Don't even know what to call this question...DTI issue maybe?

[Shellie]

My brother-in-law is in the middle of buying a new house.  I can't even begin to recount all the odd ball junk his mortgage lady is telling him to do but the latest seems extra out of left field to me.

He plans on adopting a baby in June so he wanted to move in to a larger home.  He also left a job of 6-8 years to work closer to home.  Same job different company.  He took a gross pay cut put brings home more each month.  He has already sold his current house and they close in about 2 weeks.  Cashed out some 401K and has some other cash.  All in all he has the option to put down upwards of $40k if needed.  

She told him "can you sell your truck for about a month"?  She is suggesting that he sell his truck to someone for a month and after he closes to just buy it back.  

Now from my perspective I'm thinking...Some one buys it and pays excise tags and all that on it and then you buy it back in a month and have to pay it all over again not to mention get into a new loan?  

He asked if he could put more down?  Would that help? She told him no.  That it would affect anything, wouldn't make his payments go down or anything.  The house is around $140k.  He has some rental income and also has a roommate that pays him monthly.  But she said none of this income is worth claiming. 

I told him to find a new mortgage company to help him with this.  Anyone have any input on this?

[StartingOver10]

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@Shellie wrote:

My brother-in-law is in the middle of buying a new house.  I can't even begin to recount all the odd ball junk his mortgage lady is telling him to do but the latest seems extra out of left field to me.

He plans on adopting a baby in June so he wanted to move in to a larger home.  He also left a job of 6-8 years to work closer to home.  Same job different company.  He took a gross pay cut put brings home more each month.  He has already sold his current house and they close in about 2 weeks.  Cashed out some 401K and has some other cash.  All in all he has the option to put down upwards of $40k if needed.  

She told him "can you sell your truck for about a month"?  She is suggesting that he sell his truck to someone for a month and after he closes to just buy it back.  

Now from my perspective I'm thinking...Some one buys it and pays excise tags and all that on it and then you buy it back in a month and have to pay it all over again not to mention get into a new loan?  

He asked if he could put more down?  Would that help? She told him no.  That it would affect anything, wouldn't make his payments go down or anything.  The house is around $140k.  He has some rental income and also has a roommate that pays him monthly.  But she said none of this income is worth claiming. 

I told him to find a new mortgage company to help him with this.  Anyone have any input on this?

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So, from your post and her statement to your brother, it sounds like he has a DTI issue (back end ratio too high). It is not unusual for a car/truck payment to cause the borrower to not qualify for the home they want to purchase. But the solution is to reduce the debt (as she suggested) or reduce the LTV so that the loan is less risky. The ratios are a little bit more generous when you have a low LTV.

I don't understand her not suggesting a larger down payment unless the particular lender has a minimum loan amount. I run into this when borrowers are looking at low dollar loans. He needs to find out what the min amount is to borrow in that company (they are all different).

Did she go into detail where his ratio needs to be at all? That is the figure he needs to know.

I understand her not allowing the roommate income if he hasn't been reporting it on his taxes. But the rental income? I assume he is reporting that to the IRS so he can show the extra income.

Your suggestion to find a new LO/company is a good one. He should listen to you. Make sure the new company underwrites and funds their own loans and IS NOT a big box bank (because they are very conservative now).

[Shellie]

He isn't super knowledgeable in home buying.  So I don't think he knows all the right questions to ask.  I told him to call around and talk to some other places bc this one seems to be making things difficult.  I think she mislead him.  "Yes of course we can do the loan!!" and now they are just making him jump thru hoops.  "Oh just do this and everything will work out" so he does that and then it's something else.

[Peter1142]

If the truck is his only vehicle, any halfway decent underwriter is going to question this change in his DTI.

I wonder if he is in manual underwriting or did he not even go through underwriting yet...

[coterotie]

I understand he may not be super knowledgeable.  Most people aren't, because most of us don't buy a house like we buy groceries.  However, he might want to get to the library and get buying a house for dummies or something.

