FHA vs. Homepath Would I qualify??

[Hizzo]

1. Credit.   My credit scores are FICO Trans: 693 FICO EQ: 639 EX Plus Score: 653.  I do not have very high credit limits.  I have an AMEX of only $700 limit with a balance of $436, a $300 credit limit MasterCard with balance of $252 which I just paid down to a balance of $30 not yet reported.  I was an AU on a card that had a fairly short credit life from 2008 which I just removed myself from because it wasn't helping that much.  Other than that, I have nothing else but student loans ($27,000) that are deffered until May 2012.  I have one collection (hospital bill of $264) on my Equifax only from at least 2 years ago and a paid AMEX charge off from 2 years ago on all 3 credit reports. 
2. Income.  I'll make roughly $40,000 this year but made about $32,000 last year.  I have other source of income such as my wife which cannot go on the loan because of her low credit scores.
3. Source of income.  Sales Engineer, full-time salary.
4. Monthly debt payments.  Just the credit cards, no car loans, and student loans are deffered until May 2012.
5. Employment. Sales Engineer, Construction, employed since July 23rd, 2007.
6. Assets/Reserves.  We have several savings accounts for different purposes but we have been tapping into them to prepare for our first son coming in September but we will have to replenish them for downpayment and closing cost purposes. So let's say there is about $1000 in savings.
7. Location.  Miami, FL.
8. Property. Single family home. 3 bedrooms, 2 bathrooms, minimum 1,000 sq. ft.
9. Value.  less than or equal to $200,000
10. Occupancy.  Primary residence.
11. Transaction Type. Purchase.

I am afraid that I would not be able to qualify on an adequate loan by myself to get us the house that we need due to DTI.  We filed our taxes jointly last year and had write offs that brought down our AGI.  And the year before that when we filed separately, I also had write offs that brought down my AGI.  If we are to include my wife's income I believe we would get the loan.  But how do we do that without her scores disqualifying us all the way?  The other thing is also which loan would be best for us or rather easier to get approve for FHA or Homepath?  We've been looking at some properties on the homepath website and wouldn't mind buying a Fannie Mae owned home.  Also would it be possible that we get approved for a lower loan amount and purchase a home that needs renovation and get a renovation kind of loan; which is best FHA 203K or Homepath Renovation?  

[ShanetheMortgageMan]

If you completely pay off your $466 in credit cards (which I suggest you do before buying a home) then your scores should increase, and you wouldn't also have the minimum debt payments in your debt ratio (which you already realize is an issue).

You don't have to use Fannie Mae Homepath financing to buy a home at http://www.homepath.com/ - you can use FHA financing, or other types (USDA, VA, etc.) too.  With scores less than 660, Fannie Mae HomePath financing requires 20% down.  With less than excellent scores you'll likely be limited to a 44.99% debt ratio (up to 49.99% can qualify but you typically need 720+ scores).

The only expenses that reduce your qualifying income are actual work/employment/business related expenses.  Are any of your expenses work related expenses that you wrote off on Schedule A Line 21?  Do you file Form 2106?

The only way to include your wife's income is to have her on the loan.

When you qualify for a rehab mortgage, you qualify for the sales price + the rehab amount.  So a $150k sales price with $50k worth of rehab is roughly the same loan amount calculat as a $200k sales price.  Now it's possible be able to find a home that is lower in price, and would cost less money to improve it to the condition that an already-remodeled home that you are interested in would cost, and be able to have the entire "project" cost less than a "turn-key" home.  Sometimes the property tax calculation for the mortgage is based on the sales price as well, and the property taxes are part of the payment you need to qualify for, so that is another aspect that could potentially allow your income to qualify.

If I was in your shoes, I'd pay off my credit card debt, enjoy spending time with my new baby boy while saving up money, improving your wife's credit & scores in the meantime, and then once you are both at a 660 score level and have 5% down saved up, go out looking for a home.  There are down payment assistance programs too, but nearly all are all based on making no more than 80% of the HUD AMI (which you can find at http://www.huduser.org/portal/datasets/il.html) which is based on the # of the people living in the home.  I'd still aim to save up 5% on your own, or if there is a generous family member willing to help out, as the down payment assistance programs run out of funds often and can add time to the closing process/making you look less appealing because you need more time than the typical buyer who is using a mortgage.

You also didn't indicate how much more income your wife would be able to help qualify with, so I can't realistically say if she'd help you out or not.  Her debt payments would also be included in the debt ratio calcluation if she were to be on the loan as well.

With your income alone ($40k/year), on a $200k sales price in Miami-Dade (inland, not on the coast), your debt ratio would be 47-48%, both your housing & your total debt ratio (since you wouldn't have any consumer debt payments as your credit cards would be paid off), and that is too high to qualify, not too far off though.  45% is where you'd want to aim for your total debt ratio to have little issue getting approved, so $185k with just your income would be more realistic.  You'd obviously want to sit down with a loan officer and crunch your actual numbers.

[Hizzo]

Thank you Shane I really appreciate your response.  It really puts things in perspective for me.  I am currently working with a LO to see where I really stand on this matter.  I can pay that $466 balance within a couple of months.  With the DTI, are you considering the student loans as well?  I was planning on applying for IBR once the loan is out of deferment and I qualify for $180 a month. Maybe that brings down the DTI percentage closer do you agree? My lease on my current place is over on December 31st and I think I may be able to save close to 5% down payment by then.  I believe that my mid score will be 660+ once I payoff my balances since it is a big jump from 653 which is actually a FAKO score; could be higher or lower.  What if I bring a co-signer other than my wife with great scores, is that an option? Will I have the option to remove them after a certain time and include my wife? 

[ShanetheMortgageMan]

You know I wasn't even including the student loans since I didn't see a payment listed, and for some reason I thought we were early in 2011 (this year has gone by real fast) so you had 12 months of deferment left... so your total DTI would be a bit higher, about 50.5%, but your housing ratio would be the same since consumer debt payments don't impact that.  A DTI that high can still qualify for FHA... but you are getting close to your limit.  If you get a co-signer then their income and debts are mixed with whoever is on the loan to calculate the DTI.  There isn't any guarantee you can remove them later and add your wife, it doesn't work like that, you need to either refinance the loan or if it's assumable (like FHA loans are, HomePath loans aren't) then there is a slight possibility your wife could assume the loan in trade for the initial co-signer.  Co-signer has to be related or a 25% down payment is required for FHA financing.