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Old 11-06-2011, 09:16 AM
 
20 posts, read 125,764 times
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My husband and I are having a little bit of difficulty understand how much home we could afford. We know we will need to get pre-approval to know for sure, but we want to wait unil after the new year to get the pre-approval.

We are interested in purchasing a house that is between $300,000 - $350,000. Typically, the yearly tax cost for houses in the towns we are interested in cost $7000-$9000 (Nassau County, Long Island, NY). Our yearly gross income is approximately $82,000. Our credit scores are both over 700. Mine is approx 770 and my husband's is approx 715. We are looking to get an FHA loan and put 3.5% down payment on the house. Our only back-end ratio amount (besides the anticipated mortgage payment) is our student loans, which is approximately $600/month combined. We both do not have car payments and we never carry a credit card balance month to month (we pay all balances immediately). We are currently renting and our monthly rent is $1550.

Whenever I use an online mortgage calculator, it seems to come up that we can only afford a house that is $270,000. However, some FHA sources indicate that we could possibly afford a house that is within our target price range ($300,000 - $350,000) through applying for an FHA loan.

Could you please provide your expertise in this area and give us your opinion on the approximate cost of a house we could afford using a 31/43 DTI ratio (FHA max ratio)? I also read on some sites that these numbers could go higher with good/excellent credit. Would banks really be open to giving us a loan with a higher DTI ratio?

Thank you so much for your assistance! We would love to buy a house but we want to wait until we can get a house within our target price range. Any information you could provide would be greatly appreciated!
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Old 11-06-2011, 09:43 AM
 
Location: Austin
7,244 posts, read 21,696,197 times
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Do you know the FHA loan limits in your area? In my area, the FHA limit is only $271k, so even if someone wants to and can afford $300-350k, if they want to go FHA, they can't. They would have to go conventional.
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Old 11-06-2011, 09:48 AM
 
20 posts, read 125,764 times
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Quote:
Originally Posted by FalconheadWest View Post
Do you know the FHA loan limits in your area? In my area, the FHA limit is only $271k, so even if someone wants to and can afford $300-350k, if they want to go FHA, they can't. They would have to go conventional.

Yes, for Nassau and Suffolk counties in Long Island, NY the loan limit is $625,500.
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Old 11-06-2011, 10:00 AM
 
Location: Austin
7,244 posts, read 21,696,197 times
Reputation: 10013
What makes you think you can afford $300-350k? Loans are different state to state, but in my area, a typical buyer can typically qualify for 3-3.5 times their salary, depending on how much dept they currently have. If you take your $82k and apply the same logic, you're not in the $300-350k price range. You're in the range that the calculators are telling you.

Why don't you trust the calculators?

As for your question for DTI, most lenders stay inside their little box these days. For lenders to go outside their box, you have to have other assets to make up for things like 401k, IRA, stocks... or put a larger down payment. Some times, the more money you put down, the higher they'll allow your ratios.
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Old 11-06-2011, 10:12 AM
 
20 posts, read 125,764 times
Reputation: 17
Quote:
Originally Posted by FalconheadWest View Post
What makes you think you can afford $300-350k? Loans are different state to state, but in my area, a typical buyer can typically qualify for 3-3.5 times their salary, depending on how much dept they currently have. If you take your $82k and apply the same logic, you're not in the $300-350k price range. You're in the range that the calculators are telling you.

Why don't you trust the calculators?

As for your question for DTI, most lenders stay inside their little box these days. For lenders to go outside their box, you have to have other assets to make up for things like 401k, IRA, stocks... or put a larger down payment. Some times, the more money you put down, the higher they'll allow your ratios.

I think the thing is most of the calculators are using a smaller DTI ratio than FHA allows. FHA allows 31/43 and for some of the calculators I have found they let you to put the 31/43 ratio in (some don't).

One example that allows you to put in your own DTI ratio is this calculator: Affordability Calculator - FHA Loan Corp - FHA Loan Corp

I can put in the DTI ratio of 31/43 and annual taxes of $8K and it says I can afford $310,000 with a 3.5% down payment.

I have found a couple other calculators that allow you to put in your own DTI ratios that give the same/similar results but just wanted to ask for other's expertise in this area since some other calculators say my max is $270,000. I think these calculators are using a smaller DTI ratio though that is meant for conventional loans (not FHA).

I just wanted to ask for other's expertise since I am not going to the bank for pre-approval until after the new year.
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Old 11-06-2011, 10:34 AM
 
Location: El Dorado Hills, CA
3,720 posts, read 9,952,247 times
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I absolutely think the best thing is to ask a mortgage broker. Be perfectly honest that you won't be looking until January. The pre-approval process can be time consuming for both ends, but if you are just trying to find out what your level will be, a good mortgage broker will be able to give you some estimates. Spending a few minutes with you now is a good investment in time if you go back to them in a couple months for a mortgage.
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Old 11-06-2011, 10:42 AM
 
Location: MID ATLANTIC
8,643 posts, read 22,788,447 times
Reputation: 10461
The answer is, "it depends."

FHA will accept any loan that is approved via AUS (automated underwriting system), frequently referred to DU (Desktop Underwriter) and so on (there are several automated systems, DO, LOP and so on). So, FHA will accept any ratio, including those as high as 50+% (which is rare, unless you have some money stashed away). BUT IT'S THE INVESTORS that draw the line at 45%. They don't care what the AUS findings are.

That said, there are plenty of investors that regularly accept back ratios as high as 47% and 48%. It may not be the rock bottom price on the street, but you're not going to get it all.

If you are waiting until after the first of the year, it serves no purpose to pre-qualify you now. Rates, sales prices and guidelines could very well (and most likely will) be different. Various investors, for that matter, could very well pull out of the market. (First of the calendar year is a primary target for change).

For right now, you know that back ratio is a moving target. After the first of the year, find someone you feel comfortable with and someone that "underwrites to the DU." Then ask them to run you thru the AUS on the max comfort price range you feel you can handle and go from there.

As for those charge cards, pay them off now and keep them at zero until you close. The documentation to prove they are paid in full every month is a nightmare and not always accepted. Switch any creditors over to your bank cards. Do it now, so they'll be cleared up by January 1, 2012.
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