Max back end DTI with low front end and 6 months reserves on all debt

[Ledeen]

I am trying to determine if I should try to buy again or not. Had a very bad experience last time I tried.

My situation is I was recently deeded property from my father and its currently in escrow. It will give me plenty for a 20%, while keeping over 70K in cash. This is after I pay off all bills.

Score currently 660, should be about 700 after I pay off all debt. 

Good side is long term employment (over 15 years), enough cash for 20-25% down, plus leaving 70K in the bank.

Bad side is my old house in California. Still upside down on loan, but have 2 years rental income on it on tax returns. Same tenant, never late. However since I did not anticipate I would be in a position of buying for quite a while after last time, I expensed what I could on my tax returns which they will deduct from my income.

My front end would still be extremely low 17%, but it will put my back end at 50%.

This is assuming conventional loan no PMI. (FHA now charges PMI on ALL 30 year loans, forever) If I was to try FHA the ratio would be less due to the 300 PMI monthly.

Is anyone doing a mortgage with similar scenarios?

thx

Ledeen

[pdog661]

the 50% is going to be an issue. 

How were the deductions documented - Schedule A?

I would call a loan officer, and review your documents.  What did you P and L on the property look like? Loss?!?! Breakeven?

[Mike_B03]

Really depends on the lender. Ours allowed up to 55% back end DTI and I've seen others on here say the same.

[tooleman694]

Yup our bank went up to 55 percent.

[Hoya08]

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This is assuming conventional loan no PMI. (FHA now charges PMI on ALL 30 year loans, forever) If I was to try FHA the ratio would be less due to the 300 PMI monthly.

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There's a lot of mis-information about FHA PMI out there.

The following applies to both 15 & 30 year loans:

1) If the LTV is less than 90%, PMI is 11 years.

2) If the LTV is greater than 90%, PMI is life of loan.

In your case, if you're putting 20% down, PMI is for 11 years only.

[Ledeen]

Update,

After contacting my previous loan officer and sending him my tax returns he sent me a spreadsheet to plug in my rental data and it came out that my back end DTI would be about 32-36% depending on the price of the house.

Although after paying off ALL my credit cards, and old debt my score only increased by about 15 points. And its taking sooo long to get the updates on whats been paid off. I paid everything off first week of August and its still not updated but 3 accounts.

[Ledeen]

Thanks for the info! I guess if I get stuck for some reason on a conventional I can revert to an FHA.

[StartingOver10]

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@Ledeen wrote:

Update,

After contacting my previous loan officer and sending him my tax returns he sent me a spreadsheet to plug in my rental data and it came out that my back end DTI would be about 32-36% depending on the price of the house.

Although after paying off ALL my credit cards, and old debt my score only increased by about 15 points. And its taking sooo long to get the updates on whats been paid off. I paid everything off first week of August and its still not updated but 3 accounts.

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Although you paid everything off the first week of Aug, some of the cc co's have a lag time in their reporting so you are still likely to see your score increase next month. Also, do you have a small balance reporting on one card and zero on the rest? That is what maximizes your score, zero on all cards except one which reports a balance less than 9% of the credit line.