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Old 05-14-2009, 10:13 PM
 
30 posts, read 83,405 times
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You guys have been such a great help with my other questions, I figure I might as well ask you this question too.

How ugly is underwriting going to be for us?

My wife and I are both self-employed. Our tax returns are clean, and we averaged around $87,000 the last 2 years. My FICO is between 780 and 800. My wife is a bit lower, but over 720. We will be putting 10% down, and borrowing around $417k. We are moving out of state from CA to CO. We will have around $40k left over after we close, and our DTI (with everything included) would be right around 41% (but not higher).

The things I think might not look too good is we don't have a very high balance in any of our checking accounts (both personal and business). We basically run it pretty low, but we do have a seasoned savings account. The other thing is our income is uneven. Some months we don't really take a check, and other months we take more. It all depends on our receipts.

I've had the same business for 13 years. No BK, no Foreclosures, etc. What can we expect underwriting to ask for? How much info will they want from us?

Thank you!
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Old 05-15-2009, 05:52 AM
 
Location: Plano, Texas
1,675 posts, read 6,615,596 times
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You will have to provide at least 1 probably 2 years worth of tax returns. The lender will use the income after deductions to qualify. YOu will also have to provide 2 months worth of checking and savings statements as well as any other assets, 401k, ira, etc...

Your concern about the checking going to low balance is not going to be a problem especially if you have maintained a decent amount in savings. Basically, lenders want to make sure if you lose your job you can make 2 mortgage payments. So, if you are buying a home and financing 400k, you need to be able to show at least 7k in assets. If your savings is higher than that, you will be fine.

Your income will be averaged over a 1 to 2 year period, so dont worry about the uneven cashflows, very common with business owners.

I suspect you will have no problems, assuming the tax returns show adequate income and you have at least some assets after the down payment.

Good luck. One more thing, allow for more time to get your loan closed as lenders are swamped with business and underwriting time has dramatically increased.
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Old 05-15-2009, 07:24 AM
 
Location: Castle Hills
1,133 posts, read 2,407,458 times
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You averaged 87k and you are thinking of buying a 417k home? Do you know why all these people are foreclosing? Do you know why we are in a recession right now?
If I were an underwriter I would shoot you down in 2 seconds and write you a very long letter about future planning. I can tell you are somewhat responsible because of your credit scores and It's possible you could be fine if you are EXTREMELY FRUGAL but if one of you loses your job etc. you are going to go down hill very fast.
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Old 05-15-2009, 07:54 AM
 
Location: Summerville, SC
1,149 posts, read 3,920,928 times
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I have no idea how you were even approved for that much money. My husband makes six-figures, and he was "only" approved for $400kish... which we felt was too high, and went with a much more inexpensive house.

I think the underwriters might take issue with the loan.
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Old 05-15-2009, 08:47 AM
 
Location: Plano, Texas
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Wow, cant believe the other 2 posters. A debt ratio of 41% is more than acceptable. It appears to me that you'll have no other or very little other debt. So you appear to be a very good credit risk.

Also, when your tax returns are reviewed, there will be some items that can be added back to your income such as depreciation and a few other items. I would strongly suggest that you start the process early and have your LO examine the tax returns to make sure there are no issues.

I am glad ufsrules isnt an UW, cause most loans would be shot down.

I would like to hear from ufsrules for what he/she thinks is a acceptable debt ratio.

Last edited by VictorBurek; 05-15-2009 at 08:48 AM.. Reason: spelling.
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Old 05-15-2009, 09:19 AM
 
Location: Castle Hills
1,133 posts, read 2,407,458 times
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Quote:
Originally Posted by VictorBurek View Post
Wow, cant believe the other 2 posters. A debt ratio of 41% is more than acceptable. It appears to me that you'll have no other or very little other debt. So you appear to be a very good credit risk.

Also, when your tax returns are reviewed, there will be some items that can be added back to your income such as depreciation and a few other items. I would strongly suggest that you start the process early and have your LO examine the tax returns to make sure there are no issues.

I am glad ufsrules isnt an UW, cause most loans would be shot down.

