Likelihood of automated FHA approval, and for how much?

[Anonymous]

We have decided to forego adding on to our house, and plan to just sell and buy a bigger home.  With the holidays upon us (and hearing that this is the worst time of year to try to sell) we are waiting until March 09 to get pre-qualified.  Here is what we look like (using Shane’s handy-dandy list in his stickied post):

1.       Credit.  Ch7 BK filed in May 2001.  Still hadn’t learned our lesson and after BK had one repo in Sept 2005 (on my CR only, and was settled for less than the amount owed) and DH has one CO in July 2005 (which was also settled for less than the amount owed.) We also had several late pays after BK on various accounts, but most recent 30-day late was 2 years ago (March 2007).  Finally got it together and have had no baddies since then.  Opened lots of new accounts in the last two years including 2 car loans, all with perfect pay history.  No collections.  FICO scores are listed below in siggy.

2.       Income.  DH: Annual income = $55,000 + commissions (avg. $12k/year) + $500/month car allowance; ME: Annual income = $43,680.   

3.       Source of income.  Employment

4.       Monthly debt payments.  Credit card payments = $320/month, Car payments = $1030/month, Current mortgage payment = $980. Student loans are deferred until 2010 (6 months after I graduate) but if they had to be included, I believe monthly payments will be around $100-$150/month?  No alimony, child support, union dues or other work related expenses. 

5.       Employment Both of us are W-2, can document all income.  I’ve been in my current job for 4.5 years (10 years in the same field). DH has been in his current job for 1.5 years and was in his previous job (same field) for 1.5 years (total of 5 years in the same field).

6.       Assets/Reserves.  Savings = $5,000, Checking = $2,000, 401k = approx. $4,500 (but who knows what it will be by March?!?!),  Roth IRA = approx. $1,500  

7.       Location.  Florida, Clay County. 

8.       Property We want a single family house, suburban, in good-excellent condition.   

9.       Value.  We are looking in the $200-$300k range. Average price homes in our area are around $240k.

10.    Occupancy.  Primary residence.

11.    Transaction Type.  Purchase. 

 

Our current mortgage has a balance of $101k.  A year ago we had an appraisal done and it came in at $135k (and five years ago it appraised at $155k.) I’m thinking we can sell for $130k, and after paying mortgage broker fees/realtor fees/closing costs (which we expect to pay in this market) we think we'll walk away with at least $17k, which we will use toward our down payment on the new house.

 

Thoughts? Will we have enough $ for a down payment with the new FHA rules going into effect? How much will we qualify for? And will we have any problems getting an automated approval? Anything we should do in the next couple of months to improve our chances? Any possibility we will be completely shot down with the way the market is today? I hear that it's going to get harder and harder to get credit anymore, even for folks with good credit.

 

[Anonymous]

Bump... Anyone?

[BrianB_The_Loan_Professor]

You should be fine - the system wont like that repo after the BK but there is a lot of time in between and since each. There are other strong points in your file that should help overcome that. If there is any clean up on your credit that can be done while waiting it can only help your odds.

Brian

[Anonymous]

Well, I think I have found THE house.  It's listed at $319k. I'm thinking we might be able to offer a little less, maybe $299k or $304k? 

But, I'm worried that this is really close to the max that we can qualify for.  DH income will increase by at least $5k annually as of this month, and my income for 2008 was actually closer to $45,500 (but will not increase this year...sadly, no raises for 2009.)  Also, we've paid several credit cards down to $0 balances, so our monthly credit card payments are now around $250.

Will we qualify???

[BrianB_The_Loan_Professor]

It will be close

No Calculator math here

but

$1500 a month in payments (student loans included)

New housing $2400-$2500 (less if you pay down with current equity)

Total monthly $4,000

Income $105k or roughly $9400

Puts your DTI somewhere in the mid to high 40% range and may work

B

[Anonymous]

One question...

Have you sold the first house yet. 

