Well, on Sunday, we went and signed the builder’s contract to get started on the house we’ve selected… We filled out a prequalification worksheet for the builder’s suggested mortgage company, but then I also had a couple of lenders that I wanted to get involved into the mix, just to have several different eyes looking at it.
I haven’t gotten the information to the lenders I’ll chase down on my own, but I got a call yesterday from the one the builder suggested.
Apparently, right now, we wouldn’t qualify for the house, because our DTI (debt-to-income) ratio is too high. About 8% too high, to be exact.
I think he’ll put the prequal through anyway, but we basically have to eliminate our credit card debt (at least the highest balance card), and have several thousand in the bank by the time we close, or we’ll have trouble getting the loan.
So, over the next 4 months, I’ve got to make $12,000 worth of progress towards debt elimination/house savings.
As noble a thought it was to go ahead and get the lower balance credit card knocked out, apparently the way the higher balance card (American Express Blue) reports my debt obligation is inflated. Right now, they are reporting my monthly minimum at over $350 (about 5% of the existing balance) vs. what my minimum payments actually is (about 2% of the existing balance). This is unfairly inflating my DTI, and is the major source of the problem.
So, in order to rectify this, I will be slowing to minimums on my lower balance card, and start attacking the American Express as much as possible.
Also, to help this process along, my wife and I will more than likely be putting in applications at various retail stores in the area for extra work. If we can really push here in the next few months and make the progress that we need to make, the sacrifices that we make now will be completely worth it.
Also, I’ll be talking with the other two before the week is out, and game plan with them.
I pretty much know now what has to be done. The thing left to do is actually do it.
This post has thrown me for a loop. You have been paying down debt at a very rapid rate and now you want to build a house? More power to you but I just see the mortgage issue becoming a problem sooner than later. If your DTI is 8% over what the mortgage company feels comfortable with, there's a reason they feel that way. We all see things in our own way though, so good luck to you both.
ReplyDeleteMaybe I'm seeing something different, so let me go into more explanation. Of course, we could still arrive at two different conclusions, but I'd like to explore the differences a little closer...
ReplyDeleteWe are paying debt down as fast as our current budget will allow, and finding out about the fact that we would be in over our head right now serves as a powerful motivation to be even more aggresive on our debt reduction. That intensity will mean temporary sacrifice in working as hard as we can, but if we can pull it off, the reward will be tremendous.
If we aren't able to pull it off, then our loan will be denied, and we will end up with no home, but with a lot more debt paid off than we would have...
The additional mortgage payment on the house would be less than $100 more than the apartment rent we are paying. Of course, there are taxes, etc., to look at, but with our end goal being to start a family very soon, and being placed in a position where we would have to move into a larger apartment paying more than what the mortgage would be, I began thinking the home purchase would be the way to go...
Does that make sense? or are you seeing something different?
If you (your wife) got pregnant tomorrow, you still wouldn't need a larger space for about a year and a half and that's only if you were giving the kid his/her own room. It's a need versus want. And you want to provide a house for your family. But you don't need to.
ReplyDelete