Will I QUALIFY?

[Anonymous]

Will I qualify for a 30-yr FHA on a $359,000 home with 3.5% (~$12,500) down?

Credit Scores: TU FICO 701, EQ FICO 683

Negatives:

3 collections, DOLA 11/2004 - 2/2005, 2 remain unpaid

6 charge-offs, DOLA 11/2004 - 2/2005, most of which went to collection and were eventually paid

Positives:

Auto Loan 5/2002 - 5/2004, closed, paid in full

Auto Loan 6/2006 - 10/2008, closed, paid in full

2 Student Loans 8/1996 - current, never late

2 Student Loans 8/2001 - current, never late

1 New Credit Card opened 8/2011, current, 10% util

Income: $105,000 annual, $8750 monthly

Source of Income: My full-time employment. 

Monthly Debt Payments: $1015 ($415 of this is US debt, $600 is Canadian debt. I am a US citizen and Canadian permanent resident. My wife is a Canadian citizen and US permanent resident! Do we even need to disclose these Canadian debts? Either way, we appear to be within the acceptable debt-to-income ratios)

Employment: 6 years of full time employment history in the US and Canada

Assets: $16,000

Location: Littleton, CO

Propery: Single Family

Value: $359,000, estimated property tax $2500/yr

Occupancy: Primary Residence

Transaction Type: First-time homebuyer, FHA 30-year fixed, 3.5% down 

[Anonymous]

Any thoughts? I don't want the inquiry if it's not going to pan out!

[Booner72]

Why do you think you wouldn't qualify?

The inquiry will be a few points.

Yes you should tell about the Canada stuff.

[Anonymous]

Thanks Booner72. I have seen two DTI ratios, 29% and 41%. It appears that with a loan of this size and our current debt payments, that we would fall within these DTI ratio guidelines. I'm only concerned because when I go to Wells Fargo (for example) and do an online calculator, it says I am not eligible for a loan of this size, presumably because it would only be 3.5% down payment, despite being within the allowable DTI ratios. If I increase the down payment on their calculator, it increases the mortgage loan amount eligibility. I understand these calculators are for illustration purposes only, so I'm not worrying about it too much.

[Anonymous]

Hmmm... now I am also seeing some people talk about debt to income ratios of 28/36. Which is the right one when talking about FHA loans with 3.5% down? Does it vary by lender?

[Anonymous]

Regarding the two unpaid collections from 2005... would I need to pay those off first? One is for ~$600 and the other is ~$3000.

These should be falling off my reports in the next couple of months. Problem is that we began house hunting too early and have fallen in love with a house now!

[Booner72]

geobrian - I don't remember what the DTI limits were for me.  I seem to THINK it was 45% for back end - and LO said they don't worry about front end for FHA, they really only look at the back end - so if back end jives front will, too, from what I understand.

Look up FHA DTI limits and you should be able to find the answer if no one else chimes in here.

[ShanetheMortgageMan]

geobrian you should be fine to qualify - your debt ratio would be about 27% for the housing ratio & 38% for the total debt ratio.  With good credit FHA loans are fine with housing ratios into the 40's & debt ratio's in the mid 50's.  While FHA doesn't require collections to be paid, each lender will have their own requirements on what amount of unpaid collections can remain unpaid or not, and then there is underwriter discretion.  For example our guidelines do not require collections to be paid but if our underwriter feels the unpaid collection or charge-off will turn into a judgment which would impact our borrower's equity position, then it would be required to be paid.  The $600 is unlikely to be required to be paid by any lender, and most shouldn't have a problem with the $3k either.  It's one of the questions you want to ask upfront, because if the lender has a strict collection payoff policy then unless you want to pay them off you should apply with a different lender.

[Anonymous]

I spoke with a mortgage broker who says there is no problem with me qualifying for this amount of loan. However, she says that the two unpaid collection will undoubtedly need to be paid or settled prior to closing, despite their age. This is a bummer, because it will cost me another few thousand dollars and the accounts are due to fall of my reports in a couple months. 

Also, she did not include my Canadian debts in the debt-to-income ratios because she said they only use what is in the credit report. Okay....?

I guess I'll be getting in contact with the two remaining unpaid collections and trying to work out a settlement. I'm hoping they will settle for pennies on the dollar given the age of these accounts. Wish me luck!

[ShanetheMortgageMan]

Why do you stop after talking to the first loan officer?  Why don't you find a lender who doesn't require them to be paid?