topic Re: Mortgage Advice... in Mortgage Loans

Mortgage Advice...

Anonymous — Wed, 21 May 2008 15:12:03 GMT

Hi everybuddy,

I have been lurking on the forums for a while and thanks to your advice, have raised my FICOs by at least 50 points (!) in the last few weeks. I need some advice on the best strategy for mortgage financing. I am looking to purchase a foreclosed condo for $180000, I am a first time home buyer and have a down payment of 15% (can get up to 20% if necessary to get a mortgage)

My credit is fair, not great. FICO scores are TU - 687, EX- 668. No recent lates, no collection accounts and 1 erroneous charged off account from 2005 (still fighting this!)

Income - $50,000

Credit Card Debt - $400 (utilization is 5%)

Student Loans - $170 000 (all deferred loans until 2010, but monthly payment will be around $1000 if not deferred)

Due to my relatively high DTI ratio, I am not sure I will qualify for conventional loans. I tried FHA loans but because the property is a foreclosure, I apparently cannot get a full FHA style appraisal. Would love the hear what options I might have. Thanks!

K*

Re: Mortgage Advice...

ShanetheMortgageMan — Wed, 21 May 2008 15:35:19 GMT

Congrats on the score improvement in such a short time.

If the $400 of credit card debt is the monthly payment, then your debt to income ratio is a bit on the high side for conventional financing but there is still a shot you could get approved via automated underwriting. If the $400 of credit card debt is just the balance then your debt ratio is still high but would have a better chance of qualifying via automated underwriting. The fact that you have 15% down and your credit is pretty decent would help get your higher debt ratios approved.

Is the bank selling the foreclosed home not accepting FHA financing? If they are accepting it then FHA financing should be fine. It is up to the seller (bank) though if they'd accept FHA financing to buy the home. If they aren't accepting it, then they probably know there is something about the property that wouldn't meet FHA standards... but even then, FHA has a program called 203k which you can also finance in money for repairs to the home to meet FHA standards. With FHA you could exclude the student loan payments from your debt to income ratio and you look like a slam dunk to qualify for FHA.

Re: Mortgage Advice...

Anonymous — Wed, 21 May 2008 15:49:06 GMT

Thanks for the quick response Shane!

$400 is my total CC debt across 5 cards (total credit limits approx $12 000)

The problem with the FHA financing is that the conditions on the foreclosure include "as-is purchase" and they are not allowing me access to the property for a full appraisal (I didn't realize this until I already put in a bid for the place -- first time buyer naivete.)

-K*

Re: Mortgage Advice...

Anonymous — Wed, 21 May 2008 15:56:56 GMT

The student loans are the problem- $1000/mo. wipes out most of your available income to go towards your debt, including a house payment. Fannie Mae and Freddie Mac decided early last year that any known regular payment that will be incurred by a borrower within the following three years of closing will need to be included in ratios. This decision was made basically for those with student loans because the rate of default on mortgages. Look for a cheaper house and/or find a way to earn more income. And while I understand that you are going for and FHA loan, it will more than likely be underwritten through and sold to one of them- FHA is just who you buy the insurance from.

I'm a little worried about the FHA appraisal comment- it really doesn't make sense because I've done foreclosed condos as FHA. I think whoever your broker was was trying to find another excuse to let you down other than the fact that you don't make enough to buy the home with that kind of debt load.

Re: Mortgage Advice...

Anonymous — Wed, 21 May 2008 16:17:17 GMT

Thx Mortgagechick -- this is exactly what I am worried about. The new student laws are pretty bad for people in my position. I am a Physician in training and by the time my loans go into repayment in 2010, I will be done with Residency and making at least $150000 (3X current income). Can this be taken into consideration,in addition to my downpayment (can do 15-20%)? Thanks, K*

Re: Mortgage Advice...

Anonymous — Wed, 21 May 2008 16:21:21 GMT

kayon wrote:
Thx Mortgagechick -- this is exactly what I am worried about. The new student laws are pretty bad for people in my position. I am a Physician in training and by the time my loans go into repayment in 2010, I will be done with Residency and making at least $150000 (3X current income). Can this be taken into consideration,in addition to my downpayment (can do 15-20%)? Thanks, K*

This is from the Fannie Mae Guides:

Deferred installment debt—such as student loans and loans in forbearance—must also be included as part of the borrower’s recurring monthly debt obligations. If the borrower’s credit report does not indicate the monthly payment that will be payable at the end of the deferment period, the lender should request a copy of the borrower’s payment letter or forbearance agreement so that it can determine what payment amount to use in calculating the borrower’s total monthly obligations

And, unfortunately, when you start earning they money, then they'll count it.

