Pay self first, acquire home, then charity
Jessica White/DC Columnist
Issue date: 9/2/08 Section: Business
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I tried to get approved for a loan last year and failed. I tried again this year and failed. I make a good salary - $58,000/year, and my credit score is above 620. I am only trying to buy a modest condominium that costs about $250,000. My problem is that I do not have any savings. My personal monthly expenses are low but my parents are both deceased and I promised my brother that I would help him through college. Is there any way I can buy a home? I am feeling very discouraged.
Thanks.
JW
Dear JW:
I admire you for wanting to support your brother while he is in school. But, you should not do so at the expense of taking care of yourself. Retirement planners always say to "pay yourself first" - meaning set aside money for your own retirement before you pay your bills. You have the same situation here. You have to pay yourself - i.e. build your savings, before you send money to your brother.
I assume that you need 100% financing. One hundred percent prime financing is available to you with a 620 credit score. Your only problem seems to be that you do not have "reserves" - an amount of money set aside equal to two months of the "PITI" payment (principle, interest, taxes and insurance) for your condominium or home purchase. This money can be in any type of account - checking, savings, certificates of deposit, retirement (although lenders credit only 70% of your retirement savings towards this reserve).
If you want to buy a $250,000 condominium, I would ballpark your monthly payment at about $2,000. Therefore, you need about $4,000 in reserves to qualify for a loan.
I would suggest that you make a monthly budget of all your expenses and see where your money is going and if there is any expense that you can cut. With a $58,000 salary and minimum monthly expenses, you are either giving your brother a lot of money each month, or spending a lot of money needlessly, or both. If you could save $1,000 a month, in four months you can buy your condominium. Four months of budget tightening is not so difficult, especially when you have your eye on such a big prize at the end of it. I would be very motivated in your shoes to cut back on dinners out with friends, movies, clothes, even supporting my brother, for such a short duration.
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