Posted: Fri Nov 06, 2009 12:36 pm Post subject: will we qualify with our dti ratio
husband is a army vet. never owned a home
I own a home through habitat for humanity and my 10 years is up in march so we can finally purchase a house together.
information:
anticipated loan amount 150,000 I would only like to spend 125,000
credit score 730 and 760
monthly gross income: 7,700
cash savings- 9,000
debt to income ratio: 37-39% if I add a 1100 a month mortgage including taxes. 22% without a mortgage.
monthy debt: 1730, which includes, child support, student loans, personal loan, 2 car payments and 2 credit cards. does not include my 327.50 a month for my mortgage.
I think are debt to income ratio is on the border for conventional loans. I have approx 40,000 in equity. should I refiance and pay off my one pers. loan of 25,000 before applying for a loan or wait until we purchase a new home. do we have a chance with the economy
Credit scores of around 730 and 760 are good enough for you to qualify for a home loan. In fact when most of the borrowers are struggling to maintain a clean credit due to job loss and other financial crises, a score of 700+ is considered to be quite good. Unless there are any derogatory items like foreclosure or bankruptcy on the credit report, you should not have any problem in qualifying in terms of credit score. You also have a cash savings of $9000, which is good. But you have not mentioned about the down payment. How much down payment do you want to make? A good amount of down payment can help you get a loan at a comparatively low rate.
As far as the DTI ratio is concerned, I do not think you have too high a ratio to be concerned about. For conventional loans, you are allowed to have a maximum of 28% front end ratio. The limit for the back end ratio is 36%. Your front end ratio is around 22% and back end ratio is 37-39%, which is slightly higher than required. But that should not be a problem for you. Most lenders would be flexible enough to allow you a slightly higher DTI ratio.
Talk with a loan officer regarding this as he should be able to guide you further as to which loan program will suit your requirements. Alternatively, you can also seek a no obligation free mortgage quote from the community lenders. They will check your credit scores, DTI ratio, income, etc. to determine if you qualify for the required loan amount. In case you do, they will provide you with free mortgage quotes which will give you an idea about what kind of interest rate you can get on the loan.
It's true that a typical conventional loan allows a DTI ratio of 28/36. But a back end ratio of 37-39% will not disqualify you for a mortgage. Apart from conventional loans, there are FHA loans that allow a qualifying ratio of 31/43. So, in case you cannot get a conventional loan for a slightly higher back-end ratio, you can surely go for an FHA loan. The interest rates on these loans are also quite low. With non-conforming loans, it is even possible to qualify for a loan with DTI ratio as high as 50-55%.
You've mentioned your husband is an army veteran, right? Why don't you then look for a VA loan? VA uses only the back end ratio of 41% as guideline. So, DTI is surely not going to be a problem for you, if you choose to go for a VA loan. There will be no need to refinance or take out an equity loan to pay off the personal loan. With a less than 41% back-end ratio, you can easily get approved for a VA loan.
>>I think are debt to income ratio is on the border for conventional loans
The ratio is 41 and well within your means with a VA Guaranteed Home Loan. It sounds like your family is a perfect candidate for the VA Guaranteed Home Loan program. Zero down, no Mortgage Insurance, your FICO's and everything else are perfect. No worries. _________________ Raymond
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