Getting a mortgage, chances are....

Anonymous · ‎01-14-2011

I had ask this in another topic but I think it was out of place as my posts changed as I learned more. So I wanted to put it in the right place due to no responses.

I just read some very interesting posts on here but I feel that I'm almost never going to win. I found out that Child Support paid counts for DTI! Holy crap, I don't know if I have much of a chance to afford much now. I also read if 8 or 10 months only are remaining on installment loans they wouldn't be counted in DTI? Good news is I got my wife's info pulled with TU and EQ and I pulled my TU as well. Here's the info with all amplifying information. Can someone weigh in on the questions below?

Active duty E-6 so would apply for VA. Was on VA loan when I filled BK. In addition, I had a 125% mortgage with another lender in 2001 that was also in my BK. I haven't read anything to lead me to believe that this matters for eligibility now.

My TU is 712 my EQ 702. My wife's TU 708 and EQ 704. So I figure this puts us in pretty good place.

I have the BK from 2001 and no other baddies. My wife has 3 paid collections from 2005 and that is it for her.

All of her debt (which is 0$) is revolving now. I mistakenly thought that her credit was worse than mine so I'm the only one on both car notes. Do I ask NFCU to add her to a car loan?

Considering all of my pay and military entitlements and her pay from government service (less than 1 year on job) when we move to Jacksonville FL in NOV 2011 we will make basically 7750 gross a month.

I keep seeing different DTI ratios and DTI questions on the site so the answer just gets more confusing.

Should I wait till my BK falls off my CR in JAN 2012 to even attempt to buy?

With 7750 income

Scores listed above

7K in savings by NOV 2011

Child support paid by me 1100 a month

Child support received by her 200 a month (But is anything but regular)

My car 550 (balance about 30k)

Her car 696 (we owe 26K still but could maybe get it down to 6500 or so it wouldn't count towards DTI?)

5 CC's (credit limit around 36K but all have ZERO bal)

How does all this look for me?

I have been looking at houses in FL and it seems I could be happy with a house in 225k-240k range. Will I qualify for anything this high? This forum is a great tool and I really appreciate the responses!!!!!

Anonymous · ‎01-14-2011

Unfortunately there are several issues.

If your wife is only going to be on the job for 1 year, that will be an issue unless she has been int he same field and is just coming back from a leave of some sort. (leave can be any number of personal reasons.) But is this is her first job in that field they ususally want to see 2 years income to count the income.

Second. They only drop loans less than 10 months that are under 100 per month. So you will need to qualify with both car payments unless you can pay one of them completely off *you may get some consideration if it is just a month or two from payoff though).

Of her child support has been erratic, they may not count it as income

Last....Due to both cars and the child support, you are going to be hard pressed to get a loan. You are looking at 2500 per month in debt currently (the cc debt even though it is at zero will count a minimum payment amount I would factor in at least 400 per month for almost 40K in cc available credit or around 1% of available credit)

Anyway,,, your predicted income leaves you about 3400 available for total debt, 2500 of which is already tied up. That means a house in the 100 to 125K range at best and probably not even that as most of FLorida has pretty high insurance costs and I am not sure what the taxes are there.

I wish there was better news, but even if the child support was dropped out (it will not be), the car loans and available credit would only leave you in the neighborhood of 1700-1800 per month for a mortgage and you would be hard pressed to find a 240K house for that unless the taxes and insurance were pretty low.

Anonymous · ‎01-15-2011

I was hoping for a happier answer than that! Need honesty though. Any thoughts on waiting till the bankruptcy falls off?

I figure they probably would count her child support because we don't even count on it.

On the first point, how's does this sound for an underwriter. My wife was in the navy for 14 years and she was involuntarily separated. She worked 3 months as a contractor in the exact same building doing the same job after the navy while waiting to get the GS position. The GS position is same office/job as the military and contractor. She will have to transfer in the government system in the exact same job just in FL. Does that sound like a good example for her income counting?

Secondly, the reason I thought your payments wouldn't count as DTI if under 8/10 months is posts like this one.

http://ficoforums.myfico.com/t5/Mortgage-Loans/High-DTI/td-p/338751/highlight/true

Of course this forum is a learning tool for most everyone and not everything is 100% accurate but this was my assumption. Are my assumptions and this post wrong or is up to bank/CU?

Third, why would why credit balances being at 0 affect my DTI? I may get a more expensive car in the future too but that isn't figured in DTI so how could future/potential credit balances be figured in? I specially ask this question in this forum because I thought having so much available credit was a detractor from financing but was told it would actually hurt my AAoA if I closed them and they couldn't figure anything in to DTI from zero balances.

