FHA Loan and High DTI

[lauramg80]

I applied for an FHA loan and my DTI was high but accepted by the AUS. I received a conditional approval with a few very reasonable conditions, mostly paperwork requirements, payoff of a few small balance credit cards and proof of reserves. I can fully meet all conditions but now my loan officer and his processor give me the feeling that they think it won't get approved even though I can meet the conditions. He said it's a "tough deal" due to my DTI and even if I meet the conditions it's up to whether the underwriter is still comfortable with the risk. 

I assumed that if I met the conditions it would be an approval since the underwriter was already aware of my DTI situation. Is this a normal practice? I don't like this fear they have created in the last few days when it was never mentioned before and I'm not sure that I trust the loan officer or his processor to do their best. 

[ShanetheMortgageMan]

If you received a conditional approval then that is great news, because the underwriter has gone over everything in your file and once you satisfy the conditions on the list then you'll get final approval.  The reasons for a loan officer to be concerned at this point is if any of the loan conditions are asking for items that may not be able to be obtained, something the underwriter is asking for would possibly chance figures for the worse (like the loan officer unestimated property taxes & once it's discovered the taxes will go up and the DTI could be in jeopardy), or if the underwriter approved the loan incorrectly and they need to fix the figures so it can correctly be approved (like they used higher income than they should've, etc.).  Did your loan officer send you the full list of remaining loan conditions?  If so, what are they?

[lauramg80]

Hi Shane,

Thanks for the response. 

The taxes and insurance came in lower than orginally quoted (About $50/mo lower). My student loan payment came in $39.50 higher than we thought it would be but i paid two additional small balance cards (with $25 & $27 mo payments) to make up the difference in case that should turn into a problem. 

The other conditions are : 

LOE for address (old address) and inquiries (all mortgage)

IRS printout showing the most recent three payments were paid in a timely manner (all on time, direct debit from checking account)

Written explanation  for why my 2016 W-2 income is lower than my 2017 W-2 income 

Gift letter to be completed by my mother

Bank statements showing reserves (money is there)

The only thing they keep harping on is my DTI and how the underwriter can still deny for that reason because it is ultimately up to her and it doesnt matter if the AUS accepted it. I'm feeling pretty negative about it now because they keep telling me to call the seller and ask for an extension of the financing option period. My earnest money was not very much so I'm not worried about losing it but they keep telling me to do this over and over.

[CreditInspired]

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@lauramg80 wrote:

Hi Shane,

Thanks for the response. 

The taxes and insurance came in lower than orginally quoted (About $50/mo lower). My student loan payment came in $39.50 higher than we thought it would be but i paid two additional small balance cards (with $25 & $27 mo payments) to make up the difference in case that should turn into a problem. 

The other conditions are : 

LOE for address (old address) and inquiries (all mortgage)

IRS printout showing the most recent three payments were paid in a timely manner (all on time, direct debit from checking account)

Written explanation  for why my 2016 W-2 income is lower than my 2017 W-2 income 

Gift letter to be completed by my mother

Bank statements showing reserves (money is there)

The only thing they keep harping on is my DTI and how the underwriter can still deny for that reason because it is ultimately up to her and it doesnt matter if the AUS accepted it. I'm feeling pretty negative about it now because they keep telling me to call the seller and ask for an extension of the financing option period. My earnest money was not very much so I'm not worried about losing it but they keep telling me to do this over and over.

Is there a reason you haven't asked seller about an extension, especially since the LO keeps asking you to do it.

Do you have a Realtor acting on your behalf?

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[lauramg80]

The seller is very difficult to deal with. I have talked this over with my realtor and her broker and don't think they will give a financing option extension even if we did ask. The earnest money was very minimal and I'm not worried about losing it if the financing doesn't go though.

I am working on switching loan officers. They are asking for things that the Underwriter didn't ask for in conditions and now want proof of funds at closing to pay off the credit cards that are already paid off and I have provided the $0 statements for. I don't trust them to get all of this straight. It's like I am telling them things and they aren't listening. They also are telling me they are waiting on taxes and insurance to come back and they actually received that weeks ago as I was cc'd on the same email. 

[JVille]

You need to provide proof of the pay off checks clearing your bank stmt along with copies of the front & back of the checks. That together with you CC stmts showing zero balance is what they are asking for. This is a normal request and I would ask for that proof also if there was a UW Condition involving those payoffs.

You keep saying your DTI ratio is high? Well exactly what are your ratios? Was your income in 2016 significantly lower and was this with your current employer? Was it due to lower bonus levels or less OT? How does you current income tract with your 2017 W2 income?

[lauramg80]

Their documentation requests are not what I'm having a problem with. What's bothering me is that I can fulfill all of their conditions and nothing has materially changed since the conditional approval but now I have the processor and the loan officer acting like this is not going to go through but not explaining to me what has changed. It makes me feel like what's the point in pursuing and getting a denial instead of withdrawing now. Like they know something they aren't telling me.

I was under the impression that if I fulfilled the conditions satisfactorily it would be an approval. If they have a problem with my ratio (which was not indicated as a problem before), I have also volunteered to pay whatever but I can't seem to get that point across. The ratio was around 55% and that was accepted already but they said the underwriter could go against the AUS and deny for that reason after i turn my remaining conditions in.

The loan officer doesn't really answer my calls or emails and the processer only says she has to go ask him the things I ask her so that's not much help.

My income was higher in 2017 than 2016 because i got a better paying job. My income this year will be more than in those previous years.

[JVille]

Re income 2016 vs 2017 just state exactly that in your LOE. By the way is this a NEW employer or a new position with your existing company? If so your LOE needs to clarify that.

As to the paid of CC just give them Exactly what I told you along with still another LOE.

All LOE should be as brief and concise as possible.

[JVille]

Oh and those ratios???

[ShanetheMortgageMan]

If you feel comfortable with the new loan officer they've re-assigned you to then that is the easiest route forward, but at this point I wouldn't be afraid to ask for the branch manager involved in order to keep you updated.

From the conditions listed, the only reason I could see a loan officer being hesistant is the taxes & insurance condition, as if they end up being higher then the DTI could go over 56.99% (or whatever this lender's max is) and you would not longer get an Approve from automated underwriting or would go over their limit (if it's lower than FHA's limit).  From the sounds of it, they have that information, but are you certain your calculation is the same as theirs?  Property taxes are calculated a little differently depending on the state, for example here in California it's standard to use 1.25% of the sales price, but in other states a tax certificate is obtained and the tax rate is multiplied based on the sales price, and then in others they just use the existing tax amount.

Hopefully you get some answers this week.