I would like to hear from ufsrules for what he/she thinks is a acceptable debt ratio.
Victor,
What happens when he or she loses their job? How quickly will they sink? I'm going off of basic common sense here. If they make a combined 87k a year and are trying to buy a 417k house with 10% down they will have a $375k mortgage plus, property taxes, electric bill, gas bill, trash bill, possible car notes, car insurance, home owners insurance, groceries, cable bill, phone bill, and the list goes on and on. I think 41% is a high DTI ratio. How much are these people going to be able to save for their kids college? How much will they be able to save for retirement? They will be stretched very thin.



30% or less is generally considered as an excellent ratio by the vast majority of loan officers

20% - 36% is a good ratio and will most likely not cause any problems.

36% - 40% puts you on the edge of the limits of acceptability. Most lenders will ask for an explanation for why your debt to income ratio is so high. In addition, a debt to income ratio in this range begins to have a negative impact on your FICO score so lenders look to other strong numbers before making a decision to loan more money to you

40% or higher sends up red flags with lenders and your FICO score. Often, this high a ratio will be a deal killer with most lenders
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Old 05-15-2009, 09:54 AM
 
4,961 posts, read 12,542,202 times
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Quote:
Originally Posted by ufcrules1 View Post
Victor,
What happens when he or she loses their job? How quickly will they sink? I'm going off of basic common sense here. If they make a combined 87k a year and are trying to buy a 417k house with 10% down they will have a $375k mortgage plus, property taxes, electric bill, gas bill, trash bill, possible car notes, car insurance, home owners insurance, groceries, cable bill, phone bill, and the list goes on and on. I think 41% is a high DTI ratio. How much are these people going to be able to save for their kids college? How much will they be able to save for retirement? They will be stretched very thin.



30% or less is generally considered as an excellent ratio by the vast majority of loan officers

20% - 36% is a good ratio and will most likely not cause any problems.

36% - 40% puts you on the edge of the limits of acceptability. Most lenders will ask for an explanation for why your debt to income ratio is so high. In addition, a debt to income ratio in this range begins to have a negative impact on your FICO score so lenders look to other strong numbers before making a decision to loan more money to you

40% or higher sends up red flags with lenders and your FICO score. Often, this high a ratio will be a deal killer with most lenders
While I agree that the ratios you post are good conservative lending, they are not true at all when it comes to Fannie/Freddie loans.

With secondary market mortgage loans (Fannie, Freddie & Ginnie) there are approvals every dat at 50%, 55% and even some 60% DTI ratios.
40% does not send up any red flags and does nothing to your FICO. Income does not factor into to credit scoring. There will be no explanation required and it is certainly not a deal killer. Remember this pertains to secondary market mortgages not in house bank financing (portfolio lending). When banks are lending their own money they are not as aggressive on DTI.

Where the OP may run into approval trouble is:

1) They are self employed and relocating. Is it a business that can be run from anywhere, or do you have a local customer base. For example if you own a body shop in CA and want to move to CO you will probably be turned down because who knows how your shop will do in CO. It may take years to build up a clientele.

2) The mortgage insurance companies are in big trouble and tightening guidelines well beyond Fannie & Freddie. Putting 10% down you may run into a MI company restriction on DTI, but I beleive most of these are at 45% right now so you should still be ok.
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Old 05-15-2009, 09:57 AM
 
Location: Castle Hills
1,133 posts, read 2,407,458 times
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I just looked this up on bankrate.

How much house can you buy?
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Old 05-15-2009, 10:08 AM
 
Location: Castle Hills
1,133 posts, read 2,407,458 times
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I didn't say they would not approve him. He will have to give them every bit of information imaginable though. Also, in my honest opinion, its to expensive for them. They are putting themselves in a very dangerous situation with very few options to save for their retirements, fix house problems that pop up everywhere you turn, etc.
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Old 05-15-2009, 10:14 AM
 
Location: Plano, Texas
1,675 posts, read 6,615,596 times
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Your concern about them losing their jobs would prevent anybody from buying a home. Anybody can lose their job.

You do make some good points and i agree this couple is pushing it a little but their loan would be approved. Plus, as their income increases, the payment will become more and more affordable.

Additional, being self employed, i would bet that they probably make more than the 87k they state since they have the ability to deduct many things from income. Such as cell phone, maybe their car payment and insurance and that list goes on and on.
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