Sticky situation - opinions welcome

[Anonymous]

We have run into a problem and I’m curious what other people here would do. We are currently building a house, but the sale on the condo I have owned since before I met my husband did not go through. We were approved for FHA and told convention would go through if we had enough reserves.

My FICO – 680, one incorrect late from January 2010 – student loan was suppose to be in deferral. I have a letter from school saying I was not late on that payment but transunion is still reporting 30 day late. I had a small medical collection from 2008 that I paid off in October and it is showing as paid.

Husband FICO – 740, credit established July 2010

Our income - I’ve held this job over 3 years and he has had his 18 months by the time we close. Solid work history for 5 years.

Current condo is $883/month, that includes the full FHA loan, escrowed amounts plus HOA fee

Total DTI will be 37%, new house alone will be 18.5%

We own older cars with no payments. Credit card payments are $280 on $10k. Student loans are about $400 on the 32k.

Worst case scenario we may need an additional $15k beyond the 3.5% we have already given to the builder to close. We will have about $8k in the bank by that time, will be able to sell a car and household items to get another $4k, and have about 9k in 401ks.

1)      How much will we need in reserve if we need to do conventional together? Will the 401k cover it in part?

2)      Another option I’ve thought about is having my husband do an FHA on the house we are building. I have an FHA already and the loan officer the builder is pushing us to use isn’t interested in helping us get approved for a second FHA even though we have 5 people in my 2 bedroom condo.

3)      I’ve thought about refinancing the condo to conventional so that I can get another FHA, but the value just isn’t there. Are there any other options? Since I am hoping to go into an industry with extensive background checks when I finish my degree I do not want to commit mortgage fraud or anything that might appear to be illegal AT ALL. So please do warn me if any of the scenarios I’ve posted here will get us into trouble.

4)      Anything else I haven’t covered yet?

[IOBA]

1.   With a conventional loan, they are looking for 5-20% down plus two months (at least) worth of mortgage payments in the bank by the time of close.   I have heard up to six months in reserves, but it really depends on the lender/UW.

2.   DH can apply for the mortgage himself, if he has the income and the down payment.   If you choose to go this route, I would strongly suggest he open a savings account in his name only and start doing a direct deposit or a consistent deposit.   The UW may ask where he has been living for the last two years and why he does not have a rental history.   The UW may also ask/pull your credit to look at your financial obligations.    The UW may ask what you plan to do with the condo after you close on the house.

3.   Sell what you can now to get as much in the bank as possible, as quickly as possible.   When loans are iffy, more money in the bank helps build confidence with the UW. 

4.   Don't' apply for credit, change cell phone plans, or call utilities (to start, to transfer to your name, or anything) since they often pull credit before making a decision.

Each situation is different.   Each UW responds differently.    In just about all cases, I would say, the more money in the bank, the better.