What are our Chances of Qualifying?

[ncscgirl2005]

Crossing my fingers that Shanethemortgage person will reply.

Ok so here's our scenario. I hope you can help us out by giving us a plan of action. We want to know if we'll be able to qualify for a new mortgage loan (for home #2) and if I will be able to have my name put on that loan.

My husband is in the military (11 years). When we moved here to our current duty station in 2005 we purchased a small new construction 3 bedroom, 2 bath home for $100,000. We used his VA loan to do so but I am not on the loan. At the time, I was unemployed (having just moved here) and I had a late payment on my auto loan that was less than 2 years old so the broker that we pre-qualified with thought it would be best to leave me off the loan. I am currently still not on the loan. We have made all mortgage payments on time and have consistantly paid all bills on time. We have not had a 30-day late payment since 2004 (on a credit card).

Fast forward to our present situation, we have recieved orders to relocate to another base. We would like to keep our current home to use as a rental property and try to buy a home at our new duty station in June 2008. We definitely need a bigger home this time around so we are looking at purchasing a home at around the $160,000 mark.

Here's our financial situation. Our combined income is around $60,000. When we move, I will again be unemployed so that will reduce our income to around $40,000. At the present time I have three years of solid employment with one employer. I plan on looking for fulltime work but it's just a matter of how soon I can find a job (not a good job market in the new location). I don't have a range for our credit scores but I can tell you that mine was around the 679 mark in mid-April but I applied for a car loan and a new checking account around that same time so I know my score probably took a hit. I did not, however, take the car loan. We have been working on paying down our credit card debt over the past month or so and have managed to pay off about $3,000 worth of debt. This month we hope to pay off another $3,000-$4,000 (it's amazing how you can find money all of a sudden). This will reduce our total cc debt to about $8,000 (yikes! i know).  We are also disputing errors in both our credit reports so hopefully that will help a little. So here's it's laid out:

Current Mortgage Loan-$670/month ($95,000 left on loan)

Car Loan-$300/month ($9,000 left on loan)

Credit Cards-$500/month

My credit report- One cellphone bill account ($786) in collection since 2004. One 30-day late payment on auto loan in 2003. At the present time I have only revolving credit on my account. I am not on the car loan or the current home loan. I have, however, two car loans on my credit report but both have been paid in full and closed. Only one had a 30-day late payment.

Husband's Credit Report-Three late payments on credit cards. Two were September 2002 and the third was 2004. None since 2004.

Reserves: $13,000. DH does not want to use these funds to pay off the remaining credit card debt. He wants to leave it in case we cannot find a renter for our current home. We really cannot afford to pay two mortgages on one income (in case it take a while for me to find a job)

Do you think it will be possible for my name to be put on the loan this time around even if I am not employed at the time of the loan? Also, should we wait to apply for a loan and pay down our cc debt more? We really do not want to rent but we will if that's what it takes. Lastly, if we can qualify, what type of loan should we be looking for?

Thank you in advance.

[ShanetheMortgageMan]

Assuming all of the debt you listed is joint debt... The only hurdle I see in your plan is that on $40k of income, and without a signed rental contract on your current home, your guys debt to income ratio will be way too high to purchase a new home in the $160k range - or really a mortgage on any home.  Right now, only using $40k/year, your guys debt to income ratio is about 44% ($1,470 / $3,333 = ~44%)... throw in the payment on a $160k mortgage with property taxes/homeowners insurance (~$1,200), and your debt to income ratio would be about 80%... and that's not going to cut the mustard.  If you did get a job paying $20k in the new area, and if you were able to find a renter for your current home (let's say at $700/mo, which only 75% of that is used due to vacancy/maint.), then that would bring your debt to income ratio down to about 48%... which has a better chance of qualifying.

Even if you paid off all of the credit card debt, tried to buy the new home on just your husbands income alone and no rental income, your guys debt to income ratio would be around 64.5%... which is barely under the maximum threshold of a debt to income ratio that would have a remote chance of qualifying... so while it's certainly possible, the stars would have to be alligned just right for that to happen.  If you add rental income to the mix it gets down to about 55%, which improves the chances of qualifying... and if you had a $20k/year job, then it gets down to 39%, which is a shoe in to qualify.

Honestly I don't think it'd be a good move for you to buy a home in the new area - I think you should take things one step at a time.  First move and rent, then the next step would be to find a renter for your current home or try to sell it if finding a renter isn't working out and also simultaneously look for new employment for yourself (preferably in the same line of work you are doing now), then the next step would be to look for the home.  All in the meantime work on paying down/off your credit card debt completely, you'll put yourself in a better position to buy by reducing your debt to income ratio as well as paying off revolving debt will increase credit scores.

When it comes time to qualify for the mortgage I'd suggest looking into both FHA & conventional, and potentially even VA if your husband has eligibility remaining.

[ncscgirl2005]

Thank you so much Shane. I appreciate your honesty. Thank you for your time. I will go over this with my husband. I guess we pretty much knew that we would have a hard time so we were definitely entertaining the idea of waiting it out for a year or so until we could pay off some of our cc debt.

Thanks again.