Is there a good site to figure average insurance cost and taxes for houses in specific localities? From what I can see on taxes they are about 1% a year, is that "high"?

Thanks for the knowledge and please continue to assist!

Anonymous · ‎01-16-2011

As far as the loan payments, the post you quoted was from 2008. Things are a lot tighter now than they were. Generally they were alwasy suppossed to count them but UW let it slip by.

The transfer for your wife should be fine.

Revolving credit accounts with a zero balance are given a minimal payment amount to be factored into DTI to make sure that if and when someone charges them up, that available debt is counted. USually it is pretty minimal, but with almost 40K available in credit, it is going to be enough to have to consider. I would estimate somewhere in the neighborhood of 1% of available balance or so monthly will be counted towards DTI.

Anonymous · ‎01-16-2011

So should I cancel some of my cards then? The newest ones?

Anonymous · ‎01-16-2011

canceling the cards may help DTI a tiny bit, but it is the car payments and the support that is killing you. Also, you would take a score hit more than likely for the closed accounts. So, no I would not close them. In the scheme of things, they are not really the issue.

Anonymous · ‎01-16-2011

What are the standard front and back end numbers that are used for DTI? Does it differ for VA, FHA, or any other mortgage? So if the BK drops off I should see a ??? increase in score? Couple the score increase with paying off the 700 car note I would in situation to get a mortgage in the 1800 range?

Lel · ‎01-16-2011

@Anonymous wrote:

Last....Due to both cars and the child support, you are going to be hard pressed to get a loan. You are looking at 2500 per month in debt currently (the cc debt even though it is at zero will count a minimum payment amount I would factor in at least 400 per month for almost 40K in cc available credit or around 1% of available credit)

I hadn't heard of this being factored in to DTI calculations before. It seems like this would penalize those with high credit limits. Since I've never had a zero balance on all my credit cards , I wouldn't have been aware of this default DTI factor.

But even if the underwriters factored in 1% utilization of available credit ($400 in your example), the full balance wouldn't be used to calculate DTI - only the minimum payment of that $400. So, for example, if the minimum payment is 5% of the outstanding balance, this would only be a $20 monthly payment. This wouldn't make that much of any impact on DTI.

And to second what mickie08 said, I certainly wouldn't cancel any credit cards in advance of a mortgage application. The credit cards will have a net positive impact on FICO scores over the long term. Sure wish I knew this before I went through two rounds of CC cancellations long before I learned about how credit scoring works.....

Anonymous · ‎01-16-2011

When you have open accounts with zero balances they assume at some point that you are going to use them. The standard I have heard tossed about is to factor in a monthly payment for each card based on 1% of the total balance (not factor in 1% utilization). That means for a 40K balance you would count 400 per month towards DTI. This is still well less than what the payment would be if you were to max out the cards, but is a fair estimation of possible future payments.

As far as it penalizing people with high unused credit, yes and no. You should not have enough open credit that if it were maxed out you would be unable to meet your obligations so counting it into DTI makes sense from the lenders standpoint. Too many people work really hard to get ready to buy a home by paying off credit cards, etc to get score points and lower DTI to max out home loan amounts. Then 6 months later they have a house full of new furniture and maxed out cards again and are then overextended. That is the main reason that they started counting available credit towards DTI.

Anonymous · ‎01-17-2011

@Anonymous wrote:
When you have open accounts with zero balances they assume at some point that you are going to use them. The standard I have heard tossed about is to factor in a monthly payment for each card based on 1% of the total balance (not factor in 1% utilization). That means for a 40K balance you would count 400 per month towards DTI. This is still well less than what the payment would be if you were to max out the cards, but is a fair estimation of possible future payments.

As far as it penalizing people with high unused credit, yes and no. You should not have enough open credit that if it were maxed out you would be unable to meet your obligations so counting it into DTI makes sense from the lenders standpoint. Too many people work really hard to get ready to buy a home by paying off credit cards, etc to get score points and lower DTI to max out home loan amounts. Then 6 months later they have a house full of new furniture and maxed out cards again and are then overextended. That is the main reason that they started counting available credit towards DTI.

Seems counter productive in some regards. Make sense but FICO rewards you for "smart" utilization of revolving credit and UW penalizes you for it. If UW counts 1% of CL I really have no option but to close some accounts regardless of the affect on my FICO. I think I can buckle down and get my $700 PIF by the end of the year, close my 3 store CC, and wait till my BK leaves in DEC. Then I would have 1100 in child support, 18.5k in revolving credit, and 550 car note with a 720ish credit score.