The District Chronicles

Issue date: 5/5/08 Section: Business

Dear Ms. Mortgage Maven,

My husband and I make a good income - $200,000, since last October when he started his own law firm. (He is an attorney and I am his secretary.) We just paid off his student loans (which were in collection) and rescored his credit. His credit score is now 607 and we want a house that costs $465,000 with no money down. We are also looking for a thirty-year fixed mortgage and not an adjustable rate mortgage.  What do you think (ballpark) we would be looking at in an interest rate and a monthly payment?

Thanks,

Pam

Dear Pam,

I think you will be lucky if you can even get a loan. You have several factors working against you, which will make it difficult if not impossible for you to qualify.

I do not know what you mean by "rescoring" his credit. If anything, his score will go down for a while since he just paid off collections accounts. That is probably not the "rescoring" you had in mind. Eventually though, his score will indeed improve.

With a 607 credit score and no money down, plus a "jumbo" loan amount (over $417,000), you are in the "subprime" market. As you probably know, the subprime market has been tumultuous for the past couple of months due to an increase in foreclosures. Several subprime lenders have shut their doors.

Those who are still operating have tightened their guidelines - raising the minimum credit score requirement, requiring down payments, etc. Not many lenders would be interested in doing this loan, and when you do find a loan the interest rate could be as high as nine or 10 percent.

To get "prime" financing, you would have to put some money down, and with a 607 middle score, most lenders would probably want to see you put a full 20 percent down. For a $465,000 purchase price, if you put $48,000 down you would at least get your loan amount down to $417,000. That amount is a magic number in home lending because it is the maximum conforming loan amount set by Fannie Mae. Everything above that is considered a "jumbo" loan.

However, even if you had $48,000 to put down, you have another significant factor that could negatively affect your ability to get your loan approved by an underwriter: your husband's new self-employment status.

Whether or not you are doing a full documentation or stated income loan, an underwriter will want to see two years of self-employment history. If it is a full documentation loan, the underwriter will want to see two years or business and personal taxes to document his income. Sometimes, you can get an exception with only one year of self-employment history.

Continued...

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