Just got pre-approval but.....

[sueyang83]

So I just got pre-approval for a FHA mortgage but my broker said my DTI ratio is a little high but it still went through.  He stated that he will be sending all my information to the UW to get the final approval.  My question is how did he figure my DTI ratio at 47%?  I came up with a little over 35%.  Can someone help me here.  Here are the same information I gave the broker.

Income: $3460 gross per month

House: $46,000

DP: 3% requirment from FHA

Property Tax: $1,800 / year

Insurance: $750 / year

Interst rate: 4.75 for 30yr

Bills per month:

Car loan: $457(A year after bankruptcy)

Rent: $650 (lease will be ending in 2 months so hopfully I get the house before than)

Credit card : $110 (it's just one card from Kays....this is their monthly payment)

Student loans: $0 (it's on the CR but not due to pay)

Do they count car insurance, cell phone, utilities, food ?

[tjeff]

From what i read, stuent loan payments have to count even if they are not in repayment. They usually use 1%  of the total student loan amount for your monthly payment (50000 loan debt =50.00 payment).

[sueyang83]

Ok will in that case, my student loan is $3,500.  That's only another $35 so I don't see it being 47% LTV. 

[StartingOver10]

47% is still well within approval range. Why did he say it was a little high? Are you using a broker or someone that actually funds the loan? If you are using someone that does not fund their loan, get another estimate from someone that does - a mortgage banker. You will have a much better process in your purchase. Also, you said FHA, yet 3% is a conventional loan down payment, not FHA. Is your lender planning a conventional loan rather than FHA? In that case, the ratios are a little high. Something is not adding up right.

Also, your current rent doesn't belong in your ratios at all. It's the cost of the new purchase that gets added into the ratios (PITI plus MIP). Another issue, why did he say its only 3% down? FHA requires a minimum of 3.5% down. The lender will use actual real estate taxes (the most recent billing) and actual insurance to determine those factors. Not "projected" taxes.

Are you sure he is using your actual gross income?  Did you add in your mortgage insurance premium into your figures on the new purchase to calculate the ratio? Go back to your LO and get a breakdown of each of the figures so you know what s/he used to calculate the ratios. If you see something in error, then that is the time to correct it, before the file gets to underwriting.

I am concerned with this lender you are using because he indicated that 47% is high. It sounds like they are very conservative or the LO is new. In either event, go to another lender so you have an alternate resource. Based on your post and his comment I would be very wary of this lender.

[sueyang83]

I'm sorry, it was 3.5% down for the FHA.   I'm going through a broker that was a recommendation through my workplace .  He's been doing business with my workplace for 15 years.  Also, my workplace has a Employee Home purchase plan that will put up to $3,500 towards closing cost, down payment or both.  So hopefully that will covers all their fees. 

He stated that FHA requires 41% DTI ratio so my 47% is a little high.  I will be meeting with him next week so I will find out how he figured out the 47% when I figured a little over 35%.

He calculate that my mortgage will be around the $450 rage include property tax and insurance.   So if I plug in these numbers, it's under 35% DTI ratio.

Also, about the ernest money....is it required?  The seller is a long time family friend and he don't really care for the ernest money.  Do I still have to give an ernest money if the seller don't really care if I do or don't?  The seller prefer me to save or keep the ernest money for any repairs that I want to do (paint, carpet, locks, doors).

[StartingOver10]

The earnest money is held in escrow until closing. It does not go directly to the seller until closing.

The amount of the earnest money is negtiated and it is applied to the amount that is due at closing for down payment and closing costs.

FHA requires 3.5% down. Sometimes people get down payment assistance but the assistance has to be specified up front. You will want to put something in escrow for your earnest money deposit - even if its only $500.

As to using the money to repair the property: FHA has standards of acceptance that the property has to pass in order to obtain an FHA loan.

I am surprised that your mortgage person can only do 41% back end for FHA. He must be a very, very conservative mortgage broker. But if it is someone you know and trust, than the only way to get your ratio's down is to pay off outstanding debt you have already. Find out from your friend how he is calculating your ratios so you know what he is looking at and can take appropriate action. He should be able to send you an email in just a few minutes as to his calculations.

[sueyang83]

Ok thanks for the information.  The property has no damages.  The roof, water heater, furnace is about 8yrs old.  There is no leaks in the roof or basement.  The only thing that need fixing is carpet, tiles, paint and whatever that I want to fix or replace according to my taste.  Everything is just cosmetic but who knows, the inspecter might see other things.  This home was a FHA purchase 15 years ago which probaly mean nothing now.

[sueyang83]

So I got off the phone with the broker and he said he heard my gross income wrong.  He thought I said twenty-four-hundred instead of thirty-four-hundred.  So my DTI ratio is 33% which is way under.   Next question...

I am buying a home from a long time family friend.  I need to get an offer letter written up.  The broker is checking on prices from the past lawyer that he used to see their rates.  Has anyone done this before and how much am I looking to dish out?  Can this be added to the closing cost instead of out of pocket cost?

[StartingOver10]

For your closing costs, you and the seller can put X amount in the contract for the seller to pay for your closing costs and pre-paid expenses. FHA will allow up to 6% of the purchase price to be paid by the seller toward your closing costs and pre-paid expenses. The amount of your costs is then deducted from the seller's proceeds. This deduction is in addition to the seller's own closing costs. If you do it this way, then you can have most of your costs covered depending upon how much the seller is willing to pay. This is a negotiating point in your contract that affects the price you pay and the amount the seller receives.

Your lender will give you an itemized estimate on a closing costs worksheet for closing costs and pre-paids. Once you have that you and your long time family friend can come up with a contract showing, for example, that the seller will pay 4% of the purchase price (max is 6% but 4% is a normal amount). In your purchase contract you and the seller come to an agreement as to who selects the settlement company (title co or attorney) and who pays. Once you have a contract and make official mortgage application, then your LO will prepare a Good Faith Estimate (GFE) for you. Make sure the language you use in the contract for the seller paid closing costs includes pre-paid expenses too. Otherwise you will have to bring more money to closing to cover the escrows collected by the lender at closing.

Closing costs are composed from lender fees/costs + title co/closing attorney fees + government fees and pre-paid expenses are things like real estate tax and hazard insurance escrows and pre-paid interest. . Look at the sticky above the mortgage section to get an idea of what is included in the GFE. Sounds like you are not using a Realtor so your seller won't be paying a commission.

[sueyang83]

Well I am paying for all the closing cost.  The friend is selling his house to us for the price he bought it for back in 1996($46,000).  As he stated, he is not looking to make any profits on us since we are like family.  He already invested over $15,000 on the house since he owned it.  New water heater, furnace, roof, garage door and grage door opener so I don't think he will buldge on paying for the closing cost.  I don't blame him.  Also, he is including a 3 year old fridge, stove, new toilet, a year old 8hp snow blower, a lawn mower, and ktchen tiles but I will have to install it myself.   After all this, I couldn't ask for him to pay for half the closing cost too.  He knows my situation and trying to help me the best he can.