First home buyer, financing questions
I think we would be good with paying around $1200 monthly mortgage fees (with all other property fees included like tax etc.) You probably can't get a $250k house for $1,200 a month including taxes and insurance.  Even at a 4% rate and 20% down, your mortgage payment alone will be $954, and with taxes and insurance on top of that you're going to be over $1,200.  You might get a lower rate but even a drop to 3% only lowers the payment $90/month. Getting a cheaper house (which also reduces taxes and insurance) is the best option financially. What to do with the $15k that I have? If you didn't have a mortgage I'd say to keep 3-6 months of living expenses in an emergency fund, so I wouldn't deplete that just to get a mortgage. You're either going to be  Since 1) the mortgage payment would be tight and 2) you aren't able to save for a down payment, my recommendation is for you to rent until you can make a 20% down payment and have monthly payment that is 25% of your take-home pay or less.  Which means either your income goes up (which you indicate is a possibility) or you look for less house.  Ideally that would be on a 15-year note, since you build equity (and reduce interest) much more quickly than a 3-year note, but you can get the same effect by making extra principal payments. Also, very few people stay in their house for 30 years - 5 years is generally considered the cutoff point between renting and buying.  Since you're looking at a 10-year horizon it makes sense to buy a house once you can afford it. "When you say ""apartment"" I take it you mean ""condo"", as you're talking about buying. Right or no? A condo is generally cheaper to buy than a house of equal size and coondition, but they you have to pay condo fees forever. So you're paying less up front but you have an ongoing expense. With a condo, the condo association normally does exterior maintenance, so it's not your problem. Find out exactly what's your responsibility and what's theirs, but you typically don't have to worry about maintaining the parking areas, you have less if any grass to mow, you don't have to deal with roof or outside walls, etc. Of course you're paying for all this through your condo fees. There are two advantages to getting a shorter term loan: Because you owe the money for less time, each percentage point of interest is less total cash. 1% time 15 years versus 1% times 30 years or whatever. Also, you can usually get a lower rate on a shorter term loan because there's less risk to the bank: they only have to worry about where interest rates might go for 15 years instead of 30 years. So even if you know that you will sell the house and pay off the loan in 10 years, you'll usually pay less with a 15 year loan than a 30 year loan because of the lower rate. The catch to a shorter-term loan is that the monthly payments are higher. If you can't afford the monthly payment, then any advantages are just hypothetical. Typically if you have less than a 20% down payment, you have to pay mortgage insurance. So if you can manage 20% down, do it, it saves you a bundle. Every extra dollar of down payment is that much less that you're paying in interest. You want to keep an emergency fund so I wouldn't put every spare dime I had into a down payment if I could avoid it, but you want the biggest down payment you can manage. (Well, one can debate whether its better to use spare cash to invest in the stock market or some other investment rather than paying down the mortgage. Whole different question.) ""I dont think its a good idea to make any principal payments as I would probably loose them when I would want to sell the house and pay off the mortgage"" I'm not sure what you're thinking there. Any extra principle payments that you make, you'll get back when you sell the house. I mean, suppose you buy a house for $100,000, over the time you own it you pay $30,000 in principle (between regular payments and any extra payments), and then you sell it for $120,000. So out of that $120,000 you'll have to pay off the $70,000 balance remaining on the loan, leaving $50,000 to pay other expenses and whatever is left goes in your pocket. Scenario 2, you buy the house for $100,000, pay $40,000 in principle, and sell for $120,000. So now you subtract $60,000 from the $120,000 leaving $60,000. You put in an extra $10,000, but you get it back when you sell. Whether you make or lose money on the house, whatever extra principle you put in, you'll get back at sale time in terms of less money that will have to go to pay the remaining principle on the mortgage."
