DTI question for an FHA mortgage

[Gvegas627]

I was just pre-approved for an FHA mortgage (mid score 675), and hope to find a good house within the next month or so. Because my DTI is a bit high right now, I was only pre-approved for a $200,000 loan with 3.5% ($7000). I have been looking at some great houses, but most are just above the approval level. I have up to $30,000 in reserves to put as a down payment, but I also have about $9000 in credit card debt (I had some recent family medical emergencies that added up quickly). So my question is this: Does it make more sense to lower my DTI by paying down the credit cards with the reserve money, and put a smaller amount toward the down payment, or keep a larger down payment? Thanks in advance for the advice!

 

** BTW- I am about 2 years post-BK7 discharge, so FHA is my only option at this point.

[Stevelgar]

Lowering your DTI can be done both ways. Paying down revolving debt will also boost your scores. Although, with FHA it won't effect your rate to have a higher score. If you are wanting to go above the $200k pre-approved amount I would reach out to your LO & have him work the #s to see which would get you the higher purchase price. I suspect the larger down payment would allow you to increase your purchase price. Tell you LO how high you are wanting to go.

[RBinAK]

I am in a similar situation. You need to talk to your mortgage people about what the results of your actions will be. More money towards down payment did nothing for me, but paying off another debt helped the equation quite a bit.

 

If your credit card minimum payment is $50, with a 4.25% mortgage, that's around $10,000 more you can spend. But as you go up in purchase price you also can go up in taxes from the square footage which negates the payment amount. I ended up going nicer but smaller. $200k 4bd 2ba with two family rooms vs a $225k 3bd 2ba with one family room. The more expensive one might actually be cheaper and fit in your DTI ratio.

 

Throwing $20k towards a $245k is not going to remove the increased taxes and other monthly fixed costs.

 

I don't pay PMI so I really don't know how that will come into play as well.

 

Either way just ask your lender what will happen if you remove that credit card debt.

Edited March 16, 2014 by RBinAK

[DallasLoanGuy]

most lenders will not let you 'pay down revolving' to qualify on dti..... unless you close the revolving account

[spikedup]

most lenders will not let you 'pay down revolving' to qualify on dti..... unless you close the revolving account

 

 

I experienced this painfully.

[RBinAK]

DLG but you can pay down revolving and then apply. Just because they have applied at one place, they can still make the needed changes and apply again shopping another lender waiting for time for the information to post on the credit report as a reduced line. Or am I wrong here?

[RBinAK]

DLG can you delete my posts, i asked in the report tool. I dont like having bad info out here so if they could be deleted that would be great.

[futurehomeowner?]

I don't understand why they don't let you just pay off cards to get DTI down. If it was a deal breaker couldn't I just find another lender and restart the process? Its not like there isn't 100 lenders in the area anyways.

[shifter]

wow, that's crazy I would have never thought that. good to know.

 

wait to apply before you pay off any balances you intend to pay to lower DTI.

[DallasLoanGuy]

DLG but you can pay down revolving and then apply. Just because they have applied at one place, they can still make the needed changes and apply again shopping another lender waiting for time for the information to post on the credit report as a reduced line. Or am I wrong here?

 

correct. you can pay down then go to another lender after the balances report

DLG can you delete my posts, i asked in the report tool. I dont like having bad info out here so if they could be deleted that would be great.

 

no need to delete good info

[futurehomeowner?]

 

DLG but you can pay down revolving and then apply. Just because they have applied at one place, they can still make the needed changes and apply again shopping another lender waiting for time for the information to post on the credit report as a reduced line. Or am I wrong here?

 

correct. you can pay down then go to another lender after the balances report

DLG can you delete my posts, i asked in the report tool. I dont like having bad info out here so if they could be deleted that would be great.

 

no need to delete good info

 

Is this standard practice or a YMMV type of thing. If this is an industry standard then I will need to look for a new loan officer.

 

Would it be bad to ask the LO or might that raise red flags if I mention I will go elsewhere?

[futurehomeowner?]

on top of that question, what if you are pre approved for FHA and you want to get approved for conventional? Would a new DTI be determined for that? with the same lender for both of those.

Edited March 20, 2014 by futurehomeowner?

[shifter]

correct. you can pay down then go to another lender after the balances report

that seems so crazy that that lender wouldn't recalculate in order to keep your business.