Conventional Jumbo Plan - Help to Qualify, please? :)

[joshuapd1987]

Hi there, folks!

I've been lurking around Mortgage-land for a few weeks... it looks like there's many success stories here! Absolutely fantastic. I'm posting in this forum for the first time after much achieved and much learned from the Credit Cards and Auto Loan Forums... and hoping to find continued success here!

Looking to buy my first home with a conventional jumbo mortgage in Southern California/San Diego...

Approx Asking Price: 500K

Downpayment Available: 50,000 (will be able to have this saved up probably by end of January)

Monthly Payments: Just purchased a car for 81K in July / Have a 76K car loan to pay over 54 months. It comes out to about 1500/Month. Right now I've paid an additional 3,000 towards the loan, so the principal balance is about 69,900 as of 10/15.

Installment Loan History: No other Mortgages or Auto Loans

Credit Card History: All in my signature / No lates / No baddies - Amex PRG/Plat; Chase Freedom; Walmart - Open 6/13, Delta Reserve - Open 8/13, CSP - Open 12/13, Amex Business Gold - Open 7/14 but backdated to 7/13 (Not showing in personal credit report), Diners Elite; Ritz Gold - Open 10/14

Scores: EX 720, EQ 718. TU 703 via MyFICO

Annual Income: Averages to about 120K/Year... 2012 was 120K, 2013 was 75K (I took some extended vacation time), 2014 will be about 140K

Job History: Self-employed... Combination of 1099 Wages to my company and W2 wages, depending on the client. Everything from 2012-2013 was reported as W2. 2014 about 46K reported on W2, about 100 gross reporting to my company as a gross figure.

Reserves: I have about 20K in Savings right now and about 8K in a retirement account

Looking to try to get Pre-Approval in mid-January and start looking for sometihng at the end of February. Any chance it will be possible?

Thanks so much for the help!

EDIT: To update scores/profile/current assets

[Anonymous]

Good luck, DTI seems way too high.  With mortgage and car payment, you will be over 50% DTI already

[joshuapd1987]

Good point. Yikes.

Okay - on a 450K purchase price with a 25k down payment, DTI looks more like 40%. Think that would make a difference?

[ShanetheMortgageMan]

Where in SoCal? 

If in San Diego, Orange, Los Angeles, Ventura or Santa Barbara counties then the amount you are looking to finance is still considered a conforming loan amount, and would require 10% down.  You can also do FHA financing on that loan amount, and just need 3.5% down.  In theory, you could do a 1st mortgage up to $417k and finance the remaining up to 95% (if that is, you can find a 2nd mortgage going up to 95%, nearly all cap out at 90%). 

If it's in Imperial, Riverside, San Bernardino, or Kern (if you consider that SoCal) then $417k is the max loan amount, and anything over that would be a non-conforming jumbo, which requires 10-20% down and usually a 700 or 720 credit score.

Since you are self-employed, your income will be averaged over 2013 & 2014 (when you apply in January)... so $8,958/mo if the figures you provided are indeed the ones that are used for qualifying.  You mentioned you get paid 1099's & W-2's - do you own a corporation that you pay yourself from?  Feel free to elaborate on that if you'd like.

At a $500k sales price, say with 5% down and using FHA financing, the debt ratio would be a little less than 55%.  FHA caps out at 56.99%, so you are very close to the limit, but could still qualify (most lenders cap out at 50% or 55%, but there are some that will go all the way up to 56.99%).  The mortgage would be around $3,450/mo PITI though - would you be comfortable with a payment at that level?  A $450k sales price with $25k down would drop the debt ratio to a little above 50%, and would have a payment of around $3,050/mo PITI.  Even if you went conventional and did a 1st mortgage for $360k and a 2nd mortgage for $65k, the debt ratio would be around 47%, which would be too high for conventional (2nd mortgages usually want a debt ratio no higher than 40-45%).

[joshuapd1987]

Thanks, Shane!

Re: Location - San Diego

Re: 1099s and w2s - I work in film, and when I work on major studio projects, the Studio pays me via W2. On independent shows, the
production company pays a corporation that I own.

So do you think conforming or FHA/2nd Mortgage is the way to go...? And if I get my scores in the 700-720 range, do I have a shot?

I'm comfortable with a mortgage payments you mentioned... I don't have much overhead to worry about.

[ShanetheMortgageMan]

If you've had a 2-year history of receiving the W-2 income then that should work but it'd be using a 2-year average, and if you have an S-Corp that you pay yourself through for the other projects you work then a 2-year average of that would be used.  So it's going to take careful examination of both streams of income to determine exactly how much qualifying income you'd have.  I'd recommend you file those 2014 tax returns as soon as possible, since that will make a big difference in how much income you'd have to qualify with.  It usually takes 6-8 weeks for the IRS to process them, which most lenders will need to verify before you close.

If you have 700/720 scores then a 1st mortgage up to $417k, and financing the rest on a 2nd mortgage would get you a lower monthly payment than FHA would.  But as I pointed out even on a $450k sales price the debt ratio would appear to be a little high.  So it's going to come down to how much you can qualify for with conventional financing, and if it's not enough for the home you'd need, then you may have to go FHA instead.

[joshuapd1987]

Thanks! Regarding average income... Is there no chance of presenting the gross income to my S-Corp LLC combined with my W2 gross for a more accurate representation of my income?

[ShanetheMortgageMan]

W-2'd income is considered employment, and income you pay yourself through your S-Corp is considered self-employment... so they are two different categories, would be averaged separately, then combined together.  So essentially it'd be the same, but there'd be two smaller amounts instead of one large one.

[joshuapd1987]

So - here's a question! To increase my self employment income by 20,000 (taking less write offs)... Would cost me another 10K in taxes this year. Would it make more sense to do that, or keep income the same and apply 10K to down payment?

[joshuapd1987]

Hi!

Updated original post to include current credit profile data...

My main struggle now (since over the next few weeks I have to make some payments via my company) is whether to increase the self-employed salary I draw from my Company to increase my overall income, but pay a penalty of about 10K additional in taxes because of it... or continue my current business strategy that will increase write-offs but allow me to put that 10K additional towards a down payment.

Would love any thoughts!