Living on a Budget, Saving Money/Homebuying and credit
Based on what I've seen from your past answers, you may finally be the person that helps me without recommending I build credit. I am a FPU graduate, and I do my best to follow the Dave Ramsey plan, I used to have a spreadsheet to create my budget at the beginning of every month, but now I use everydollar.com. I have no credit or debt, and I finished my emergency fund. As people often do, I think I'm in a bit of a tough situation. I would like some advice or correction from someone that holds the same financial principles.
My wife and I would like to purchase a house when it is the right time. I am not swayed by rushing in to catch a certain interest rate. I want my situation to be stable. However, here is the current situation:
1) I have no credit.
2) I only have five months of work history at my current job, and will almost certainly be making a change before I have two years of work history required for manual underwriting.
3) It turns out my wife had an old credit card that she never closed, and hasn't used in several years, but it apparently left her with a 760 credit score. (we found this out when we got preapproved last year by Church hill mortgage with just her on the application)
4) We are currently paying $1200 a month in rent. We take home about $3600 per month.
5) We are hoping my wife can finish this year of teaching, and be a stay-at-home mom come September 2016.
So here are the things going through my mind:
1) Although we are saving $100-$500 per month, even if I squeezed another thousand dollars out of the budget per month, if I don't have the work history to be approved for a loan, how will we get a house? If we close her card, she will have bad credit or no credit when the time comes for buying (that is, when we have a sufficient down), and that would likely be after she has finished working, so she wouldn't have the job history to fall back on.
2) The advice I have been getting so far is to start using her card instead of closing it. Obviously this is something that doesn't sound like a good idea to me.
3) I will be working to increase my income over the next 12 months, so hopefully that will eliminate a lot of problems, but with insufficient credit and work history, is it destined to be a two-year wait or the 100% down plan?
4) Or is it possible to close her card now, hope that she has zero credit score before she quits her job, and have her manually underwritten before she leaves work, and find a home within the 90 day window that the preapproval remains open?
5) We live in South Florida, and I would like to believe that we put in our due diligence on searching for a place to rent and it is hard to find a safe part of town for less than $1100. Besides the income/expense portion of this equation, are there options for no credit/insufficient work history? Or do I just need to get my income up and wait it out?
I suppose another portion of this is that my wife is willing to participate in budget meetings, and all of the financial strategies, but she's not exactly excited about Dave's principles so renting for another couple years is tough for her to accept. She will go along with whatever we decide to be the wise plan of action, but I'm just trying to see if there's a way to get this done without waiting another few years.
Thank you. I hope I didn't give more information then required. I tend to do that.
Sorry for the delay, I have been out of town and and wanted to spend some time on your question.
1. I have read that the credit bureaus are actually looking at starting another system that looks into your history of paying rent, utilities and your banking habits, which is the way it should be done. But it may not be available now so we will look at some possible alternatives. Small bands and credit unions may be your best bet for getting a mortgage.
Looking back at my life and seeing where you are at, if you only have a few years 3-5 and you can put 100% down, I would be all over that!! Look at your what you pay in rent, 1200.00 a month. Now imagine you having 1200-1500 a month to save, invest and live on. This will open up all kind of options for you in the future, such as how much you work and time you get to spend with your wife, and children! Instead of the first 1500.00 you make a month belonging to the bank, it can belong to you. When you need a car you will have the money to pay for it or any hazards life throws your way. Three years of rent is tough, but the next50-60 years without a house payment will change your family tree!
2.Remember the FICO score is just a number that tells you how well you play their game. As Proverbs 22:7 says the rich rules over the poor and borrower is slave to the lender. The only way I suggest that you get the loan now would be able to put 20% down and get a 15 year fixed rate. Other options would be to see if your wife would be willing to work longer to get the 100% down plan done quicker and you continue to build your income as much as possible. It may be a hard sacrifice, but it sets you up with more options the rest of your life. I didn't, when I was younger and I have to play catch up instead of being in front of it. You can also see if you can get an owner finance home or rent to own. Continue to work and save your money and make them an offer years down the road for a buy out early at a lesser price, which saves you money, or by then a bank will finance you (15years fixed) by then. You could also buy a fixer upper if you wish, cheaper, and do the work. It will take some time but it is better that being a slave for 30 years! My favorite option is 100% down. You said you can save maybe 1000.00 a month now while paying 1200.00 in rent. Ask you and your wife how your life would be if you had a paid for house with 2200.00 a month so save, invest, and do what ever with? Thats 26400.00 a year If you invested that 2200.00 a month at only 6% interest, for 30 years you would have 2.2 million dollars even if I am half wrong you are still in good shape!! I hope this helps, its hard to be patient when you are starting a family, but it is even harder when you rush into debt. A hard 3-5 years versus a hard 30-50 years. I hope you guys are blessed!!