I have a cousin who is looking at purchasing his first home. He has been looking at renting to avoid the hassle of buying. He starts a new job with the state at 36k/year. His wife makes atleast about 10k/yr working part-time and her own side business. He also drills, so add about $7k/yr, totalling we'll say, $50k a year combined.


That's 4100 gross a month. He says their bills total about 2700/mo, which includes everything (gas, food, utilities, cars, credit cards and student loans, etc...). That leaves him with 1450 a month. He will want to add to his savings so we were thinking he might not go over 750-800 a month in a mortgage.

His delima is this, he doesn't mind renting, but rentals in the area where his job is and within a 30-40 min drive are around 8-900/mo for a 2/1 and 900sf, for little apartments. I assume that these rentals are so much higher than what he would pay in monthly mortgage because these owners are renting at what they paid the houses for, and now that the market is so low that buying would be a better option but he is concerned that he wont be approved for a loan due to his credit score. I figured i would come here and ask your opinions from what you have experienced or seen recently with lending and mortgages.

This is the information i have gathered from him thus far:


Credit score as of 6 weeks ago 620, hers was about the same.
Has in savings $8k and some change. (Which I mentioned he could use 3k of to pay off his wifes car, eliminating 300 payment a month which might help their score and more cash per month)
Never late on any bills
No bankruptcies
No liens
The only negative that i see from what he has told me are his student loans and credit card balances.
He has his VA Loan certification, which he has never used.
He banks with USAA, BofA, and PFCU, but would be willing to go elsewhere for the chance of approval.

1. Does he stand a chance at borrowing around $100k for a home with his current situation?
2. Is it wise to pay the car off or be able to use that towards points or closing?

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Now i have some questions as well that arose while talking with him.

3. With a VA, do people pay points or offered to?
4. Are there upfront closing costs or can they be included in the mortgage?
5. With the VA and preapproval, how soon does a closing date usually take once a contract is initiated and agreed upon? He wants it before the Nov 30 tax rebate date.


He really wants to buy and save, and when he deploys again, use the 25-30k saved while deployed to then pay down a lot of his loans. Or maybe be able to talk down the price of a home and finance it's appraised value (appraised at 90, asking 88, talk them down to 85, but finance the 90 and use 5k to either fix some issues with it or pay off some debt.
6. Is that a feasible/realistic idea/plan in his situation?







Thanks for your help.

1. Sounds like he's got a good chance. Credit scores are a little low now though. Hard to find a lender that does government loans lower than a 620 on a purchase.

2. Pay off the car. VA loan is 100% and the seller can pay closing costs. Take advantage of that and get your monthly debt obligations as low as possible. I would avoid paying points to get a lower rate unless you know you will be in the house long enough to re-coup the difference. Take the payment at the interest rate with no points and subtract the payment on the loan with points. Take that amount and divide it into the cost of the points. That is the breakeven point in number of months it will take to recoup the investment.

3. You can pay up to 1 origination point and 2 discount points on a VA loan. Doing so though, it has to be worth while otherwise you are throwing away money.

4. Seller can pay the closing costs. This is negotiated in the offer to purchase.

5. No longer than a conventional. The old myth that seems to never go away is that government loans take longer to do. That is false. Some lenders have longer underwriting times because government loans make up so much of their volume now but it's still not enough to make the process any longer.

6. Where is his wife going to live while he is deployed? Go ahead and buy now. Rates are low, it's a buyers market in most of the country, and it's cheaper than rent. You can't borrow more than the actual purchase price except to do energy efficient improvements to the property.

4. Even it is bank owned, they (the bank) still might pay the closing costs?

6. The wife will live in the house while he is deployed I assume, dont know where else she would go so that's what i think. Will ask. Does that make a difference?

4. Yup... Just put it in the offer to purchase.

6. It makes a difference. As long as they are married and she is living in the house then it will be considered his primary residence even while he is deployed.

Great. One last question. According to the VA funding chart, why would a RC Soldier have a higher % to pay than an AD? Is this true for even RC Soldiers that have deployed?

It says AD is 2.15% and RC is 2.4% for first time user when putting no money down.

Also, he is saying that the VA origination fee can be included/wrapped into the mortgage so it is not money out of the pocket.

1. IS that correct?

I thought I knew a lot about mortgages until now.

Btw, he was approved for a loan. He asked for 100k, got it at 5.25%. His only concern is having paid off his wife's car already ($3500) and two student loans ($1000), that leaves him with about $5k in savings and is worried that will be drained come closing time if he cant get the seller to pay closing costs.

2. If he can get the seller to pay all closing costs, at this point, what other out-of-pocket expenditures is he looking at that he would have to dip into his savings?

The VA Funding Fee is financed as part of the total loan amount.

If the seller is paying the closing costs then the only thing he should expect to have to pay is to send a check for the appraisal to the lender and a home inspection if he is having one done.