All about back end ratios (insurance, loan officer, 401k, real estate)

[JoshM25]

A few questions about back end DTI on an FHA loan I'm working on getting...

I've been pre-approved and have a loan commitment letter from a local bank here in Pittsburgh (Dollar Bank). It's been through automated underwriting and they have all my docs. They approved me for an amount that would give me around a 45% back end DTI. I have a 722 high and 711 mid FICO score and a moderate amount of student loan debt and an old credit card I'm working to pay off. I also have about 15k in down payment/closing costs on hand.

How high will they be willing to bend the DTI? I found a great property that is within my pre-approved amount but the taxes are pretty high and knock my payment into 47%, maybe 48% territory. Will this be a dealbreaker for them? I've read that an AUS (or DU) will approve anything under 55%. My loan officer is non-commital but says that only when it goes past 50% do they take notice and red flags go up.

I don't want to blow all my cash reserves just to get the payment down a few bucks -- my hope is to have $4,000 or so in the bank after closing. So my issue is whether they will approve me if my DTI is around 47% or 48% at the most.

Personally, I can afford the payment just fine. My wife is going to start working soon after not workin for her pregnancy and giving birth a few months ago, so that will be more than enough for the mortgage payment, which will be around $1,050 or so after taxes and insurance.

One other thing -- I've been working to pay down my debts, but the credit report they pulled in early March is not quite up to date and does not reflect some smaller store cards we paid off. Will this be updated at some point? I want to get my DTI as low as possible and don't want them assuming my monthly payments will be the same in June as they were in March.

Anyone have any advice or words of wisdom? Thanks!

[VictorBurek]

I recently got a approval on a FHA loan for a client with a 53% back end debt ratio. The higher your FICO score, the higher potential debt ratio will be allowed. With where your credit scores are I would say very possible you would be approved.

If you paid off some credit cards, get a statement showing a 0 balance and they should remove that payment from your debt ratio. You could always do a rapid rescore with the credit agencies where you pay them and they quickly update your credit report.

[SmartMoney]

You're fine. I also just had a mid 50's approved. The DU is picking up your score, which is a huge plus. Other things that DU likes is money in the bank or reserves, like 401k's or your 4K. Payment shock is also in the DU algorithm. If you are putting more than the 3.5%, even better. DU loves loans w/ 5% down or more. It won't show in the automated underwriting, but your wife returning to work will tip any doubt in your favor, seeing you are qualifying on only one income.

Find another problem to worry about.

EDITED TO ADD: Some lenders have requirements not to go over 45%. We call this an overlay. Ask Dollar point blank if they have any ratio overlays on DU. If they do, you need to make some choices, like moving your loan to someone that underwrites to the DU. Your appraisal is portable. I suspect Dollar delivers to many of the same investors we do, and they will have a home for your high back ratio. Given real estate is no longer the guaranteed asset it once was, I agree, money in the bank has far more value these days.