A question about qualifying for FHA loan.

[Anonymous]

Hello All,

Hope everyone had a great turkey day.  I have been lurking for a few weeks now and figured I would take the plunge and ask a question.  Here's my scenario:

My wife and I are looking to buy a house or a condo in MA (Greater Lowell Area, Middlesex County).  We have about 15k in savings and some debt.  Here are the numbers:

DW

Middle score of 735 (myFICO.com)

Makes about $25k on paper, more with tips (aesthetician and bartender).  3 years at the bar, 2 in the beauty business.

Discover Card - 10k limit, 4k balance

BofA cc - 20k limit, $500 balance 

A few charge cards - 5k limit, 1k balance

Student loan - $75 per month

1 late 18 months ago from a furniture company, we moved and the bill didn't follow.

ME

Middle score of 654 (myFICO.com)

Annual salary of $30k plus quarterly bonus, been here 4 months.  I have been in sales for 6 years.

Orchard Bank cc - limit of $300, balance of $50.

AU on DW BofA cc - Not showing on CR, not sure if it will.

Student loan - $65 per month

Helzberg Diamonds CC - Limit of $4800, 0 balance.  Paid off wife's ring a few months back, should I use it again or just keep using the Orchard card??????

I used to have credit issues.  I have 6 medical collections on CR, all paid more than a year ago.  I also have 2 out of the CRA's showing 30 days late 3 or 4 times from American Honda Finance 5years ago.  Car has been paid off since 2005.  I also show my first CC from 1998, as late as 120 days at one point.  I paid the balance years ago, and foolishly closed it about 3 years ago.  I haven't had a late payment on anything in 3 years.

We currently live with her parents, no rent or utilities.  Big question, should we apply now, or wait a few more months?  Does anyone think my score will change much more in a few months?  We will be able to put 3.5% down and still keep some for reserves.  Looking at a purchase price around $150k.  I know this pretty drawn out, thanks for reading.  Any thoughts, comments?

jmac978

[BrianB_The_Loan_Professor]

Welcome to the boards

You can wait but there is no benefit as you are looking at FHA and your score is fine

Raising it will be of no benefit.

Most of the issues you reported are old so they shouldnt cause any problems

You just need to get with someone and have them run the numbers.

IF you are counting the tips on taxes for 2 years you can use that extra income if not then you cant

Brian

[Anonymous]

Thanks for the welcome and the quick reply.  Do you think me being at my current job for 4 months will have a negative impact on approval?  Also, do you think this will go through AU, or will it require a manual?  Thanks again.

jmac978

[BrianB_The_Loan_Professor]

Shouldnt be a problem since you have been in the field for 6 yrs

I didnt punch the numbers but as long as the Debt to income is within reason you should get an automated approval based on scores... there is really only one way to find out

Brian

[Anonymous]

I guess you're right.  Now the arduous task of finding a good LO.  Thanks again.

jmac978

[Anonymous]

Ok, so I think there may be a little speed bump.  As we were going over paystubs for my wife, I noticed that the majority of the money she makes, tips, is not fully documented.  I guess bot businesses state a certain percentage.  So as I am loomking at her most recent stubs, she is only to going "make" $8k this year.  At both jobs she makes a small hourly wage, and then the tips that are claimed go against that wage.  Based on the above info, what types of problems does anyone see in regards to FHA, DTI and approvals?  Thanks in advance.

jmac978

[LisaJ]

You need to look at the last 2 years of W2s. 

And, as well, a good loan offer makes a big difference.    See if you can get some referrals from people that you know.  We did that and it made all the difference for us!

Lisa 

[Anonymous]

Thank you for the response.  I know that we need 2 years worth of W-2's.  The question is...do they average the income from the 2 years?  I just don't want to waste everyones time if our income needs to be higher.  Does anyone think our combined income, with our stated DTI will fly for an FHA mortgage of $100 - $150K?  We are wroking on getting rid of all credit card debt over the next couple of months.  The online calculators say that we would qualify for around $90k, which doesn't get us too far in our area.  Thanks in advance for your help.

[BrianB_The_Loan_Professor]

You will have to have someone run the scenario through a automated system. There is no way we can say how far it can be stretched because once you exceed the 43% back end DTI it is up to the computer how far it will allow it to go - the fact that your credit is good helps but it will look at everything....

If anyone thinks you are wasting their time you need to find someone else to work with....

Brian

[Anonymous]

Well, just got off the phone with my LO....we only qualify for $100k based on our DTI with the lack of income for us.  I guess the hunt will be on for a Garden Style condo.  The good news is that my mid score is 690, myFico is still stating 654 as my midscore.  Woot-woot.  He said things would be a lot different if she had stated income of $20k, we would've qualified for around $200k.  Maybe this is a blessing in disguise as we know we can DEF afford a smaller payment.  Thanks for everyone's help/input.