What state/county are you in?

Re: Mortgage Advice...

ShanetheMortgageMan — Wed, 21 May 2008 16:45:20 GMT

kayon wrote:
Thanks for the quick response Shane!

$400 is my total CC debt across 5 cards (total credit limits approx $12 000)

The problem with the FHA financing is that the conditions on the foreclosure include "as-is purchase" and they are not allowing me access to the property for a full appraisal (I didn't realize this until I already put in a bid for the place -- first time buyer naivete.)

-K*

That will be a problem for any type of financing... as with conventional financing you still need to have a full appraisal done with an interior inspection. So if there are some items on the home that qualify as "deferred maintenance" it doesn't matter what type of financing you qualify for, no lender will allow you to close on a home with that deferred maintenance existing unless you go for a rehab loan like the FHA 203k or a conventional rehab loan. But still, you'll need access to the interior to determine what needs to be repaired. Sounds like the bank selling the home only wants to sell it to a cash buyer or to a buyer with financing from a bank foolish enough to be OK without an interior inspection.

Since the seller is being lame, I think it'd be wiser for you to look into another property which doesn't have that stipulation. You should be good to go for that price range by using FHA though.

Re: Mortgage Advice...

ShanetheMortgageMan — Wed, 21 May 2008 16:47:01 GMT

mortgagechick wrote:
The student loans are the problem- $1000/mo. wipes out most of your available income to go towards your debt, including a house payment. Fannie Mae and Freddie Mac decided early last year that any known regular payment that will be incurred by a borrower within the following three years of closing will need to be included in ratios. This decision was made basically for those with student loans because the rate of default on mortgages. Look for a cheaper house and/or find a way to earn more income. And while I understand that you are going for and FHA loan, it will more than likely be underwritten through and sold to one of them- FHA is just who you buy the insurance from.

I'm a little worried about the FHA appraisal comment- it really doesn't make sense because I've done foreclosed condos as FHA. I think whoever your broker was was trying to find another excuse to let you down other than the fact that you don't make enough to buy the home with that kind of debt load.

mortgagechick, if the loans are deferred for 12 months from the closing date then they can be excluded from the debt to income ratio on FHA/VA/USDA loans, even if Fannie Mae's DO/DU or Freddie Mac's LP is the system which the automated approval is obtained from.

Re: Mortgage Advice...

Anonymous — Thu, 22 May 2008 23:30:22 GMT

Thanks again Shane -- its been quite a struggle trying to find a mortgage with my situation (...there I was thinking that medical school was a good idea, didn't figure student loans would make it so difficult for me to buy a home !) but it sounds as though the FHA loans might work out for me.

I already got burnt by an unscrupulous broker from a popular online site which rhymes with "Tree." Do you have any recommendations for brokers in the Boston area or how I should go about finding one? Or should I just stick with Bank of America where I have my accounts?

-K*

Re: Mortgage Advice...

Anonymous — Fri, 23 May 2008 11:27:03 GMT

kayon wrote:
Thanks again Shane -- its been quite a struggle trying to find a mortgage with my situation (...there I was thinking that medical school was a good idea, didn't figure student loans would make it so difficult for me to buy a home !) but it sounds as though the FHA loans might work out for me.

I already got burnt by an unscrupulous broker from a popular online site which rhymes with "Tree." Do you have any recommendations for brokers in the Boston area or how I should go about finding one? Or should I just stick with Bank of America where I have my accounts?

-K*

You can search for FHA approved lenders on FHA's website.

Re: Mortgage Advice...

ShanetheMortgageMan — Fri, 23 May 2008 22:26:57 GMT

kayon wrote:
Thanks again Shane -- its been quite a struggle trying to find a mortgage with my situation (...there I was thinking that medical school was a good idea, didn't figure student loans would make it so difficult for me to buy a home !) but it sounds as though the FHA loans might work out for me.

I already got burnt by an unscrupulous broker from a popular online site which rhymes with "Tree." Do you have any recommendations for brokers in the Boston area or how I should go about finding one? Or should I just stick with Bank of America where I have my accounts?

-K*

You are welcome. I think Bank of America would be a good starting point for you, and I'd avoid any website that rhymes with "bee" or "knee" ;-) FHA's website will give you a list of FHA lenders, but it won't tell you about their character, the way they work, etc... that is why talking with Bank of America would at least be one place you should be comfortable checking out.