Mortgage Underwriting Process

[johnosonc]

so I've applied for my second home as an FHA.  My first loan is conventional and I no longer live in the home and am renting it out.  My broker says that they count 75% of the rental income as additional income and that I should still qualify for the second home which I'm going to use as my primary.  I got a preapproval and have submitted an offer, home appraised for 245,000 offered 236,000, so now I have to wait for underwriting.  I haven't been able to get a good answer on what goes into this process only that it takes 5-10 business days.  I really need this to go through can my loan still be denied or are my chances good?  My broker says she submitted the application to one lender and that everything looks fine.  She seems so passive even though I'm anxious. Has anyone had this experience?  Should I be worried or confident?

[Anonymous]

how long have you been renting the 1st home.  They do require some rental history before they count Aany of the rental income towards DTI for a 2nd home purchase.  Also, I believe there are equity requirements in the 1st home, at least by some lenders.  So there really is not near enough info (debt, income amounts, rental income, etc) to offer any real opinion. 

[johnosonc]

I have been renting the first home for 1 year.  It rents for 1225/month and the mortgage is 1254/month.  My household income is about 125,000/year.  And we have one other car loan at 500/month, no revolving debt.  I have two recently paid charge offs and my wife has some old medical collections update.  Our mid scores were 654 and 632.  

[Anonymous]

DTi should be OK so it should be a matter of how they look at 2nd dwellings.  Some banks/programs have LTv limits for 2nd mortgages and some require the 1st mortgage to have 20% equity, etc.  So if the 1st is underwater or has no equity it may be an issue.  Also, if you are looking to go as little down as possible might be an issue.  They may want to see a lower LTV on the 2nd loan than the normal minimums.  Last, They may have some higher FICO standards for 2nd loans and if that is the case, the 632 is not going to cut it (654 probably not as well).  You may go right through with none of these thing popping up, it just depends on the lender and some other factors that I do not have knowledge of (i.e you down payment, overall credit history, LTV of 1st home, are the homes in declining markets, sources of income, etc).  There is alot that goes into these things and it is about 2x as hard to gete a 2nd mortgage loan than the 1st.  One thing I do remember is they want to see reserves when doing a 2nd mortgage.rental situation in case you get stuc for a few months without a tenant or some large unexpected repairs..

[johnosonc]

Both houses currently appraise for about 10,000 more than the loan value.  On a FHA, we've put down 3.5% in earnest money which equals about 9000.00.  American Southwest is the lender she has put our file with, and I assume that's who the underwriter is with.  Both houses are in very good markets, but I was not asked any of those questions during the application process. My wife and I are both teachers for the last 2 years.  Our reserves are at about 5000 dollars.

[BrianB_The_Loan_Professor]

It sounds like your DTI will be ok

They will NOT be able to count the rental income

You do not have enough equity in the first home and have not been renting it out long enough to count the income

Also if you will be living in the new home (required by fha) it will not be seen as a second home as far as loan status (second home would be like a vacation home)

As long as your dti works with both mortgages you should be fine

Good Luck
Brian

[johnosonc]

They seem to be counting the rental income at 75%, since it has been one year.  Also, they have not asked about equity at all, so I'm not sure if this is considered.  Yes I will be living in the second home.  I being told the underwriter will only approve if the loan can be sold after closing.  It will either go to Chase or Bank of America.

[BrianB_The_Loan_Professor]

The guidelines say 2 years or 30% equity

but if they can count it that will help

I think you should be fine either way

It must be a correspondent lender for them to say that it has to be sellable before they will fund. - That is not something you hear a lender say

but makes sense if they fund in their own name and then sell (correspondent)

Good Luck

[johnosonc]

Thanks, so if I was preapproved should I still worry or call it a done deal?

[BrianB_The_Loan_Professor]

It is never done until you have the keys

I have seen so many wierd things pop up over the years however they are rare

You are probably fine