He is going into this relying on the person selling him a service to be looking out for his best interests.  That doesn't usually lead to the best result.

So find a new lender, get the exact numbers and tell him to do the math.  Instead of selling, why not get he truck refinanced with a lower payment.  Or could he pay it off with his savings. 

Do not use the 401k money, roll it over. Unless he is 59.5 the penalties are severe, plus he will have to pay taxes on it.  Much better to keep it as a reserve for emergencies than to use as a downpayment.

Likely if he/you will sit down with the above book, answer the right questions he can get back on track.  But he needs to run quickly from this doofus mortgage person.

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@Shellie wrote:

He isn't super knowledgeable in home buying.  So I don't think he knows all the right questions to ask.  I told him to call around and talk to some other places bc this one seems to be making things difficult.  I think she mislead him.  "Yes of course we can do the loan!!" and now they are just making him jump thru hoops.  "Oh just do this and everything will work out" so he does that and then it's something else.

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[Shellie]

I suggested he try to refinance also.  I think he had looked into that but it wouldn't help?  I don't remember for sure.  I think he was concerned about it dropping his score to re-fi?

There have been so many dumb things he's called me about that she has suggested or is telling him he has to do I can't remember all of it.

I think he is at a 640 right now.  She told him to make some small purchases on a store card but told him not to bother using his CareCredit card.  

He doesn't have anything negative on his reports.  I think he just hasn't had any direction on building.

I feel like she has him in a pickle so to speak.  He's already switched jobs, sold his other house and is waiting on the money from his 401k. 

His money he was using as a down payment is proceeds from the sell of his house and 401k and some cash.  I also suggested he use some of the money to pay down the truck, I think she disagreed with that as well.  I don't get her angle here.  What exactly is she trying to accomplish? <more of a statement than actual question.

[coterotie]

Again, is he trying to put down 40k on a 140k house.  As long as he is under 80% LTV he is fine and won't pay PMI.  Do not take the 401k money to get further under 80% LTV.  Run from anyone who tells you to do this.  If you can get the actual figures several people here can give you precise guidance on what he needs to do.  My suggestion is that he does nothing until that happens. 

The job change doesn't really matter.  Has she actually run him through the score simulator (the real one, not something like credit karma).  She sounds very inexperienced and someone who is just throwing darts at the wall hoping to hit something.  People here can help but we're only getting part of the picture and he doesn't seem too interested in getting the help he needs if he keeps throwing stuff at you from a clueless mortgage person.  IF the file is as fully developed as it seems, another (experienced) lender can pick it up and get an answer back to him within a day.

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@Shellie wrote:

I suggested he try to refinance also.  I think he had looked into that but it wouldn't help?  I don't remember for sure.  I think he was concerned about it dropping his score to re-fi?

There have been so many dumb things he's called me about that she has suggested or is telling him he has to do I can't remember all of it.

I think he is at a 640 right now.  She told him to make some small purchases on a store card but told him not to bother using his CareCredit card.  

He doesn't have anything negative on his reports.  I think he just hasn't had any direction on building.

I feel like she has him in a pickle so to speak.  He's already switched jobs, sold his other house and is waiting on the money from his 401k. 

His money he was using as a down payment is proceeds from the sell of his house and 401k and some cash.  I also suggested he use some of the money to pay down the truck, I think she disagreed with that as well.  I don't get her angle here.  What exactly is she trying to accomplish? <more of a statement than actual question.

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[Hoya08]

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@coterotie wrote:

Again, is he trying to put down 40k on a 140k house.  As long as he is under 80% LTV he is fine and won't pay PMI.  Do not take the 401k money to get further under 80% LTV.  Run from anyone who tells you to do this.  If you can get the actual figures several people here can give you precise guidance on what he needs to do.  My suggestion is that he does nothing until that happens. 

