High front-end DTI ratio?

[cbeth85]

My fiance and I are looking to sell his townhouse and buy a new home. The house we want is about $370-375 (new construction). The problem is,  that will result in a rather high front-end DTI ratio (about 34-35%).  The back-end would be around 39-40%.  

Here's his specifics:

-credit score is about 670, but should (hopefully!) increase to around 700 when he pays off his car & majority of students loans next week

- new student loan payment around $200

-cc payment $50 (or we could pay that off, depending on if it helps)

-salary: $75,000- been employed there for 15 years

I'm not worried about the DTI ratio, as I just graduated pharmacy school and will be making six figures.  We aren't putting me on the mortgage however, as I'm currently doing a residency, and I have a rental property and lots of student loans in deferment- all of which add a lot of complication to an application. 

So, do you think he has a chance of being approved with those ratios?  We are leaning towards conventional, but aren't opposed to FHA (just hate the thought of that PMI!).

[Walt_K]

Paying off his car and student loans is not likely to raise his score.  Utilization for installment loans is not much of a factor.  

You're asking whether paying the CC of $50 would help his score.  How many credit cards does he have and what are the limits on those cards?  For most people, the ideal utilization is 1-9% on one card (i.e., 9% or less of that card's CL, not total CL across all cards), with all other cards reporting $0.  That is what you let report.  You still pay your bill in full.  So he does not need to let a $50 balance continue to revolve.  

I'm not sure about your overaching question about the ratios.  I know there are lots of posts on that if you search DTI ratios. 

[cbeth85]

Thanks for your input!  That's a little disappointing to hear that paying off installment loans won't help much.  The reason we thought it would, is because on his score breakdown, it says one factor negatively impacting his score is the number of installment loans (he has 7 or 8 student loans that are reporting separately).  Additionally, these 2 loans are ones that he has had issues with in the past (one 30 day late last year with his car and one 90 day late with one of the student loans).  So, will eliminating these accounts that have "negatives" on them help, or will the lates still show up?

[frugalQ]

once everythign is paid off, how many installment accounts will be reporting as open?  if it's only 1 or 2, it's possible that you will see a jump in score, but i doubt it will be 30 pts.

i think the rule of thumb is no more than 2 open installment loans (not including mortgage).

[Walt_K]

Paying the installment loans will not affect the reporting of the late payments.  Those lates will continue to report for 7 years.  

I have tons of student loans as well that report as separate tradelines.  That's a very minor issue.  

When was the 90 day late?  Once that passes the two year mark, you should see a modest score bump.

ETA: Also, how many credit cards does he have?  If only one, he could see an increase in score by adding an additional card.  But depending on how soon you are looking for a house, I might  not do that.  When you are you planning on applying for the mortgage.

[MortgageHelper]

Clients of mine have closed with debt ratios that high and 670 scores using conventional financing.  
 "Mod Cut"

Edited to remove contact information.Lightnin-myFICO Mod