls a “Bad Credit” FHA Home Loan.
These loans look and feel a lot like a traditional mortgage loan, but the barriers are lower for approval. With an FHA Bad Credit FHA Home Loan, you’ll need:
1. At least a 3.5% down payment (compared to 10% or 20% for traditional mortgages)
2. A FICO credit score of at least 580 (any score between 500-580 means you’ll have to put at least 10% down on a new home).
3. Some serious paperwork, including:
- Two months worth of bank statements
- Two years worth of tax returns
- Two years worth of W-2 or 1099 forms
- Two months worth of pay stubs
- A mortgage loan application
- Any alimony or child support documents
After you complete your mortgage application and deliver all the documentation, your lender will begin the process of evaluating your loan. Specifically, they’ll focus on your current debt-to-income ratio and whether they feel you can handle the estimated monthly mortgage payment. Obviously, they’ll still take a good look at your credit history, too.
Once you’re approved, you’ll have to fill out a lot of FHA paperwork, but you’ll be cleared for your loan and can start planning for your big move.
FHA loans are even available two years after a personal bankruptcy and three years after a foreclosure (not that you’re in that category). The good news for you is that Bad Credit FHA loans are available for borrowers with unique job circumstances, like employees with less than two years on the job or self-employed individuals who work different hours.
Start the process with a visit to the FHA web site.
And best of luck on your job – and on your new home search.