While I agree with the existing bulk of comments and answers that you can't tell the lender the $7k is a gift, I do think you might have luck finding a mortgage broker who can help you get a loan as a group.  (You might consider as an LLC or other form of corporation if no one will take you otherwise.)  That is, each of you will be an owner of the house and appear on the mortgage.  IIRC, as long as the downpayment only comes from the collective group, and the income-to-debt ratio of the group as a whole is acceptable, and the strongest credit rating of the group is good, you should be able to find a loan.  (You may need a formal ownership agreement to get this accepted by the lender.)  That said, I don't know if your income will trump your brother's situation (presumably high debt ratio or lower than 100% multiplier on his income dues to its source), but it will certainly help. As to how to structure the deal for fairness, I think whatever the two of you agree to and put down in writing is fine.  If you each think you're helping the other, than a 50/50 split on profits at the sale of the property seems reasonable to me.   I'd recommend that you actually include in your write up a defined maximum period for ownership (e.g. 5yr, or 10yr, etc,) and explain how things will be resolved if one side doesn't want to sell at that point but the other side does. Just remember that whatever percentages you agree to as ownership won't effect the lender's view of payment requirements.  The lender will consider each member of the group fully and independently responsible for the loan.  That is, if something happens to your brother, or he just flakes out on you, you will be on the hook for 100% of the loan.  And vice-versa.  Your write up ought to document what happens if one of you flakes out on paying agreed upon amounts, but still expects there ownership share at the time of sale. That said, if you're trying to be mathematically fair about apportioning ownership, you could do something like the below to try and factor in the various issues into the money flow: The above has the benefit that you can start with a different ownership split (34/66, 25/75, etc.) if one of you wants to own more of the property. I am sorry for your troubles, but impressed with your problem solving skills.  Keep going, things will get better.   Your best hope is to find a place that does manual underwriting.  If they do computer generated stuff, then you will be kicked for sure.  If you can show 20% down, and have some savings, and have some history of paying bills, then you might be approved.   Here in Florida, RP Funding still does manual underwriting.  Another one that is mentioned is Church Hill mortgage.  Also you might check with local credit unions. Of course your best bet to be approved is to be open and state upfront the challenges.  You have to find someone that has the ability to think, has the ability to see passed the challenges, and has the authority to do so. Omg, the answer is easy. Tell the TRUTH, and nothing is fraud. Down payment gifts are SOP's, and every lender works with that. EACH lender has their own rules. Fannie May and Freddie Mac could care less, and FHA and VA backed loans allow for full gifting unless the buyer's credit is below the standard 620, then 3.5% must come from the buyer. Standard bank loans want to know the source of the down payment for ONE REASON ONLY: to know if the buyer is taking ON A NEW DEBT! The only thing you will need do is sign a legal document stating the entire down payment is a gift.  That way the bank knows their lendee isn't owing a new substantial debt, and that there aren't two lenders on the house, because should she default, the bank will have to pay you back first off the resale. Get it? They just want to know how many hands are in the fire. "Your headline question ""How do you find best mortgage without damaging credit score?"" has a simple answer. If you have all your ducks in a row, and know what you are doing, you will get qualified. If you are like a recent client of mine, low FICO, low downpayment, random income, you might have issues. If your self-prequalification is good, you are in control, go find the best rate/ total cost, no need to put in multiple applications. If, for some reason you do, FICO sees that you are shopping for a single loan, and you are not dinged." The loan agent surely knows that having a combination of loans greater than the value of the property (less some margin) is illegal, but also impossible.  Your first mortgage, mechanic's liens, tax liens, and so forth are a matter of public record.  In most states the records can be viewed online, by anyone, for free. The title search prerequisite for getting the second mortgage looks beyond the low hanging fruit for things like aborigines claims for parcels of land that include your property.  The loan agent is trying to sell you a home equity line of credit. Almost everyone gets one after building up some equity.  There's often no closing cost and it's not necessary to ever use it.  Keep it for emergencies. &gt; Am I over simplifying things?  Yes.  Insurance, property taxes, water/sewer taxes, legal fees, upkeep/maintenance, and mortgage insurance premiums should be included in your expense model.  This is in addition to principal repayment at your loan's interest rate.    &gt; or could somebody with more experience clue me in to why this is a bad investment?  The answer depends on your financial ability to pay and the area in which you are seeking to buy.  A lot of factors, actually. All the above advices plus this: For you first house, you should start smaller. Buy a 100k or less condo if possible, then grow from there. You sell every 5 years or so when the market is favorable and you will slowly get to that nice 250k house. So how do you buy a house in or near Toronto?  What are the numbers? So basically $800,000 for a starter house. Here in the midwest you would need to make $250,000 minimum to qualify for that mortgage. 2.5 time income. Is everyone renting?  I see that in California?    Also rents don’t support the house value in the Bay Area. So basically property managers are renting not for profit but for value growth. "Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit.  The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be ""other than house debt"" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment.  PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering.  I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low.  By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?" I will preface saying that I only have personal experience to go on (purchased home in KS earlier this year, and have purchased/sold a home in AR). You do not give the seller the document stating the amount you have been approved for. Your real estate agent (I recommend having one if you don't) will want to see it to make sure you will actually be able to purchase a house though. But the contract that is sent to the Seller states the total purchase price you are willing to pay and how much of that will be financed. Link to blank KS real estate contract shows what would be listed. Looks like it is from 2012 - it is similar to the one I had back in March, but not exactly the same format. There is a lot of your financial information that the selling agent handles in the course of a real estate transaction, including but not limited to your pre-approval letter which states what maximum purchase price might be. Closing costs and interest rate are not details they would know unless you shared that with them, given that that is done after you go binding.  