From the LRRC Case Files - High Income Edition - Week 1
I recently graduated law school and am working for a firm with an annual salary of $195,000. My wife is an assistant English principal in a local girl's school and receives a salary of $55,000 per year. We have three children and are considering buying a house, however we are having trouble coming up with a down payment. We spent all our savings on college tuition and it will take us several years before we build up enough capital for a proper down payment. By then, I am scared that the housing prices will double and we will be forced to buy a house in a different community or settle for a significantly smaller house.
Question: Although I am earning a decent income, is there any available options to help in my situation?
Answer: With a small family and a combined income of a quarter of a million dollars a year, your family is in one of the highest income brackets in the country and you may think it is unlikely that you will be eligible for any first time homebuyer programs. However, the truth is that there are two amazing options for someone in your position.
Option One: Low-Income Areas Most first time homebuyer programs are aimed at helping low-income families fulfill their dreams of homeownership. Obviously, those programs have income limits far below $250,000. However, there are many programs designed to increase the ratio of home ownership in lower income areas. These programs offer lower interest rates and smaller down payment requirements for anyone who buys their first home in a neighborhood that has been coded as a 'low-income area' - irrespective of the buyer's personal income.
Why is this relevant to a typical frum family? Well, because many parts of Lakewood are coded as low-income areas and therefore qualify for these programs. It is possible that some surrounding areas will also be coded as low income areas in the future. Because of this, despite having an annual income of $250,000 a year, if you plan on moving to a low to moderate income area (which can be verified with a housing counselor or lender), it is very possible that you are eligible for a number of first time home buyer programs that can help you save tens of thousands of dollars on your mortgage.
Option Two: Single Income Programs Most first time homebuyer programs look at the entire family's income when considering eligibility, and, with an annual salary of $250,000, you will not be eligible for those programs. However, there are a number of first time home buyer programs that only consider the income of the person who will be taking out the loan when calculating eligibility. This means that even if one spouse makes a very high salary, as long as his name is not on the mortgage, his income is not calculated for eligibility! So in your case, the entire family income is $250,000, however that number is really the combination the husband's $195,000 yearly salary and the wife's $55,000 salary. If they can qualify for the loan amount they are looking for with only the wife's income, then they do not need both their names on the mortgage. With an annual salary of only $55,000, the wife will qualify for a number of great first time homebuyer programs. Keep in mind that each family situation is different, and a LRRC Housing Counselor will be happy to review your specifics.
When to Come to the LRRC As soon as you begin contemplating buying a house, even if you don't intend to buy for another year or two, call the LRRC for an appointment to talk over you plans and build an effective strategy to help you be ready for when you take the plunge into the housing market. The most frustrating conversations we have in the housing department are with clients that call us saying, 'I am closing next week - do you have any programs that can help me?' Depending on your situation, we may have a lot of offer. Please contact us even before you begin looking at houses so you have all the information you need to set yourself up for the best mortgage option.
Tip: You can receive a free copy of your credit report every twelve months from annualcreditreport.com.
Trivia: What is the most generous first time homebuyer program available on the market?
One of the banks that we partner with currently offers the most generous first time home buyer program. Families with A) an income of approximately $58,000 a year or less, and B) less than $100,000 in assets, are eligible for a mortgage at 1.5% below the current interest rate. Many Lakewood families have taken advantage of this program, and with interest rates hovering around 4.0%, have received home loans as low as 2.5%! Re-finance options are also available.
The hidden cost of credit card points
For those using credit cards to earn points, it is important to remember the following: opening and closing credit card accounts can affect your credit worthiness in ways that are difficult to predict. If you are planning on buying a house in the next year or two, it may be worthwhile to use your credit cards as a strategic method to build your credit worthiness rather than viewing them with the goal of maximizing points or miles.
It is generally advisable to begin building your credit long before you want to actually buy a house. It can take a while to get yourself into a position to qualify for the best mortgage terms possible. Also, it is important to note that some banks require four trade lines. Discuss with your housing counselor whether it is advisable to open extra trade lines.