Yet another Mortgage question...

[Anonymous]

I have the following:

Income: $7,000/mth
Debt to Credit: 85%
Equifax: 587
Experian: 607
Transunion: 610

Fiance has the following:

Income: $1,000/mth
Debt to Credit: 80%
Equifax: 665
Experian: 670
Transunion: 685

Together we have:

1 Mortgage that has become a rental property: $1,550/mth
Where the renter pays: $1,500/mth

However, we haven't put this on our taxes yet because we have no filed our taxes yet. We have an unexpected move in the next 30-45 days and we're looking to buy a condo or house. Shane answered a few of my questions about if it was possible to get a 2nd mortgage on a new home, but given our debt that is reporting on our credit now (for me it's actually a lot lower now but all of that won't show until 30 days, I suppose) does it seem possible to do an FHA?

We got rejected by one place already because they said my credit needed to be 620 AND I had to lower my debt down to 20% AND I had to file my taxes to show that the rental payment we receive each month is actually reported as income. Being that we don't have that much time, should we look for another mortgage place or is that pretty much the response I should expect from other providers?

Thanks for any help.

[Anonymous]

Total monthly debt between the two of us is: $2010

That includes Car's, Credit Cards (minimum payment each), loans, etc... Basically, any long term debt.

[ShanetheMortgageMan]

Does the $2,010/mo debt include the $1,550 payment on the rental?

If you have a lease/rent agreement on the rental, then you can include 75% of the monthly rent amount as qualifying income, to help offset the rental's mortgage payment.  In order to have the entire amount of rent counted, lenders want to see what you claim on your tax returns as far as expenses.  Not sure why the lender you spoke to was requiring you to have tax returns, perhaps they were unfamliar with rental income or it's possible they have their own policy about requiring tax returns.

Are you looking to buy a house in Atlanta in the $150k range like you indicated earlier?

If the $2,010/mo debt includes the $1,550 payment on the rental then your debt ratio should be just fine... if it doesn't include it, then your debt ratio would be about 45%, which can qualify for FHA, especially if you have reserves.

[Anonymous]

You could also qualify for a MyCommunity loan which is offered by many banks with similar guidelines. The biggest effect of your low credit score in the loan would be how much you would pay for PMI. Do you have any collections on your credit? are you self-employed or work for someone? Can you prove your $7,000 income with pay stubs and W-2's?

Like Shane said, with a copy of the lease agreement you can deduct 75% of the $1,500 from your obligations.

[ShanetheMortgageMan]

Yotaz, actually Fannie Mae's MyCommunity would require the rental to be sold prior to closing on the new home... Freddie Mac's HomePossible, which has guidelines very similar to MyCommunity, does permit another home to be owned though.  The issue with those, like you pointed out, could be the higher PMI costs associated with the lower scores, could be as high as 1.27% MI factor... with FHA, the PMI factor is .5%, regardless of score.

[Anonymous]

The $2010 does not include the mortgage. If I can include 75% as income, then I guess we can take the 25% that would be considered debt and add it to my debt. So it would come out to $2406 (That includes monthly Homeowners Association/Insurance too).

So that's 37%. Just 1% over the 28/36 ratio that I keep reading about.

However, we're not really looking for a monthly payment of $1,800 either. We're looking to stick around $1,400. So maybe we can offset a bit?

Also, if we do FHA, can we only get a condo if it's an FHA approved complex? What if it's a used condo? As long as it's in an FHA approved "project" does it still count as FHA approved if it's used?

Thanks Shane. You're so helpful! Do you accept donations? hehe

[ShanetheMortgageMan]

You are welcome.  intargc, 75% of the rental income would be added to your qualifying income, and 100% of the housing costs are still included in your debt to income ratio... I calculate your DTI being higher than 37%, the 28/36 ratio guideline you keep reading about is vastly outdated... DTI's up to 45% almost always qualify, and DTI's up to 64.99% can qualify as well depending on the full situation.  FHA usually requires the total DTI to be 45% ot less, although it too can also accept higher DTI's if there are compensating factors.

FHA approved condo projects are the easiest to qualify for when doing FHA, there can be "spot" condo approvals as well, but those aren't as common.  It can be a re-sale or brand new.

[Anonymous]

You're right. I'm not sure where I got 37% from. With what you stated, I'm looking at 46.46% now. Is that around what you got?

Shane, now a lender is telling us that we can't have two FHA loans at the same time. I found the following on fha-home-loans.com:

Q. Can only a first time home buyer use the FHA loan program?
A. No. You can use FHA home loans as many times as you desire when buying a home or doing a mortgage refinance. The only guideline is that you cannot have more than one outstanding FHA mortgage loan with a loan to value of higher than 75%. You can own rental property and purchase your primary residence using FHA mortgage financing.

Also, Shane, are you an actual lender? If so, since you're helping so much and are so knowledgeable, can we try to get pre-qualified with you? I've now run into two lenders that have said things that aren't true compared to what you're telling me and I'd rather lose the headache if possible and go directly to you if it's possible.

Thanks again for your help and please let me know if the above is possible.