The reason I ask is that in this market, your house has more than likely depreciated more than 5K in the last year.  Going by what your post said, it appraised for 135K last year and I think you stated it is in Florida.  I am sure there are a coule spots that are more stable, but most of Florida Real estate has had double digit drops in pricing in the last year.  Hopefully you are not in one of these areas.  Have you checked comps and such in your area?  Depending upon where you are at the house may be worth alot less than the 135K and be more along the lines of a break even deal by the time you pay realtors, etc.  I could be way off  base on this as I don't know your particular market though, I have just seen many stories from all over FLorida of people loosing 10-15% value in the last year or more even. 

[BrianB_The_Loan_Professor]

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@Anonymous wrote:

One question...

Have you sold the first house yet. 

The reason I ask is that in this market, your house has more than likely depreciated more than 5K in the last year.  Going by what your post said, it appraised for 135K last year and I think you stated it is in Florida.  I am sure there are a coule spots that are more stable, but most of Florida Real estate has had double digit drops in pricing in the last year.  Hopefully you are not in one of these areas.  Have you checked comps and such in your area?  Depending upon where you are at the house may be worth alot less than the 135K and be more along the lines of a break even deal by the time you pay realtors, etc.  I could be way off  base on this as I don't know your particular market though, I have just seen many stories from all over FLorida of people loosing 10-15% value in the last year or more even. 

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+1

[Anonymous]

We have not sold our house yet.

I had a preliminary CMA done last month, and it came in at $171k. Obviously this is way off, but I know it's because our realtor used houses that are not quite as old as ours to do the comparison.  Homes on our street were built in the 60's - she compared ours to some homes just down the road but were built in the 80's that typically sell for just a little bit more.  I assume she did this because other than the homes on our street, there ARE no other comparable homes in the immediate area - and very few homes have been sold on our street in the last year. Two huge subdivisions with homes in the $200-$400k range were build on either side of our street.  Can't compare our home to any of those!  Down the road are some kind-of comparable homes (square footage, lot size, etc. are close, but those are the ones built in the 80's) so outside of our street, those would be the closest comps.  I really don't think an appraiser would go for that, though.  So we just won't know until another appraisal is done.

Unfortunately our area IS in a declining state. According to Zillow, the area is seeing a 13% decrease in home values over last year.  I realize this is not good. However, seeing that we only owe $101k on the house, and knowing that we won't sell THAT low, we hope to come away with SOMETHING - which we would use for our down payment.

[Anonymous]

Well, if it honestly approved at 135 K a year ago and has sustained at 13% drop in value, then you would be looking at 117K home value.  That would basically pay the loan off, the realtor fees, and leave around 7K for down payment.  I would not go buy 1 realtors report at all, particularly if they don;t have reasonable comps in the area.  Unless a home has sold in the last 2 months, it is not a realistic comp in this crazy market.  Also, comparing homes that were built 20 years apart is definitely way off.  That's apples and oranges.  For example, where I live, the area was built in 3 big developement pushes.  The older houses are about 10-15% less than the house from the mid to late 90's and the 90's houses are about 10-15% less than the houses int he brand new developments of tha last 5 years or so.  All in all, there is probably a 25% spread between similiar sizes of homes from these times.

In any case, you need to get a proper CMA with realistic comps.  This is important because if you can not get a proper one, you may have trouble selling your house in the first place.  I have senn and heard of several deals going south because they could not find recent and comparable sales to get an accurate appriasal for the bank.  In this market (especially in a declining market), alot of banks are being very strict on appraisals and comps.  We backed out of a house prior to buying the one we have now due to this very problem.  It was a bit older and there were no comparable homes sold in the last 2 months.  The bank bsaically low balled the appraisal because without any comps and in a declining market they were not going to take any unnecessary risks.

[Anonymous]

So basically we have to wait until we get an offer on the house, and then an appraisal is done at the cost of the buyer...correct?