I agree with xiaomy in that, while in absolute monetary terms the higher amount should always be more attractive, the selling agent wants to ensure the transaction goes as smoothly as possible. With contracts falling through due to first-time buyers not making it through mortgage underwriting, it is in the seller's interest - and thus the seller's agent's concern - that the buyer not present such hurdles. Insofar as a higher down payment is a signal for that, then I can understand why it would be more attractive. "That ""something"" you are signing means you are liable for the mortgage payments - yes, all of them - if he can't or won't pay at any point.  The limit on what the bank will lend him based on his salary is there for a reason - they don't expect him to be able to keep up repayments if they lend him more (or more precisely, there's a big risk that he won't). Don't forget that even if he swears up and down to you that he can afford them, interest rates can rise; this is a 25 or 30 year commitment you would be making. Interest rates are at a historic low and the only way from here is up; in my living memory rates have been 12% or even 15%. As a very rough rule of thumb, for every £100k borrowed, every additional 1% on the interest rates costs an additional £100 on your monthly payment.  Also, the ""Transitional Arrangement"" is not without its own fees and the bank won't let him simply take you off the mortgage unless they are convinced he can keep up the repayments on his own, which they clearly aren't. Also thanks to @Kat for the additional good point that being on the hook for your friend's mortgage will prevent you from being able to get a mortgage yourself while the liability still exists, or at least severely limit your options. No matter how many times you protest ""but I'm not paying any money for that!"" - it won't help.  Another point: there are various schemes available to help first time buyers. By signing up for this, you would exclude yourself from any of those schemes in the future." Unfortunately, what you are finding is that your past decisions to take on debt have limited your choices now. Learn from this fact and choose not to go further into debt. Your condo will become a burden if you don't have the liquid funds to maintain the property, keep the mortgage current, and hedge against any other significant life events. You already have almost no financial margin. These steps will almost guarantee that you will enjoy your house and have a worry/stress free experience. You make plenty of money for you to complete this cycle in a handful of years and be ready to buy. Also, don't give yourself false either/or choices. You have options. Our apartment is way too small for just the two of us, much less a child. We'd have to move before we had a child and we'd like to live in our own house when we do. Not true. Rent a cheaper apartment further outside the city, which will also be larger. It probably won't be as nice as the one you have now. Buy a car for cash under $5000. It is a sacrifice for few years while you work for your dream home.   You already know this is a bad decision. Continuing down this path will leave you with the same frustrations 10 years from now. Good Luck! Pre-qualification is only a step above what you can do with a rate/payment calculator.  They don't check your credit history and credit score; they don't ask for verification of your income; or verify that you have reported your debts correctly. They also don't guarantee the interest rate. But if you answer truthfully, and completely, and nothing else changes you have an idea of how much you can afford factoring in the down payment, and estimates of other fees, taxes and insurance. You can get pre-quaified by multiple lenders; then base your decision on rates and fees.  You want to get pre-approved. They do everything to approve you. You can even lock in a rate. You want to finalize on one lender at that point because you will incur some fees getting to that point. Then knowing the maximum amount you can borrow including all the payments, taxes, insurance and fees; you can make an offer on a house. Once the contract is accepted you have a few days to get the appraisal and the final approval documents from the lender. They will only loan you the minimum of what you are pre-approved for and the appraisal minus down-payment. Also don't go with the lender recommended by the real estate agent or builder; they are probably getting a kick-back based on the amount of business they funnel to that company. My experience with owning a home is that its like putting down roots and can be like an anchor holding you to an area.  Before considering whether you can financially own a home consider some of the other implications. Once you own it you are stuck for awhile and cannot quickly move away like you can with renting.  So if a better job opportunity comes up or your employer moves you to another office across town that doubles your commute time, you'll be regretting the home purchase as it will be a barrier to moving to a more convenient location.   I, along with my fiancée and two children, are being forced to move out of my parents home ASAP.  Do not rush buying a home.  Take your time and find what you want.  I made the mistake once of buying a home thinking I could take on some DIY remodeling to correct some features I wasn't fond of.  Life intervenes and finding extra time for DIY house updates doesn't come easy, especially with children.   Speaking of children, consider the school district when buying a home too.  Often times homes in good school districts cost more.  If you don't consider the school district now, then you may be faced with a difficult decision when the kids start school.   IF you are confident you won't want to move anytime soon and can find a house you like and want to jump into home ownership there are some programs that can help first time buyers, but they can require some effort on your part.  FHA has a first time buyer program with a 3.5% down payment.  You will need to search for a lender that offers FHA loans and work with them.  FHA covers this program by charging mortgage insurance every month that's part of your house payment. Fannie Mae has the HomeReady program where first time home buyers can purchase a foreclosed home from their inventory for as little as 3% down and possibly get up to 3% from the seller to apply toward closing costs.  Private mortgage insurance (PMI) is required with this program too.  Their inventory of homes can be found on the https://www.homepath.com/ website. There is also NACA, which requires attending workshops and creating a detailed plan to prove you're ready for homeownership.  This might be a good option if they have workshops in your area and you want to talk with someone in person. https://www.naca.com/about/