Denied for FHA during underwriting, due to inquiries and income to debt ratio.

[tha1datshyns]

A little history..I began working on my credit at the end of last year; at the recommendation of a local credit unions mortgage rep, she advised me to clean up all negatives, and open a few trade-lines; making small purchases and paying them off, in anticipation of qualifying for an FHA home loan. So I did exactly as advised cleaned up everything and opened my first trade-line, a month later I opened my second and third,and between the 5th and 6th months I opened 3 more. During the process of getting accepted by some, I also was denied by others, and in 7 months the credit union ran my credit 3 times to check on my progress, I also shopped around with 2 other mortgage companies around the same time receiving 2 more inquiries. I signed up and completed the first time homeowners classes thus gaining another inquiry..So where I am now is; 7 months later; 6 mortgage inquires, 1 Verizon, and 14 credit apps while trying to build credit (6 resulting in trade-lines established), 6 within a 30 day period.

Present day..I was preapproved by that same bank about two weeks ago with a middle credit score of 651 for FHA financing, the loan officer at that time informed me that everything looked good credit wise, and I just needed to keep the amount of the home as close to 80,000 as I could get it, after that I began looking for a home. I found the perfect little house submitted an offer; in the end we agreed on 85,000 with 1200 closing cost; I also have 8,000 to put towards it. After everything was signed and submitted to the bank our contract began. The loan app was submitted to underwriting 3 days ago; on the third day I received notice that it was denied due to too many inquiries, and new credit within 6 months, and debt to credit being too high for that house (I make 21,000 a year, and have absolutely no other obligations other than rent and utilities, and my credit report is free of any debt). What I don't understand is why would the loan officer advise me to apply for and establish credit, and allow me to try for a mortgage loan if I needed to wait? And if it was going to hurt me in the end, and also why would she tell me to look for houses in that price range if it wasn't within the limits; if she had have given me the correct amount I was eligible for I wouldn't have even attempted to step outside of that. . I have never bought a house before, so when I came to her 7 months ago I was completely new to all of it; so I did everything she told me I needed to do to obtain it; IM very confused right now and IM not really sure what my next move should be, has this basically shut my home shopping down for the remainder of the year? Any advice is appreciated.

[09Lexie]

I am sorry this happened to you. You asked why the loan officer gave you the advice ( that you followed) that ultimately was not accurate. Simply, some if not most loan officers are not underwriters. They do not make the decisions on credit approval. What you experienced happens from poorly trained, over zealous sales people. There are some loan officers who are also certified underwriters- it appears you had one who had no idea what thy were talking about. any loan officer worth it's salt would never suggest or encourage adding/ obtaining new credit within 6 mos-1 yr of buying a home. Calculating debt to income should have been easy but he/she seemed to fail at the task as well.

To answer your question, the problem is if it falls outside of FHA guidelines there is nothing that CU can do to approve your application. If the loan officer ever committed to these ideas in writing- you should take it up with his manager. Maybe they will have a first time buyer program they can make an exception

Good luck.

[Kozmo]

While I understand the frustration... To be fair you did go a little overboard with the apping. I know your new to this and I do sympathize.

I don't blame you for shopping around to other mortgage lenders but you should have waited to do those when you knew your score was up to par.

Also, the LO did say to open "a few trade lines"...6 is a bit excessive in such a short period of time. Could she have been more clear? Maybe. But she probably didn't anticipate this many accounts being opened.

But I feel your pain. You may just have to wait a little while. Let some of those inquiries age a little bit and keep making on time payments to everyone.

On a side note a first time home buyers class should be SP'ing people. What a shame to HP for a reason like that. It's almost like a penalty for doing the right thing!

[In-A-Limbo]

i spoke with 3 lenders in the past 6 months. I told them that I have 2 cc (been rebuidling my credit with these 2 cards) and all 3 of them advised me not to apply for any more card. They all said 2 is plenty. Also, they all advised me to keep the ratio of each card at 10%.

14 is a lot in such a short period.  ALso, I'm surprise that your credit scores remains in the 650s after 20+ inquiries.

[xazilizax]

The loan officer told you to apply for credit, but not 14 times. lol  No wonder you have all those inquiries on your report and in a short amount of time.  That is a bad sign.

[xdfanatic]

I am just going to share this as it was my experience when just learning about the mortgage process.  Inquires don't really matter in the grand scheme of things that much, what matters is how old they are and how many were done in one shot.  The other important factor is what happens to your average age of accounts when you acquire that new credit.  If your inquires are all less than 6 months old or you have a bunch just short of a year it can make a difference and can be seen as you looking for credit to help you out of a bind.  The other important part is the average age of accounts, you are going to need a good two year payment history no matter what your score is, this can be a factor for denial as well.  Let everything age a little more and as things ripen you should be fine to go at it again.

One thing I would reccomend is finding what your front and back end DTI is, this is what they were refering to when they denied you.  IMO your best bet is to know what your doing for yourself and figure out what you can really afford based on what your actually paying in bills and not just what shows on your reports.  This information is your best friend when shopping for homes IMO because only you really know what you can afford.  Just remember that even if you think you can afford more it cannot be more than the max DTI for your situation.

[foofighter74]

Well, I can tell you that underwriters can and sometimes do deny loans they might otherwise approve simply because they don't feel "right" about the file...and one of the things that can bother them is seeing to many inquiries...regardless of credit score.  To them, it looks like the customer will apply for credit at any and every opportunity and that could be a recipe for disaster. 

Every file is different, but UW will make people write a LOE for even 1 inquiry that pops up during the loan process that wasn't there in the beginning...just imagine how they'd feel about multiple inquiries, even if they haven't dragged the score down much.  It just doesn't look good.

[prince1969]

I have a lot of inquiries which worry me. Loan officer said he never saw so many. He told me to say I was rate shopping for a mortgage and applied for some credit around Christmas time and to put that in writing. I have plenty of cash and will be making a rather large downpayment. Basically, I have to because my income is very low. Doing a 15 year FHA. Credit score is around 680. Utilization is under 10% and I could pay off everything if I wanted to but I want to maximize my score. My file was just sent to underwriting. Loan officer said it may take up to two weeks.