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our fha loan was denied looking for a second opinion

my husband is self employed, in 2010 income 55k in 2011 is 58k, in 2011 he was getting most income from paychecks/payroll 45k and 13k from bisiness, this year 2012 he is 20k on his payroll year to date so far he is planning to pay himself 80k for 2012 mostly will be from business icome but because we cant file taxes yet for 2012 our loan was suspended, now my question why dont they look at 2010 year he paid himself there half paychecks 27k and 28 from net income from business, so UW had to minus 18 k for the current year and that kind of brings DTI issue, should we look for a second opinion? we also want to want to pay off all credit cards but not sure how much it would help with dti but defenetly would be a compensating factor

  • December 04 2012 - US
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Answers (7)

Profile picture for MikeB03
Zee1234: Was your loan denied or just suspended? Your title says denied but your post says suspended. If it was suspended, what instructions did they give you, how long is it suspended for and what do you have to do to move forward?

We are in an almost identical situation. Applied for an FHA loan and we figured they would use our 2012 income + 2012 tax information (we are both business owners) but it looks like they are only wanting to consider 2010 and 2011 taxes since 2012 taxes aren't filed yet. It's been about 3 weeks into the process and I have a feeling we will either be denied or suspended until we file 2012 taxes. And like you, we are also thinking of possibly paying off some debt to help with the DTI.
  • December 05 2012
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Hello Zee,

Unfortunately the underwriters approach is going to be the same pretty much wherever you go.  They question his income not only because it is declining but because he can pay himself what ever he likes. 

Even in the best case with paying off your credit cards, your Debt to Income is still questionable.  Perhaps coming in with more money to get a smaller mortgage payment might help.  Possible paying down or paying discount points will help you buy a lower interest rate bringing your debt to income ratio lower.  This is an cheaper way of trying to get around your debt to income ratio with out having to put more money down.  

I hope this helps

Chris Perez - Real Estate Finance - San Francisco, CA
  • December 04 2012
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Profile picture for GMerino
The best thing is to contact a loan officer to go over figures.  Usually, a self-employment worksheet should have been filled out from the loan officer to figure out what income could have been used. 

What did they determine your DTI?

Geofrey
  • December 04 2012
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Problem with using the P&L is that we have no idea if you have any year end expenses that will come off at the end bringing that income down.  On top of that your W2 income is showing a decline from 2011 to 2012.  Sit tight and get those 2012 taxes done as soon as possible.  That will give everyone a clearer picture and you should be able proceed.  Otherwise I would probably have to average the W2 income and only give you credit for $13k of business income
  • December 04 2012
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if we pay off all credit cards we still will be short on dti a bit, i am just questining should have UW use that approcach not to use his income because his payroll is less this year than a year before, he is paying himself now at the end of the year whatever he feels is fair
  • December 04 2012
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thank you chris, here is break down
year 2010 W2-income 27k and business income 28k
year 2011 W2-income 45k and business incme   13k

year to date paystubs 20k and profit and loss statement shows business has net income before taxes 150k
  • December 04 2012
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Hello and Thank you for posting this questions:

Underwriting is and can be hard to understand.  These days with the lending environment being what it is, a conservative approach is what underwriter will seek out.  

You "Post" is a little confusing as well.  I see multiple forms of income and each form of income has general rules:

1) What was his self employed income in 2010, 2011?
2) What is his W2 or Salary income in 2010,2011 and 2012 Year to Date?
3) What does his profit and loss state 2012 Year to date?

Paying off your credit cards will lower your debt to income.  What are your monthly minimum payments from your credit cards?

I hope this helps....

Chris Perez - Real Estate Finance - San Francisco, CA
  • December 04 2012
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