Mortgage loan- how is this?

[working4goodCr]

I am amazed when my daughter told me that she got loan pre-approval of $82000-90000 with annual income of $16,000. I know so because I did her tax return. She has maybe $500 cc from her bank with no savings. She could not rent one-bedroom apartment I (cheaper one in the area) for herself or with her boy friend. They have been looking for a two-bedroom apartment. Then, this happens. I guess it is easier to borrow money than to rent apartments nowadays.

She was able to make an offer on the house. She cannot afford  any down payment. But she was approved of such huge loan amount.  She was told by her loan officer through her Prudential realtor that it was due to her good credit and she truly believes that.  She got low 30-year fixed interest rate..  She swears that the mortgage co gave her approval with only her income, not with anything else. I have been right on my predictions on her events. 

My son and I are puzzled. We do not understand this logic. His friend, who makes $60000+ annually with savings, got loan of $100000 last year.

She tells me the mortgage payment is about $600. I do not know if this is with escrow or not. But that is still $7200 a year. I think that it is too much for her income. It is not 50% of her income, but definitely not under 33%.  When we got our house refinanced, it was fine to have that much ratio to the income. Now? If we have to pay 1/3 of your income for just mortgage, after tax, utilities, and gas,  we would not be eating well.  I just hope that someone wakes up and smells the coffee.

My daughter's boy friend does not have any credit. He made only $10000 last year. His family had some hardship last year, his father is on the disability. His mother who works part-time job that made less than her son, did not qualify for loan due to mid 500 points, but they are willing to help them for down payment if they can afford it. They have been on the welfare. well, his family has a plan to move in upon the purchase. Maybe the loan offcer figured it out with their welfare check. 

In any case, I wish her good luck.  

[cdtotten]

That is very strange, and their must be a piece of the puzzle we are missing. You are correct to assume that their income will be a significant driver in their approval for a mortgage. Assuming that she makes $16k and he makes only $10k of verifiable income, that is a combined $26k in income.

Depending on the program that you use, the back end ratio will stop them from getting too over their heads... let's assum the program (not sure how they are financing) allows 45% on the back end (which is pretty high)... that would allow for monthly payments of $975. This includes mortgage, debt, any loans, etc. The mortgage payment that is used would also include insurance, taxes, and any mip/pmi. You can run the mortgage calculators to see what type of house they would be able to afford at that point.

Sounds like she is going to extremely over-extend herself and I would attempt to educate her as much as possible. Unfortunately, most mortgage brokers only care if they can get it approved, because the loan will be sold off shortly after.

[LondonMassey]

I have an income of 18k and was approved for 60k, FHA.  I also participated in a first time home buyer class which allowed me to be eligible for funds to provide assistance with down payment/closing costs (and to pay down the mortgage)  I'll be putting in 5k and they will match that 5k x's 3, so a total of 20k.  If your daughter is wanting an 80k home, with that amount of income, she is foolish and I don't see her being able to keep up with payments, repairs, utilities, etc.  She must have used his income as well and them apply together.  Typically a lender wants everything to calculate to 31% or less of income pertaining to a mortgage.  I'm only pushing up to 65k for a home because I want to ensure that I can cover expenses regardless of what happens.  I also have other household income that I didn't have calculated by the lender from my son's disability, but he's occassionally hospitalized so it isn't consistent.  None the less, at 65k, I'm looking at a $325 payment including taxes and insurance.  I've been renting for 10 years, often 3 x's as much (use to make about 8k more than I am now), and even through job loss, I've made it work... as a single mom with 3 kids. 

Perhaps, just coming from a daughter's position that has no support of her parents, instead of discouraging her, reason with her.  At 16k, she could do 60k comfortably, not 80k.  If she's able to buy now, it's a great market.  Support her intentions but give her a realistic view.  If she screws up, she screws up, and she'll know better next time.

[working4goodCr]

Yes, I realize that if my daughter can pay her mortgage with her not so steady income, now is the great time to buy a house. Please do not take me wrong, we as parents, we like to help her. But we do not live in the same time zone due to military duty. We had to put our house for rent with loss, so when we would have options to sell  later or keep to live in our retirement years. If we can.  We just found out that she was buying a 5-bedroom house.  She was going to surprise us. After I asked her about the house -- neighborhood, conditions of house, and escrow etc. (sounded like she did not have appraisal done. She says it will cost her $3-400 ) ,  I just cannot believe she could get up to 90K loan with only her 16K annual income. Yes, not including her boy friend's 10K income. And no savings. WE did not think she would get into such a huge purchase without some money in the bank. I do not know what people are thinking any more.

