Self-Employed - Do I have any chance for an FHA in today's housing market?

[Anonymous]

I've been self-employed for almost 4 years. My income from self-employment has DOUBLED every year since starting my business. In December 2007, I was making around $5K a month. Since that time, I've been making $8K monthly and even that figure is now increasing.

Here's my credit situation - My scores are not good. I hover around 580-600. BUT... I have two horrible Cap One accounts from 6 years ago. The reporting of them is killing my utilization (currently showing up as around 270%). I am paying them off this week and, if everything I've learned on this board is correct, paying those revolving debts down to a zero balance should significantly increase my scores. I have no collections added to my report within the past 2 years and every prior collection account will be paid with a zero balance. I have $500 in old collections I am also paying off in the next couple of weeks.

I have a horrible student loan situation on my credit report. But I'm almost done with my rehab program and it will all be rehabbed on May 1 and brought to current status with the derogs deleted (if what I was told is correct).

I have no debt, 3 paid off car loans all in good standing - no current car payments and my only bills are typical cost-of-living expenses - car insurance, utilities, etc. I have one credit card with a $5 balance.

Am I still going to be subprime/high risk because I'm self-employed, even though I have full documentation showing my business profit has doubled every year and the first quarter of this year will show another year of doubling my profit? Could I be a possible candidate for FHA? I also would only be looking for a loan around $175K with my $8K monthly income.

I also will have money in savings, will have funds to pay closing and 5%-10% down payment money.

Message Edited by mxnuy1 on 02-24-2008 12:57 PM

[ShanetheMortgageMan]

For the $500 in old collections, I would first try a pay-for-delete (PFD) with those accounts... as paying off negatives from a long time ago actually makes them look fresh, with a recent date of last activity... and can actually lower your scores by paying them off.  Doing a PFD will remove them if you pay them.  You first need to ask the creditor/collection agency if they'll agree to a PFD.  From my experience, rehabbing a student loan should definitely remove the late marks in the past once the rehab is complete... so I think you are being told correct information.

Self-employment does present a higher risk than being employed, however it wouldn't be the basis for you needing a sub-prime loan.  Self-employed applicants qualify for FHA just as often as employed applications.  Now is the income you are listing after expenses are taken into consideration?  Since you said you are "profiting" and didn't use the word "grossing", I assume it is after expenses are calculated.  If so, then your debt to income ratio would look great for FHA.  I'd say you should try the PFD's, pay off the Cap 1's (assuming those aren't charge-offs/collections) to reduce your utilization, complete the student loan rehab... and you'll be looking pretty good.  If the student loan isn't federal, and if you've been on the rehab plan for 12 months, then you might not even need to wait for that to be completed before you'd be able to qualify.