Pay self first, acquire home, then charity

Dear Ms. Mortgage Maven,I tried to get approved for a loan last year and failed. I tried again this year and failed. I make a good salary - $58,000/year, and my credit score is above 620. I am only trying to buy a modest condominium that costs about $250,000. My problem is that I do not have any savings. My personal monthly expenses are low but my parents are both deceased and I promised my brother that I would help him through college. Is there any way I can buy a home? I am feeling very discouraged.

Thanks.

JW

Dear JW:

I admire you for wanting to support your brother while he is in school. But, you should not do so at the expense of taking care of yourself. Retirement planners always say to "pay yourself first" - meaning set aside money for your own retirement before you pay your bills. You have the same situation here. You have to pay yourself - i.e. build your savings, before you send money to your brother.

I assume that you need 100% financing. One hundred percent prime financing is available to you with a 620 credit score. Your only problem seems to be that you do not have "reserves" - an amount of money set aside equal to two months of the "PITI" payment (principle, interest, taxes and insurance) for your condominium or home purchase. This money can be in any type of account - checking, savings, certificates of deposit, retirement (although lenders credit only 70% of your retirement savings towards this reserve).

If you want to buy a $250,000 condominium, I would ballpark your monthly payment at about $2,000. Therefore, you need about $4,000 in reserves to qualify for a loan.

I would suggest that you make a monthly budget of all your expenses and see where your money is going and if there is any expense that you can cut. With a $58,000 salary and minimum monthly expenses, you are either giving your brother a lot of money each month, or spending a lot of money needlessly, or both. If you could save $1,000 a month, in four months you can buy your condominium. Four months of budget tightening is not so difficult, especially when you have your eye on such a big prize at the end of it. I would be very motivated in your shoes to cut back on dinners out with friends, movies, clothes, even supporting my brother, for such a short duration.

In terms of dealing with your brother, I see two approaches. The first is that you just tell him that you love him, you are proud of him, and that you want to help him, but for this one semester you will be unable to provide as much support as you have in the past. For one semester, he may have to get a job, or pick up additional hours at a job he already has. Then, next semester, after you have saved your money and bought your condominium, you can resume supporting him.

Or, if you told him how much you want to buy a condominium, and how much it means to you, but you need to save your money for four months, you might find that he believes in your dream of home ownership as much as you believe in his dream of a college education. And he may want to reciprocate and make sacrifices for you (earn some money on his own) the way you have done for him, and offer on his own to get a job or do without your support for such a short time.

You are not abandoning him or failing to fulfill your obligations to him as his older brother by tightening the purse strings for what amounts to one semester. You are allowed to be assertive and pursue your dreams, as he is pursuing his.

Ask your bank to automatically withdraw as much money as you can possibly spare each month and put it into a separate savings or other account. Keep your hands off of it. That is your "reserve" money - to serve literally as two months reserves for your home purchase. And then you may want to keep it as "reserve" money in the event you lose your job so that you will have a cushion to pay your mortgage.

Talk to your brother. I bet you will be surprised by his response. All the best,

Jessica White, also known as "Ms. Mortgage Maven," is a mortgage consultant with Tenacity Mortgage, a division of Tenacity Group. She can help you purchase or refinance your home or investment property. She can be reached at 202-607-4449 or Jessica@msmortgagemaven.com. You can also apply online at www.msmmortgagemaven.com.