Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
OK..will try to explain because I have been crying for three days now and no one ever saw this coming and now I just don't know what else to do.
First off, both my husband and I have good credit, very little debt, but had a small down payment. Our local loan officer suggested USDA guaranteed loan because he said our incomes might not be high enough to qualify for a conventional loan, plus we locked our interest rate at 3.3% with USDA. Over 90 days, we were diligent, provided everything they asked for, spent money on the inspection, appraisal, the seller made over $8k in USDA required repairs and house was successfully re-inspected. The bank was thorough and we were approved all the way. The final step I was told was sending the loan package to USDA for final approval, my LO said they didn't foresee any problems etc. Then came the denial of our loan.
Here are some of the details before I get into their reason for the denial:
-I am a part-time real estate agent so I am an independent contractor. We have 2 school aged kids and my focus is being home with them. My husband who was a bar manager until January, moved restaurants to be a manager and so he went on salary. The bank and LO knew this the entire time and they thought this was still OK.
-our Adjusted Gross Income from 2013 was $64k (This is important). It is the highest AGI my husband and I ever had due to a one-off, crazy million dollar sale I did that year. This sale was the highest single sale in my sales career of 20 years. I would love to sell million dollar homes but that is not realistic for me...that market is controlled by a handful of agents in our small selling area. The median sales price is $200k and all of my sales fall in this range. Not complaining, it is what it is. Our combined AGI for 2014 was $43k, for 2012 was $35k, for 2011 was $28k etc.
-Also, I went back to college and finally graduated in May.
Here come the denials:
First:
the USDA underwriter told my loan officer that since I graduated school this year, that the hours I worked were bound to go up in 2016 and that this would most likely result in an increase in our income higher than the local $74k maximum. I wrote a statement explaining this was not likely to happen since I had two kids at home and the reason why I worked fewer hours was not because I went to school (I took classes while my kids were at school just twice per week), but because I made sure I was available after school, during vacations, holidays and snow days. Anyone who sells real estate knows that more hours worked doesn't necessarily mean more money:/
Second:
Then my LO comes back and said that USDA underwriter had decided that since my husband had gotten and income increase this year (which everyone knew about), taking into account our AGI from 2013...that we might still make above the $74k at some point...This is just crazy to me.
Yes, there is some chance I MIGHT make another million dollar sale at SOME point in the next 20 years...my husband also plays the lottery every week and there is also a chance we MIGHT win the lottery, but the reality is that the odds are against me on both counts.
I went ahead and worked furiously to do preliminary taxes for 2015 taking into account my husband's current salary and my commissions from 2015, which were somewhat higher and our AGI for 2015 is around $54k...STILL MUCH LOWER than the $74k cap. I asked the LO to send this preliminary 1040 to the USDA underwriter but she was apparently adamant that we MIGHT make too much money at some point in the future.
My husband and I have sadly never made a combined AGI of anywhere near the $74k local USDA cap. LO will not give me any more information..said that USDA underwriter refused to say anything else. He said no use in trying for an FHA loan unless we coughed up more money for a down payment which we don't have. I'm stuck between a rock and a hard place...Even thought we have good credit and 5% down payment...we don't qualify for conventional because we don't have a high enough AGI, yet we were turned down by the USDA underwriter because there is some chance that we will make more money in the future??? I feel like I'm taking crazy pills!!!
I poured through USDA underwriting guidelines and it states that "independent contractors" income that is taken into consideration is gross minus business expenses or the cost of them earning those commissions. It also states that for qualification purposes, USDA underwriters should use ADJUSTED GROSS INCOME, not total income. MY LO told me that the entire time they used my Sched C to qualify us and so he didn't understand why the USDA underwriter seemed to be using just GROSS income (before taxes and my expenses are taken out). Can anyone shed light on this? Is there any way to save this?
Since you have 5% down and good credit I wonder why your loan officer said conventional wouldn't work. FHA has a minimum of 3.5% down. Are you carrying a lot of debt?
