Approval chance of mortgage with 150K gross income? Live in Colorado spring, no other loans.

[SnS351]

Hello community,

I am planing to buy a home in Colorado Spring, budget is 400-525K that could result in a monthly mortgage payment upto 3800/month. I assumed FHA loan, 7-12% down payment with mortgage insurance + homewoners insurance + tax + HOA fee to arrive at this number. I need your opinion on the timeline and approval chance.

Relevant Information:

1. Laid off in jan 2023, filed CH 7 few months after and discharged in Jul 2023. 
2. Started working again in Oct 2023, gross income 150K, take home after tax and deductions (401K, insurance premium etc) is around $8700/month.
3.  Work from home, a 2014 sedan car bought with cash, insurace payment is only $90.
4. Recently married and 1st baby is coming soon. Wife has a Masters degree in STEM but will take few years before she start working. She plans to open s small business on something she like. so her future income is uncertain and we are fine with it. 
5. Current monthly expenses excluding rent is about $1800-2500. This number is the average over the last 12 months when we acquired everything from beddding, kitchen items, some little furnitures ike working desk, chair etc. I think this will go down significantly since a lot of them are one time purchases for at least few years. 
6. Have about 40K shavings in cash and 37K in 401K.
7. Have 5 credit cards, approved over the last year totaling 14K. Reported balance is $100-200 in a typical month. 

I am confident in my ability to carry the mortgage based on my current financial state, job stability and an intense shortage of skilled engineers in my domain. Based on my FICO scores below, is there a good chance to get a mortgage loan approved?

Thank you for reading this. Please let me know if I missed any crucial information.

 

[ShanetheMortgageMan]

When you are between 1-2 years after a Ch 7 BK discharge FHA requires it to be caused by extenuating circumstances in order to get approved, and after 2 years the extenuating circumstance requirement no longer applies.

FHA once had a guideline called "Back To Work" that allowed those with a 20% income reduction for 6 months to qualify 12 months after bankruptcy, foreclosure, or short sale.  Unfortunately that guideline expired on 10/1/2016.  It doesn't mean that job loss can't still be considered an extenuating circumstance, but it's not as clear cut to get approved that way and underwriters have to use their discretion.  

If your credit history was excellent prior to the job loss then that's a great first step.  Showing that you were able to handle numerous accounts without late payments is a big positive to an underwriter.  You can clearly show that everything was fine up until you lost your job.  Re-established credit is also extremely important and underwriters are looking to see you've been able to make all of your debt payments for the past 12 months, the more trade lines the merrier.

The monthly expenses you've had in the past aren't factored in to what you can qualify for, it's only your current monthly minimum required debt payments (car payment, minimum credit card payments, student loans, and personal loans are the most common).

You're debt-to-income (DTI) ratio is calculated by taking your monthly debt payments and dividing that into your gross income.  So if you're monthly gross income is $12,500/mo and your monthly debt payments (including the new mortgage payment) is $4,800/mo, then that would make your total DTI 38.40% ($4,800 / $12,500 = .384).   

When you are qualifying for an FHA mortgage within 2 years of a Ch 7 BK your loan has to be manually underwritten.  The biggest difference when your loan is manually underwritten often is how much you can qualify for.  FHA will allow up to a 40% housing payment DTI and a 50% total DTI, as long as you have enough compensating factors.  So if your monthly gross income is $12,500 that means the new housing payment can be as high as $5,000/mo and after you factor in your other monthly debt payments the total of everything can be as high as $6,250/mo. 

If you don't have any compensating factors then the max DTI ratios are 31/43%, but usually everyone can go up to at least 37/47%, and from everything you've laid out it sounds like you'd have enough compensating factors to go up to 40/50%.   

With 40/50% ratios, you could potentially qualify for a housing payment of $3,800/mo as long as your other debt payments aren't more than $2,450/mo.

A key factor in your approval chances will be a detailed letter of explanation outlining the events leading to your bankruptcy and the steps you took to avoid it.  You should also provide documentation to verify the job layoff.