My wife and I are looking to buy our first house. Our credit isn't the best. What can we expect?

My creduit score is 590, hers 620. We have a little less than $8k in savings. What kind of loans could we qualify for? Will we be looking at high interest rates. Should we continue to work on our credit and savings to get a better rate? We have two children and are outgrowing the condo we rent. Advice?
Additional Details
For those curious as to which market we are looking at, we live in CA, South Bay Area.

620 isn't actually all that bad, though it could be better. I think you'd be surprised what you can get. Make sure you talk to more than one lender. You might want to try LendingTree.com. I've tried them in the past even though I went with a different bank in the end. Remember that if you start having lenders start pulling you credit report you want them all to do so in the same 30 day period or your credit score will suffer even more.

As far as types of loans, it'd take the recent housing collapse as a warning against "creative" financing. Beware of any loan that starts with a low payment then gets bigger later. You really should only buy as much house as you can afford. Make sure you read the fine print. If it sounds too good to be true, it probably is. A rough rule of thumb is that your monthly payment should be $1 per every $100 financed. This is a very rough number but if you are told you can make a $500 payment on a $100,000 loan, be wary. Keep in mind that you will also be paying insurance and taxes to an escrow account as part of your payments. You can opt out of the escrow and make those payments yourself but the benefit is minimal and if you forgot a payment it could wreck your world. Do you really need more things to keep track of and remember to save for?

$8k is not going to give you much for a down payment but that can be worked with. If you don't have at least 20% down you are going to end up paying extra. I don't know what real estate market you are in but I assume you will be looking for a house that costs more than $40k. With less than 20% you have 3 basic options. PMI (insurance YOU pay to protect the bank), a pigback loan or something like an FHA loan. I don't know much about FHA loans but they have requirements and stipulations... research well before diving. If you take a loan for more than 80% of the house's value you must get PMI. This is an added premium to your monthly payment that protects the bank, not you.

Personally I prefer a piggyback loan. The idea here is that you use your $8k as a down payment on this secondary loan from a different bank that covers the 20% down for the primary mortgage. Usually this secondary loan is at a higher rate than the primary (about 1.5% higher) and has a 15 year term instead of 30. So in the end you still pay more just like with PMI, but you and the bank cut out the insurance company. You build equity faster since the extra money is going to a loan with a shorter term and the bank takes a cut with the higher interest rate. The downside is that with PMI, once you've paid enough and you house have appreciated such that you have 20% equity in the house you can get an appraisal and have you PMI canceled. With a piggyback loan you will have far more than 20% equity in the house before the increased payments stop. You could however refinance into a single loan once you reach 20% equity.

One more thing to keep in mind is closing costs. Today's market is a buyer's market so you can make the seller pay closing costs for you. I bought my first house in a seller's market but even so, I offer $5K more than the asking price and stipulated that the seller pay up to $5K of closing costs. What this essentially does is allow you to finance the closing costs as part of the loan... which you get to take a tax deduction for the interest you pay on.

Its going to be hard. You will have to pay a much higher rate (but you can always refinance after a couple years) and may be required to put a higher down payment on the house.

There is a government program to help first time home buyers. This site will give you some info. I will look for the others. http://www.hud.gov/buying/comq.cfm http://www.rurdev.usda.gov/rhs/common/indiv_intro.htm http://www.ameridream.org/ With the current state of the economy..I think I would hold off buying until things getter better. Start working on your credit now and keep looking for other programs to help, they are out there. When Clinton gets in office everyone will be able to breathe easier.

Hold off and work on your credit.

I would work on your credit for sure. If your first time buyers you might qualify for some kind of loan but you might end up with a really high interest rate. I know people with excellent credit who can't secure a loan right now because of the housing mess.

I would try to apply for an FHA loan first. This is not score driven. You can by a home with an FHA loan with a minimal down payment (1.5% of purchase price) and get a rate in the high 5%'s with reduced mortgage insurance. If you do not qualify for FHA, work on your credit and try again in 6 months. Now is a great time to buy!

im 13 have no idea but... It depends on your age, if your young you may qualify for a student loan, or a buyers loan.Now it will take that 8k to pay back the loan but at least you and your wife get what you want, also go with her answer, work on that credit score, i wish u luck on your first house, Jake

Find out when shopping for a lender, if they have first time home buyers classes.... usually depending on the lender (in my area Countrywide and Bank of America do it) they will have class you can take, they will help you with general information and go over your credit report with you to help you improve your score.... you also save some $$$ from you purchase for taking this class its like 4 hours....

I would suggest working on your credit before you try to get a loan for a house. You will not be able to get a good rate with those scores and you will just end up paying so much more then you should.
Your kids can wait a year or two while you get things together.

You have to build your credit. Pay off your credit cards and pay your bills on time. You don't have enough savings to own a home.

IF you can get credit it will be sky-high.
You should definitely work on savings and credit scores.
Visit this web site for some tips:
http://www.cheapskatemonthly.com/
I'd also strongly recommend
Elizabeth Warren's All Your Worth
and
Michael J Laurence's Your Money Rules for Financial Freedom.

Good luck.

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