Pre-approved, waiting to hear back on short sale. Is it ok to consolidate debt while I wait?

[Anonymous]

I received my pre-approval for the amount that I was hoping (from two separate companies), but my DTI was on the high side. One of the mortgage brokers also took into account part time and seasonal work that I didn't have 2 years history in, which makes me worried. The house is also assessed at more than twice my offer price (everything in this area is over assessed) and the taxes are expensive. The taxes weren't taken into consideration in one of my pre-approvals (even though I told the agent!) so that also makes me nervous.

Since I got the pre-approval, I've put in the offer on the short sale and now it is a waiting game to hear back from the lender. I know that I do have some time before I have to officially apply for the mortgage, so I thought in that time I can do things to make the application a lot smoother. (By the way, both mortgage companies went through a full documentation to give me pre-approval, they didn't just run the numbers). I know I don't want to do anything to screw up my credit, but what about making things better? 

Using Zillow's "How Much House Can I Afford" calculator, I know I want to get my DTI down so that I can be confident that with the taxes, and only my annual salary taken into consideration, I'll get the mortgage at the price I'm looking for. I got pre-approved with a monthly debt of $780, and since then I've been able to knock $66 off (switching to graduated plan on my student loans - doesn't affect credit). I've got student loans ($291 per month), credit debt ($187 per month) and a car lease ($236). I'm looking to decrease my monthly debt by $39 more per month just so I can feel more secure that when I officially apply for the mortgage, no problems will come up.

I called my credit cards and asking for lower interest rates but didn't get anywhere. What would happen if I went for a personal debt consolidation loan? I have cards with Discover and Wells Fargo and they both pre-approved me for that option. Wells Fargo said that they would give me 8.25% interest, and a monthly payment of $124. I know that opening up a new line of credit is not good, but if it gets my DTI in a better place, would it be worth it? My FICO score is 691 (in the last year I did the student loan consolidation and leased a new car) so I'm not sure if I would send myself into a dangerous score. My financing is through a NJ program, Live Where You Work, which does allow for lower credit scores and higher DTI.

If the short sale takes 4 months to get approved, wouldn't it be worth it to have done the loan now and get my DTI down? Or will I just set myself up for a big mess?

Any other advice?

[indecison]

I would think the best thing to do is to ask the LO's this question. Im guessing they will say it is not a good idea to open a new trade line or apply for credit. This might make things worse.

[Anonymous]

+1, ask your LO.  It would suck if you assumed that the process would take 4 months and you were one of the lucky ones and it was streamlined, but you lost the deal because of a new TL on your CR.

I would also offer the advise that if you're worried about your DTI, you may be trying to buy too much home.  When we got tentatively pre-approved and started looking, we stayed $25k-$50k below what our "max" was, and the house we found and put an offer on yesterday is closer to $75k below our max...easily affordable payments will make our lives so much easier.

[Anonymous]

Thanks Trons! I'm waiting to hear back from my lender. Hopefully they'll like what I've done so far with my student loans and say that is enough. That little change got me 25K more in purchasing power according to the How Much Home Can You Afford Calculator.

I completely agree about looking below what you were pre-approved for, which is part of the reason that my fiance and I are doing this on my income alone. We want to make sure it is a house that we can sustain easily. Any of these price points (including the crazy high taxes around here, insurance and PMI) would be way below what I (alone) pay with rent so I know I can afford it. It is just a matter of gettng the bank to agree (easily!). The house I'm looking at is 85k - so we're not talking about a lot of house. Just a good sized short sale in the area that doesn't need a complete rehab in order to live in it.

Anyway, thank you for the advice and best of luck to you and your wife!

[Anonymous]

That's what I'm thinking. I wish I had known about these consolidation loans before because they would have made my life a lot easier. I've been attacking my credit cards but the interest rates are high - 15 - 19.99% and I don't want to keep opening new cards to transfer the balances. Perhaps this is a good move after I get into the house that can free up some income for new carpets, etc.

Thanks!

[Shogun]

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@indecison wrote:

I would think the best thing to do is to ask the LO's this question. Im guessing they will say it is not a good idea to open a new trade line or apply for credit. This might make things worse.

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+1  Good rule of thumb is no new credit within 6 months of your mortgage app.