Debt-to-income ratio too high for home loan?

[RFlady]

Hello,

 

I met with a loan officer a couple of weeks ago to see if I could get pre-approved for a home loan. My income is modest, but my credit scores are very good. I have about $3000 saved for a down payment / closing costs.

 

The loan officer said that, because my debt-to-income ratio is at 51%, they would require a down payment of at least $10,000. (I don't have this, and it would take years to save it up.) She said flat-out that this ratio makes me high risk, despite my good credit and good employment history. That stung...

 

Since I'm spending so much on rent, comparable to a mortgage payment, I thought it would make sense to spend it on a house that I own.

 

So, my question is: Is it very unlikely that I would get pre-approved for a home loan with the debt-to-income ratio that I have, and not having a down payment of ten percent of the loan amount?

 

I only spoke with one person at one bank, but I am interested in hearing the opinions of those who have been through this. Thanks! I'd love to stop pouring thousands into a rental at some point!

[Brian B The Loan Professor]

Welcome to the boards?

Was that just for housing or total?

If it was just for housing you may have a problem

I am not sure if they were looking at FHA or conventional - I am guessing conventional because of the 10k request?

FHA will allow a combined ratio as high as 55% (meaning housing and all other expenses)

The thing is you will need 3.5% down so unless you are looking at homes in the 75-80k range you will need more than $3,000

And closing costs will probably run another 4-6% on a loan that size (you can get the seller to credit you this part)

 

Hope this helps

Brian

[RFlady]

Hi, Brian! Thanks for your response!

 

The 51% ratio is for all of my debt, including the dreadful student loan payment that will descend upon me in about a year.

 

The loan officer I spoke to said that the FHA loan wouldn't work for me, because the limit for that program is around 46% for debt-to-income. So she must have been incorrect? But to answer your question, she was looking at the possibility of a conventional loan for me.

 

It looks like, regardless, I'll need to save up a bigger fund for the down payment and closing fees. (My cap for a place is about $110K).

 

I also want to talk to a different banker.

 

Thank you again for your help! :-)

[jop3]

While a debt to income ratio of up to 55% could be possible for FHA, not every lender will allow it. So, your loan officer was not giving you inaccurate information, just the information for her particular lender. You will want to talk to 2 or 3 more people to see what they can offer. With very good credit and solid job history, someone should be able to do that loan with that debt ratio. It may just take some patience to find the right lender.

[Brian B The Loan Professor]

Hi, Brian! Thanks for your response!

 

The 51% ratio is for all of my debt, including the dreadful student loan payment that will descend upon me in about a year.

 

The loan officer I spoke to said that the FHA loan wouldn't work for me, because the limit for that program is around 46% for debt-to-income. So she must have been incorrect? But to answer your question, she was looking at the possibility of a conventional loan for me.

 

It looks like, regardless, I'll need to save up a bigger fund for the down payment and closing fees. (My cap for a place is about $110K).

 

I also want to talk to a different banker.

 

Thank you again for your help! :-)

 

The higher the ratio the better everything else should be

I see loan get preapproved through automated underwriting all of the time that have ratios up to 55%.

It is not uncommon to find someone not familiar with FHA. It also may be that your housing is too high on the front. If they did not run it through automated then you definitely need to find someone else that will take a closer look at it.

If you get automated approval and can support your loan with documentation getting it through shouldnt be too difficult

B

[shevar]

I have been approved through a Mortgage company with 55% dti through automated uw. I supposed to close next month, I will let you know how it goes. My middle score is about 687

Edited November 9, 2009 by shevar

[Bloody but Unbowed]

Congratulations, good luck and keep all paperwork handy in case they get cold feet you can show them you have everything in order

[shevar]

Congratulations, good luck and keep all paperwork handy in case they get cold feet you can show them you have everything in order

 

 

Thanks, I am nervous; I have a base pay plus commission. What kind of paperwork should I keep handy?

[Bloody but Unbowed]

From what i understand commission is the tricky part with underwriters, b/c you are using it you will definitely need 2 years of tax returns with it showing on their, also make sure you have your paystubs (as many as possible) and bank statements (incase your commission is deposited separately).

 

Good luck, let us know how it goes.