The contract price is $300k but based on our income, we only qualify for $280k...which was the loan amount we were pre-qualified for. We live in a rural area in the mountains, but second-home owners have skewed home prices and $280k is affordable housing here. I searched for 5 years for something that didn't require extensive renovations (we have no money for major renovation work) that wasn't 1,000sqft and couldn't find anything. This house is a well built 1925 farmhouse in a location with good access and seller is taking a substantial loss on it in order to sell it to us. It is 1800 sq ft and outdated but roof, windows and construction is solid.
I did reach out to another loan officer last Tuesday and he told me given the income amounts we had to work with, it would be tough to qualify for conventional since interest rates had jumped to well over 4% over the last week or so. He said he would see what he could do but said it was our income that made it tough to qualify...
Also, we don't have a lot of debt...we don't own a house right now, have no car payments. We have just under $500 per month in recurring debt payments. I have purposefully kept very little balances on our cc's. We don't have car payments etc. so that we could comfortably afford a PITI payment given a $280k loan.
Most banks would give us a loan but not for over $230k given our AGI...which is the reason for going USDA. Housing in that price range that is in decent shape (no granite counters, new appliances etc but not falling down and full of mold) is pretty much impossible to find. Believe me, I have been looking for years. We love this community, our church, friends and especially the school my girls go to which is why we have been sacrificing for years to buy something in this area.
On FHA-Maximum loan amount for this area is $274k...which means if I cough up an additional $6k I could go FHA but I just don't have that additional money.
That underwriter seems a little wacky. As a real estate agent I have done plenty of USDA properties and income is often the issue for decline but it is normally because a salary has gone up or is pending.
For the life of me I am not sure how you can get this person to reconsider their decision. I am sorry you are going through this.
On FHA-Maximum loan amount for this area is $274k...which means if I cough up an additional $6k I could go FHA but I just don't have that additional money.
maybe you should just wait a year and try again . I mean I certainly would not go through this lender and I would try a conventional loan also instead of a usda loan . Good luck to you .
Also, we don't have a lot of debt...we don't own a house right now, have no car payments. We have just under $500 per month in recurring debt payments. I have purposefully kept very little balances on our cc's. We don't have car payments etc. so that we could comfortably afford a PITI payment given a $280k loan.
Most banks would give us a loan but not for over $230k given our AGI...which is the reason for going USDA. Housing in that price range that is in decent shape (no granite counters, new appliances etc but not falling down and full of mold) is pretty much impossible to find. Believe me, I have been looking for years. We love this community, our church, friends and especially the school my girls go to which is why we have been sacrificing for years to buy something in this area.
To be honest, the payment on $280,000 seems high considering your income. Once you add in the tax and insurance impounds, your monthly payment would be at least $1,500 (probably more) and adding in $500 a month in additional debt payments puts your debt/income ratio at least 38% of the highest household earnings you've ever had. You've said you don't expect your income to be that high again anytime soon so that leaves you basically no wiggle room in your budget for fixing all the things that can go wrong with an older home. You also wouldn't have much of a buffer for all the other emergencies that life tends to throw out.
I'm wondering if the mortgage company is just using the too much income in 2016 as an excuse to avoid giving you a mortgage they've realized you can't really afford. And with rates going up, they might be looking for a way to get out of that super low 3.3% rate you have locked in since the rate now is probably quite a bit higher.
I know this isn't what you want to hear, but if you can't qualify for a conventional or FHA loan in your area, USDA has turned you down, you have no cash for a down payment and you have no extra cash to make any repairs/renovations, you can't afford a house. Not everyone can afford to be a homeowner.
Last edited by patches403; 12-26-2015 at 05:29 PM..
OK..will try to explain because I have been crying for three days now and no one ever saw this coming and now I just don't know what else to do.
First off, both my husband and I have good credit, very little debt, but had a small down payment. Our local loan officer suggested USDA guaranteed loan because he said our incomes might not be high enough to qualify for a conventional loan, plus we locked our interest rate at 3.3% with USDA. Over 90 days, we were diligent, provided everything they asked for, spent money on the inspection, appraisal, the seller made over $8k in USDA required repairs and house was successfully re-inspected. The bank was thorough and we were approved all the way. The final step I was told was sending the loan package to USDA for final approval, my LO said they didn't foresee any problems etc. Then came the denial of our loan.
