I bought a fixer upper home in early 2008 for $ 150k which appraised @ $228k, comps in the area were 240k – 260k (at the time). Currently, comps are at about $ 220k - 230k. I’ve opened several new accounts to fix up the place (new windows, doors, HVAC, roof, Home Depot card) all for the repairs which severely dropped my 760 score to 690. Yes, I realize now opening up all these new accounts was where I went wrong. But my good credit was all I had to get the repairs done.
I wanted to get a Heloc as I only plan on living here for 2 – 3 years but I was turned down at a local bank due to my high DTI. I’m thinking the bigger banks will be the same. With my new lower fico & high DTI, I don’t know if I can refinance either. Once bank told me closing costs for my refi would be $ 6500 (including some points) + prepaid costs due to my DTI. I’ll call other banks tomorrow. The new accounts I opened for the repairs I had 12 months no pay/no interest, but those financing promos will be expiring soon & I need to pay off as much as I can before the end of the promo dates.
Can someone offer advice on a bank to go to? Or any advice in general?
My current stats
Owner occupied / Home in North Atlanta, GA
Fico 690 (down from 760)
High DTI @ 68%
52k Annual income/ 15 yrs at same job
Current mortgage balance $ 148k / Current value @ $ 220k
Fix up costs $ 60 spent.
The simple answer is you need an fHA cashout. It will allow you to go to 95% LTV (with two appraisals). Using a conventional loan even to 80% would be extremely expensive in additon to the fact that 80% cash-out will still leave you with approximately 38k in credit debt (220k X 80%=176k-148k ((your current loan balance)) = 28k - 6k (((your quoted closing costs))) = 22k). The 95% FHA loan will allow you to pay almost all of the credit card debt. (220k X 95%= 209k - 148k = 61K - 6k= 55k). With 7500 tax credit you will receive on you tax return you will have all your debt paid off and have a good low interest
home loan. The FHA loan will have MI but with rates in the low 5% range it will be more than offset by the money you will save by paying of the high interest credit cards. Hope this helps.
The problem with fha I suspect is a 95% loan would still be too high on the dti.
Since most of the credit debt sounds to be no payment cards paying these off will not lower the dti. A larger loan amount will likely increase dti.
Plus you the fha PMI included in the payment which further increases dti.
I’m thinking the conventional automated underwriting engine will approve a higher dti than fha.
Even on no payment/no interest cards there will still be a balance showing on the credit report which will be used to calculate the minimum payment. So I am fairly confident the 68% back ratio includes the payments on these cards. I still believe the FHA loan is the way to go. The LLPA (loan level pricing adjustments) on this loan would be 2.875% which is over 5K based on a 176k loan amount. This would lower the amount left over for the customer to pay his credit card debts down even more. Furthermore the MI on this loan would only be $95.79 per month which I guarantee is way less than the minimum monthly payments on the 43K in debt that would be left over after the conventional loan was closed.
The other difference is the LLPA has to be taken out of the cash-out amount whereas the upfront MIP is added to the 95% so it would not affect the amount of cash the customer would get back.
Lastly it is not uncommon for automated UW to approve FHA loans above a 55% DTI especially with high credit scores, and for FHA 690 is a high credit score.