Is there hope for us being approved??

[Anonymous]

My husband and I have decided we'd like to try to buy a home since now seems like a good opportunity.  I'm a stay at home mom currently and bring no income in outside child support payments (which I know cant be counted since were just doing this in my husbands name).  My scores arent the greatest either due to a family member wreaking havoc-- but I am in the process of getting back on track.  

My main concern is, is there any possibility that we'll be approved??  My husband has been working at the same place for 2 yrs so we would've liked to have included his overtime but because they switched names and addresses, we've been told he hasnt "technically" been on the same job for 2 yrs and it cant be used.  His gross monthly income is $2, 528.93 and we have a car payment of $365.00.  We have no credit cards.  He does have some collections, a couple being medical from about 3 yrs ago (they are $100 or less) AFNI for $230 (should fall off by11/09) and CMI for $334- in a dispute and recently updated on his report as such.

My husband also has student loans.  They all total around $15,000, they all are deferred except one because the interest is high and we wanted to work on getting that down, it totals $60.05.  In Jan. '10 the deferreds will be due again and the payment will be $173 but we plan on deferring them all again.  So when they figure in student loan payments do they figure the full amount in loans or the monthly payment?

His scores from the lenders are ok, his middle is 625 so were ok there.  I just think the DTI is too high if they go with total loan amount.  One of the lenders told us that our DTI was 50%.  I dont understand how they get that figure though.  If rent, util., etc arent included we are sitting at $0.

We do have a checking acct. as well as savings with close to $1,000 in it.  And hes got his 401K which has $1000.00 in it as well if that counts for anything.

Any thoughts??

[rockymtngrl]

What price range do you have in mind?

[Anonymous]

Hi, 

We were trying for $100,000.  That way our payments would stay close to what we pay in rent currently, which is $700/mo.

[ShanetheMortgageMan]

If the employer provides a letter regarding the name change then he should be fine to use OT.  Also the requirement is that they must have rec'd OT for 2 years, but not necessarily with the same employer.

The debt to income ratio has two portions, the first is the housing ratio which is the new house payment divided by gross income, and the second is the total debt ratio which is the housing payment + payments on other debt, divided by gross income.  Just using the income you listed, the housing ratio is about 28% on a $100k home with a 3.5% down payment on an FHA loan, and that is solid since FHA prefers the housing debt ratio to be no higher than 31%, however your total debt ratio (when you include the car loan, and payments on the student loans) goes up to about 51%, and FHA prefers to be no higher than 43%.  Higher than 31/43% can qualify, but you need to exhibit compensating factors such as a strong credit score, at least 2 months of reserves after closing (which in your situation would be about $1,500), and/or more than the minimum down payment.... or get an automated approval (which would also likely require one or more of the compensating factors just listed).

The OT should be able to be used though, perhaps you just need to find a lender who doesn't require the OT to be at the same company for 2 years, or a mortgage broker who could check with their listed of approved lenders for you.  Also the SL payments can be excluded from the debt ratio calculation if they are deferred for 12 months from the closing date. 

[Anonymous]

Thank you, Shane.  The information you were able to provide me was very helpful.  I was never able to get a solid or straight answer about it until now.  I will definitely have him check about the letter from the employer regarding his overtime.  We have had a tough time finding lenders that are willing to work with us let alone answer our questions. 

My husbands student loans are deferred right now and will be in repayment in Jan '10 but he has applied for the IBR program.  I don't know if your familiar with it but it moreless takes your AGI from your W2, figures your total amount of student loan with total dependents and than calculates how much your responsible to pay each month for the year and than next year, they figure it out again.  This is typically good for 10 yrs and since its for government loans, no interest accrues (at least from what I've read) for 3 yrs.  Now, if hes approved for IBR (since we are well within the income guidelines) could we present that as proof to the lender showing it would be deferred for a solid year?

Also, one last question because one of his loans are private and the interest rate is higher on that (13.25%) if we decided to continue to pay that and not defer it, would that hurt our chances for approval?  The loan payment is $60.05/mo.

Thank you so much for your advice!  

[ShanetheMortgageMan]

Welcome.  I am not familiar with what the IBR program's paperwork would spell out, but it'd need to be very clear to the underwriter that the payments will be deferred for 12 months past the closing date (can either say when it'll be deferred until, or when the first payment is expected) - the letter can't say "deferred until 8/2010 with the option for additional deferment dependent upon applicants enrollment in school" and you write a letter stating you are planning on re-enrolling, or anything ambitious like that.  And yes, any additional payments on consumer debt will push the total debt ratio higher and will need to be compensating for that much more.  Being able to use the OT income should help you out quite a bit though.