Saw a Mortgage Broker- ;(

[scorepower]

Ok, here goes my saga.

last year we worked with a mortgage broker and we were qualified for $530,000 with no down.  the loan fell through because of a blemish on my DW credit report that didn't show up during the pre-qualification.  We had to wait a year so it won't be counted. 

Yesterday i went and saw the same person thinking we were in a much better position.  Our income went up $25K/year, we have about $15K we can use as a down payment.  Our debt went up a little bit but i thought with the increase in salary it would offset it.  Our total HHI is $145,200.  DW score is 712 and mine is 694.  We could not qualify for FHA because of income limititations.  somehow the loan calculation program they used calculated our DTI to be around 53%.  she said we would need to reduce our monthly payments.  For every $100 in monthly payment reduction, it would drop our DTI by a point.  We have car payments, school loans and credit cards.  We could make a montly payment of $3500 on a new house without too much sacrifice. 

I know the housing market took a dump.  i honestly thought we were in a much better position.  She said we can qualify with 5% down on a house/condo in the price range of 450-475. 

I just don't get it.  We are in a much better position now then before but we are qualifying for much less, plus the payment would still stay at $3500 a month and we need to fork out more money for down payment.

I'm thinking maybe i should try wells fargo since we've been banking with them for 22 years.  Another option was for me to transfers some balances to my DW account and increase my score and only use my information for qualifying and maybe i can get in with FHA. 

I just can't get over this.  Is it really that hard to get a loan?  This really took a toll on me emotionally since i work on our finances everyday and try to do the right thing.  I know we have to make sacrifices but dang, i'm at the point i'm ready to say screw buying a house. 

Thanks for listening and if you have any suggestions i would like to hear it. 

[ShanetheMortgageMan]

It's become much harder to qualify for a mortgage, yes, especially on jumbo loan amounts (over $417k on 1-units).  On a jumbo loan amount your debt ratio cannot be higher than 50%, most lenders want it to be no higher than 45%.  Wells Fargo has a decent jumbo loan program, it's like every other lenders though.  5% down is the standard on jumbo loan amounts now.  It's all because of falling home prices, when home prices go up.. lenders are easy on guidelines, when their collateral starts going down in value, they put guidelines in place to curb their losses.  Putting money down means you have a vested interest in the property, so you are less likely to walk away if things go sour.  A lot of the foreclosures these days are because people did 100% financing interest only loans, and it was like they were just paying rent... so when things got difficult, they simply mailed in their keys.  Lenders don't want that to happen again, so they require down payments, because if someone forked over $25k to buy a home.. they are going to be less likely to just walk away.

The reason you can't qualify for FHA isn't because of income, it's because of loan limits... FHA only goes up to $362,900 currently, but House/Senate just passed a law that would increase it to $417k, but I wouldn't count on it going into affect for another couple months at least.

You can still buy a home, you just have to adjust your thinking.

[scorepower]

Thanks Shane.  You shed a good light on the situation considering where the market is right now.   You think with saving up to 5% and shrinking some of the debt down would put us in a better situation? 

I guess what i'm trying to figure out is what are lenders really looking for?  I'm going to continue pay down our debt a little bit to boost our scores and save for 5% aggressively.  I'm hoping this will get us closer to what we need.     

[ShanetheMortgageMan]

I think the scores are probably fine, of course if you can get both borrowers mid scores to a 720+ you'd be in the best position for jumbo financing... but 680+ is at least where they need to be.  I definitely think saving up 5% is a requirement though, you'll have many more options that way.  No need to rush into homebuying, I know you'd like to own a home now, but it's not like values are still skyrocketing up and you are going to "miss the boat" if you wait.

[scorepower]

Shane,

What are some strategies for reducing DTI ratio.  She also mentioned since we have car payments, student loans and credit cards, we need to reduce the amount we pay out monthly.  She mentioned Meriwest to re-finance the car loan and extend the payments out longer and reduce the monthly payment by atleast $100.  I can defer the student loan but only as a last resort.   

Does it make sense to call credit card companies and ask them to lower my monthly payments and pay interest only?  I would like to do some balance transfers once a good rate comes around.  Is there other options? 

Thanks

[ShanetheMortgageMan]

Yeah, extending the terms that you pay debt on are the best way to reduce debt ratio.. of course making more money/buying less expensive home is another.  Not sure if the credit card companies will go for changing the terms to interest only, but you could try that as well.  Deferred student loans count in the debt ratio unless it's FHA & they are deferred for 12+ months.

[Anonymous]

Would not the easiest way to drop the ratio be to pay them off? You said you could afford 3500 house payment, why not use that money to pay these off before buying?

saladdin

[Anonymous]

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saladdin69 wrote:

Would not the easiest way to drop the ratio be to pay them off? You said you could afford 3500 house payment, why not use that money to pay these off before buying?

saladdin

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I concur...

[haulingthescoreup]

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@Anonymous wrote:

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@Anonymous wrote:

Would not the easiest way to drop the ratio be to pay them off? You said you could afford 3500 house payment, why not use that money to pay these off before buying?

saladdin

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I concur...

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I agree also. Get yourself in the best possible position for your mortgage, and that means scores up and debt down. I don't know what your monthly payment is now, but if it's less than the $3500 you're willing to pay (yikes!), use that difference plus anything else available to pay down your CC's.

For best scoring, it's only half of all open accounts reporting balances, including installment, mortgage, etc., and fewer than half of all CC's reporting balances, and those should be under 10%. So if you have 12 total open accounts, including car payments, etc., only 6 should show balances, and the others PIF'd, with the CC's that do report under 10% of their respective credit limits. Since open installment loans by definition have balances, that means serious PIF'ing of cards.

I know that debt-to-income is different from FICO scoring, but they are both important in getting the best mortgage deal, and if you reduce your CC payments, you will improve both. And if the re-fi won't upset the mortgage process, that makes sense too, although I'm definitely a newbie on that.

You'll have this mortgage a good long time, and IMO, it's worth delaying the move to get the best deal you can. Good luck!

[scorepower]

thanks for all the advise. currently we are paying $1518 for rent. the difference from the rent and mortgage we are using to save. im actually working on another budget to tighten things up. currently we are saving about $1400 a month through regular savings and 401K. weird thing was when we spoke to the broker she said our debt was fine and to transfer some of my balances to increase my score and to aggressively save for 5% down. we are currently paying about $400 a month on a gold amex charge account which should be paid off in a couple of months. this will also help with cashflow to either pay more toward debt or save. i'm not trying to rush now but i think by july we should be in a good position.