Advice for a renter with low income and 2 kids?

7 Replies

Hey BP folks! I'm a longtime fan, first time poster. I actually just bought my first home last year in Montgomery County, Maryland (a condo with a low condo fee using an FHA loan, not a super great deal but very reasonable). I mostly did it to escape the black hole of renting, and I'm now working on increasing my income so that I can start buying rentals. I'm also trying to help my friends and coworkers out too, since most of them are renters in their 20s who'd like a home but don't really know what options are out there...

Which brings me to someone I know who we'll call "Jane". She is currently in her late 20s and is supporting 2 kids and renting on nothing but her own income, which isn't much ($30k-$40k per year, W-2 salary). She's been at her current job for more than 2 years so she'd have tax returns. She's building her credit up from nothing. Not sure what her exact score is, but it could be boosted by paying off her $300 credit card (which has a high utilization at the moment). The only items on her credit are the car she bought last summer and the credit card she opened back in August of this year. I know this because we sat down and looked at her credit report in the Mint app (a soft inquiry, and yes I know it only gives data from 1 agency but I don't expect the other 2 to be vastly different). She pays rent through a low income housing program, which ties her rent directly to her income. This means whenever she gets a raise, her rent goes up, so she can't seem to get ahead.

So here is our problem: she has no money for a down payment. Normally we could try a low or no down payment option like FHA or USDA, but those usually have a higher monthly payment to offset the low down payment. She's already struggling to make the monthly payments for her rent, so an increase in her monthly payments would be hard to afford. She also doesn't qualify for a VA loan. The best option I could think of for her would be a 203K FHA loan, but I'm worried that the combined costs of the principal, interest, taxes, property insurance, mortgage insurance, plus the repair costs and even potential HOA/Condo fees would be a lot more than she could handle. On top of that, repairing a house with 2 kids living there while working full time would be challenging for anyone, let alone a first time homebuyer. I admit though that I'm not familiar with 203K loans since the loan I used to by home was a standard FHA loan. For reference, she lives in Olney Maryland in Montgomery County, though she's not far from Silver Spring or parts of Gaithersburg and Germantown. She works in Rockville.

So, hopefully you folks can see the bind she is in. If anyone out there had any sage wisdom to share, I'd love to hear it and pass it along. Thanks for the help!

Sorry, my app crashed and this is a repost. If someone could delete it, that'd be great. Thanks!

This post has been removed.

@Sergey Pshenichkin   The first thing I would say is... "don't have anymore kids right now."  The next step is to pay of the credit card and try to build up a small reserve.

That probably means...  no smoking, drinking, eating out, and very little entertainment for her.

@Sergey Pshenichkin It does not sound like she has an ideal situation to be purchasing a rental property...maybe focus on personal debt pay down for a while and continue to work her W2 job until she reaches a higher income.

Increase income --> Decrease expenses --> Build credit --> Build savings

Then revisit this possibility.

@Sergey Pshenichkin I can tell you that probably the biggest problem for your friend is the car.  In our area, most people don’t need a car because of the public transportation that we are blessed to have, plus you can get any where in this area using Uber if really necessary. I would not recommend she gets a 203K. I agree with you that it is not an ideal way for a her to get into a home when she is trying to stay ahead with work, all while also taking care of the kids. 

Here’s my recommendation. Get rid of the car.  Do a budget and see where she can cut expenses. Stop using credit card.  Feel free to pm me, and I will share the spreadsheet I offer all my clients. 

There are a multiple Montomery County down payment programs available but she will need to be able to afford the house payment. For example, there is the new $25,000 down payment assistance which was just opened but could run out. It’s a first come first serve program.  It ran out earlier this year. There is also the MOCO HOC programs.  There is the MD grant of 4% of the sales price. There is also the Gaithersburg down payment assistance. So assistance are plenty BUT not everyone can qualify for them. 

We are in a Country that you can practically create money anytime. Just need to find a need or something that others either don’t want to do, can’t do, or need, fill it and you’ll make money.  

So before she can buy and with her income being where it is, I recommend getting rid of the car. Cut expenses and save. Do something on the side. There’s a lot of things that she can do to bring more income. It’ll come down to whether she wants to or not. 

@Sergey Pshenichkin , I forgot to also state this. If she makes $30k and she has no other debt, she can afford a house payment of $1125 a month. If she makes $40K then she can afford a house payment of $1500. This is a challenge for our area because of house prices but it can happen. I’m helping a client buy an MPDU resale condo in Clarksburg for $171,046 - in a community that average prices for same house is anywhere from high $300’s to low $400’s. 

How?  She has no debt and make enough to qualify for HOC down payment assistance and closing costs.  She only needs about $2800 for inspection, appraisal, her earnest money deposit, and remaining closing costs not covered by HOC and the sellers credit of $1700. So your friend can be a homeowner at some point but she will need to tackle the expenses and savings first. 

Where does she live and work?  MD does have a I think called "rural development loand" which is really popular here in Sothern Maryland and covers 100% of the cost of the home.  Fantastic deal!  If you are up in Montgomery County, you might have some areas near Fredrick that qualify for this loan program.

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