The job change doesn't really matter.  Has she actually run him through the score simulator (the real one, not something like credit karma).  She sounds very inexperienced and someone who is just throwing darts at the wall hoping to hit something.  People here can help but we're only getting part of the picture and he doesn't seem too interested in getting the help he needs if he keeps throwing stuff at you from a clueless mortgage person.  IF the file is as fully developed as it seems, another (experienced) lender can pick it up and get an answer back to him within a day.

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@Shellie wrote:

I suggested he try to refinance also.  I think he had looked into that but it wouldn't help?  I don't remember for sure.  I think he was concerned about it dropping his score to re-fi?

There have been so many dumb things he's called me about that she has suggested or is telling him he has to do I can't remember all of it.

I think he is at a 640 right now.  She told him to make some small purchases on a store card but told him not to bother using his CareCredit card.  

He doesn't have anything negative on his reports.  I think he just hasn't had any direction on building.

I feel like she has him in a pickle so to speak.  He's already switched jobs, sold his other house and is waiting on the money from his 401k. 

His money he was using as a down payment is proceeds from the sell of his house and 401k and some cash.  I also suggested he use some of the money to pay down the truck, I think she disagreed with that as well.  I don't get her angle here.  What exactly is she trying to accomplish? <more of a statement than actual question.

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Without your brother's figures, it's gonna be difficult (doeable, but difficult) to help him here.

You don't want to pay down the truck since that doesn't affect the monthly payment, which is used to determine his debt-to-income ratio, which affects the amount of loan he may qualify for to buy the home.  The only effect is your out xx-amount of dollars for the home down payment and/or $$ to buy other stuff.

As for using his store card instead of his CareCredit card, is his CareCredit card nearly maxed or maxed, or his cards currently don't carry any balance? 

Again, without the hard numbers, we're just speculating.  Home buying can be a little stressful, but it's not a complete mystery

[Shellie]

While I really appreciate the help here I do feel that some of these answers are a touch on the negative side in relation to his "interest in getting help" and "home buying for dummies".  I'm sure they aren't meant in malice but they do come off a little on the offensive side.

He is a young man with not much other guidance.  He is reaching out for help by asking questions.  He may not be asking the right question or asking the right person but he is reaching out for help.  That's why we all end up here.  He came to me and I came to you all. No one has all these answers until the questions arise.  Those of you who are vastly educated in the process didn't start out there.  You have all educated yourselves by some means.  Be it schooling, going thru the process, self educating, researching your own questions etc.  I ask that you think about this before you pass judgement by making comments implying his lack of knowledge and/or determination. -rant over-

Unfortunately, I don't have all the number in this scenario.  I know that both the CareCredit and his store card both had a $0 balance.  He made a small $20 purchase on the store card.  He has already taken the money from his 401k, just waiting on the check to my understanding.  This isn't a constant conversation between the two of us.  If someone has a list of questions they would like me to ask him I would be happy to do so and report back here with the answers.  

I know he has other stuff on his credit but in reality isn't stuff he pays.  He carries the note on a car for a friend but that friend pays for it.  I know that doesn't matter on paper tho.  

[Hoya08]

Since his cards carry zero balances, the lender is asking for him to carry a balance to show credit utilization.  This may help bump his credit score.  Aside from this, there's no point in placing a "small" charge on his credit card.

As for the car note he has in his name for his friend, you're correct, it counts against your brother's DTI.  Can your brother sell the car to his friend to remove the note from his credit report?  Also, definitely have your brother look into refinancing his truck.  If he's able to do both of this, his DTI should drop enough to obtain the mortgage loan.

In regards to the 401k withdrawal, I also caution against him using these funds.  If they're not needed (ie, for an emergency), put the money back.

The questions to get a better idea are:

1. Gross annual income (from all sources that he reports on his tax return)

2. All monthly minimum financial obligations that are legally in his name (car loans, credit cards, garnishments, alimony, etc)

3. All CC credit limits.

4. Any negatives on credit profile.