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Mortgage qualification /203K questions


luckyduck
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I'm in the market for a home.

Credit:

1. Scores - 603, 626, 636

2. Outstanding bads are from 2003 - total outstanding is $3600 for 3 bills ($749 is medical debt) - can settle for around $2000 and have cash . SOL will be up in 3 m, 6 m, and 7 m. - trying to removing from credit report, but willing to pay if needed.

3. Other bads from same year, all showing zero balance.

4. Recurring bills - $277 car payment, $20 - 2 credit cards. $217 student loans in deferment until 2012.

5. Renting for $679 monthly for 12 months, never late.

Income:

1. Did not work from 2003-2007.

2. Returned to work August 2007, moved to new state in Feb 2008 and have had most recent job since Mar, 2008.

6. Still technically employed, but not working. Collecting unemployment. Will have descent W-2 for 2008 (11000), but crappy 2009 paystubs if any at all.

8. Self employed for 5 years. Profits for 2007 & 2008 only - ($12500 2 year average). Prior years showed loss.

9. Child support is regular and dependable ($15172 annual).

Assets

1. Divorced October, 2008. Awarded half of 403(B) plan which I supposedly can't touch for 8 years, but may be able to get if I pay the 10% penalty - value between $5 & 8K, depends on what the market does. Also awarded $200 monthly pension, not to payout for 13 years.

2. Business raw materials and assets - sole proprietorship, already told these assets will not be counted.

3. Cash on hand this week - $2200

4. Tax refund expected in one month- $4800

Home

1. Seeking low priced home - around $40K whether straight purchase or combined purchase/construction loan.

2. Specifically interested in foreclosed home listed at $39900 three weeks ago, needs electrical and plumbing work. Intend to offer less and add a construction loan with total loan no more than $40-45K. total repairs and cosmetic work can be done for less than $10K. House will easily appraise at $110K after work is done. Comps are at $120-170K for nearly equal age/footage/acreage on same road.

1. Do I pay the bills on the credit report or wait for a lender to require it as a condition of the loan? Cap 1 SOL is up in about 4 months, offered to settle for $1000 and they are known to sue just before SOL.

2. Will the student loans count in DTI if they are in deferment for the next three years?

3. Will employment income mean anything? I am still employed, with written verification of employment and lack of hours due to "slowed work". Or should I expect to not count the employment at all?

4. Will there be any problems with counting the child support. I get it from two parents and it is regular and consistent with court orders.

5. Is self employment generally not a problem as long as the income can be verified with 2 years of schedule Cs?

If income is used as expected - child support and self employment only, then total is around $27K annual - $2306 monthly.

If student loans do not count while in a long deferral, then total monthly debt is $317 and can be brought down to $277 by paying off the credit cards, which I can do, bringing recurring DTI to 12% not counting housing.

Using 29% Front-End DTI, I can afford $668 monthly, but don't want to. I want some excess padding, as that's the purpose of finding a low priced home.

Using a low 38% back-end ratio I can afford total monthly bills of $830 - deducting the current $277 car payment, that leaves $553 that I can afford for PITI - around 40K-45K loan. - Do my numbers look right and are they on par with lenders?

I am confused about construction loans. I understand the majority of the process but have questions.

If I'm seeking a loan for $40-45K (including rehab costs) on a home with an after rehab value of $110K, then am I correct in assuming that once the construction is complete, the home will have a 63% equity, and PMI will not be required? Is it required up to the point of rehab completion?

Does the after rehab valuation play a part in the lender's decision on making the loan / determining the interest rate?

Oh, and what the heck should I do regarding the cash I have? Should I hold onto it, use it to get the loan and cover reserves/down payment/etc, or should I pay off the debt, increase my credit score, and lower my DTI, leaving less money to actually get into the house? Time is a factor. I have 11 weeks of unemployment left and need to have lower housing costs before it is gone.

At what point should I seek pre-approval. I will have $2181 this Friday, and I will have another $4800 next month which are specifically reserved for getting a house. I should have a slight bit more from my sources of income, but this is the minimum cash I'll have. Do I need to wait until I actually have the money and can prove that I have it, or can I get pre-approved without having the cash on hand?

Thanks for your patience with all my questions. I want to do this right and my banker simply was not informative enough.

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  • 3 weeks later...

If you don't mind living in a more country-like setting, check out the USDA's website and go to their rural development area. They have loans for low income, very low income etc. I went through the process. Took me a while and there were criteria that had to be met, but I'm sure with your income you'd qualify. Would definitely have to explain the credit situation, but if those baddies are coming off, then I would wait until they are gone before applying for a 502 loan otherwise you'll have to show the USDA that you are working with your creditors for those debts. Got myself into a home with a 1% interest rate.

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