[anh2lua]

Did she close the loan?

Pre-Approval by LO doesn't guaranty the loan until the "underwriter approved" it. 

I've seen many LO's just gave out pre-approval letter until the client found a house they like and the underwriter could not approve it; the LO then turn around and said something like, "according to the underwrtier, you'll need a co-sign or come up with a large down payment".   WTH?

I met with my LO a few days ago to go over some loan options.  My income alone is over 100k annually and I have a little over 30k in the bank account.  I was looking at a 290k house that I really like.  I asked my LO if I'll qualify if I put 10% down payment.  He replied, "I'll need to review all your documents carefully before I can answer your question, but my answer will not be 100% accurate.  It's up to the underwriter approval"   That's how I like to hear.

[rckstrscott]

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@anh2lua wrote:

Did she close the loan?

Pre-Approval by LO doesn't guaranty the loan until the "underwriter approved" it. 

I've seen many LO's just gave out pre-approval letter until the client found a house they like and the underwriter could not approve it; the LO then turn around and said something like, "according to the underwrtier, you'll need a co-sign or come up with a large down payment".   WTH?

I met with my LO a few days ago to go over some loan options.  My income alone is over 100k annually and I have a little over 30k in the bank account.  I was looking at a 290k house that I really like.  I asked my LO if I'll qualify if I put 10% down payment.  He replied, "I'll need to review all your documents carefully before I can answer your question, but my answer will not be 100% accurate.  It's up to the underwriter approval"   That's how I like to hear.

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Yeah.. OPs statement about it being 'easier' to buy than rent now days is not accurate at all.. it is a LOT harder to get a loan these days, let me tell you... 5 years ago I could see OPs daughter getting approved, but not now.. pre-approval isn't really money in the bank, so to speak...

I think the LO is putting wishful thoughts in her head, hoping she can convince her parents or family to gift the downpayment, at the least...

[mamahearts]

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@rckstrscott wrote:

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@anh2lua wrote:

Did she close the loan?

Pre-Approval by LO doesn't guaranty the loan until the "underwriter approved" it. 

I've seen many LO's just gave out pre-approval letter until the client found a house they like and the underwriter could not approve it; the LO then turn around and said something like, "according to the underwrtier, you'll need a co-sign or come up with a large down payment".   WTH?

I met with my LO a few days ago to go over some loan options.  My income alone is over 100k annually and I have a little over 30k in the bank account.  I was looking at a 290k house that I really like.  I asked my LO if I'll qualify if I put 10% down payment.  He replied, "I'll need to review all your documents carefully before I can answer your question, but my answer will not be 100% accurate.  It's up to the underwriter approval"   That's how I like to hear.

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Yeah.. OPs statement about it being 'easier' to buy than rent now days is not accurate at all.. it is a LOT harder to get a loan these days, let me tell you... 5 years ago I could see OPs daughter getting approved, but not now.. pre-approval isn't really money in the bank, so to speak...

I think the LO is putting wishful thoughts in her head, hoping she can convince her parents or family to gift the downpayment, at the least...

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+1

I agree, that's the first thing that came to mind-that the LO was hoping she can get someone to chip in.   I don't think it's very likely she'll get through underwriting.   If I were her mother, I'd be showing her (rather than telling) how much of her money she'll have left after she pays her mortgage, utilities, debts, etc.  So then she can see what she actually has left every month (which sounds pretty minimal) and how much of a struggle that will be to keep her in the home if an unexpected expense should arise.   

[rckstrscott]

my loan calculations dont even come CLOSE to what this LO is coming up with... if credit scores are a non-factor, I came up with she would need a 38k downpayment to get a 90k house based on 16k income..... lol

-scott

[FrugalRican]

No, it is actually easy to buy a house... it's the loan approval that's jumping through fire-lit hoops.

Something is definitely up with the whole situation.

[my25reasons]

I also agree with the last few posts. A LO will pre-qual based on what they see on the surface. With a 16k income, assuming she has NO other monthly payments to make, may get her a pre-qual, but I can't see it getting her through closing. Especially if she has no cash for closing costs. While I've seen some people close with out having to pay anything, I've never come across such a deal. Is she going through any special home buyer programs in her area? That could help explain.

It's always been explained to me that for every $1k, assume $100 on the monthly payment (including intrest, taxes ins). So if she has no other monthly payments, that leaves her with $1,300 gross per month for a payment. That would prequal, but I'm thinking when she goes to close, it probably will not fly.