Here are some of the details before I get into their reason for the denial:
-I am a part-time real estate agent so I am an independent contractor. We have 2 school aged kids and my focus is being home with them. My husband who was a bar manager until January, moved restaurants to be a manager and so he went on salary. The bank and LO knew this the entire time and they thought this was still OK.
-our Adjusted Gross Income from 2013 was $64k (This is important). It is the highest AGI my husband and I ever had due to a one-off, crazy million dollar sale I did that year. This sale was the highest single sale in my sales career of 20 years. I would love to sell million dollar homes but that is not realistic for me...that market is controlled by a handful of agents in our small selling area. The median sales price is $200k and all of my sales fall in this range. Not complaining, it is what it is. Our combined AGI for 2014 was $43k, for 2012 was $35k, for 2011 was $28k etc.
-Also, I went back to college and finally graduated in May.
Here come the denials:
First:
the USDA underwriter told my loan officer that since I graduated school this year, that the hours I worked were bound to go up in 2016 and that this would most likely result in an increase in our income higher than the local $74k maximum. I wrote a statement explaining this was not likely to happen since I had two kids at home and the reason why I worked fewer hours was not because I went to school (I took classes while my kids were at school just twice per week), but because I made sure I was available after school, during vacations, holidays and snow days. Anyone who sells real estate knows that more hours worked doesn't necessarily mean more money:/
Second:
Then my LO comes back and said that USDA underwriter had decided that since my husband had gotten and income increase this year (which everyone knew about), taking into account our AGI from 2013...that we might still make above the $74k at some point...This is just crazy to me.
Yes, there is some chance I MIGHT make another million dollar sale at SOME point in the next 20 years...my husband also plays the lottery every week and there is also a chance we MIGHT win the lottery, but the reality is that the odds are against me on both counts.
I went ahead and worked furiously to do preliminary taxes for 2015 taking into account my husband's current salary and my commissions from 2015, which were somewhat higher and our AGI for 2015 is around $54k...STILL MUCH LOWER than the $74k cap. I asked the LO to send this preliminary 1040 to the USDA underwriter but she was apparently adamant that we MIGHT make too much money at some point in the future.
My husband and I have sadly never made a combined AGI of anywhere near the $74k local USDA cap. LO will not give me any more information..said that USDA underwriter refused to say anything else. He said no use in trying for an FHA loan unless we coughed up more money for a down payment which we don't have. I'm stuck between a rock and a hard place...Even thought we have good credit and 5% down payment...we don't qualify for conventional because we don't have a high enough AGI, yet we were turned down by the USDA underwriter because there is some chance that we will make more money in the future??? I feel like I'm taking crazy pills!!!
I poured through USDA underwriting guidelines and it states that "independent contractors" income that is taken into consideration is gross minus business expenses or the cost of them earning those commissions. It also states that for qualification purposes, USDA underwriters should use ADJUSTED GROSS INCOME, not total income. MY LO told me that the entire time they used my Sched C to qualify us and so he didn't understand why the USDA underwriter seemed to be using just GROSS income (before taxes and my expenses are taken out). Can anyone shed light on this? Is there any way to save this?
USDA Underwriting does not operate in the manner your lender is describing. Something is up with your lender. If you can tell me the city/zip code of the house, I can connect you with the actual Operations Center for USDA. 90 days is an extremely long time for this loan - - unless the repairs caused a 30+ day delay. Your instincts and research are accurate. There may be FHA Grant programs that you can use that would cover up to 5% of the price - - can't tell if the seller is paying closing costs. I have never, ever seen that kind of response from USDA, so I am leaning toward something funky with your lender. For one, that rate is very low, perhaps mis-quoted and they are trying to bail out, I can't say for sure, but please let me know what area of what state the house is in and I will try to help you.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
