It all depends on what FHA's automated approval software says about your application. With substantial reserves (FHA requires you have at least $100 left over after closing) it may be possible to obtain an automated approval from FHA Totalscorecard. With an "Approve/Eligible" rating, you'd have a range of lenders to choose from. Some lenders might cap your debt ratio at 43% regardless of AUS (Automated Underwriting System) results, but I can think of 5 lenders right off the top of my head that will accept debt ratios over 50% with an "Approve/Eligible" from FHA Totalscorecard.
The problem with working with banks or direct lenders, in your case, is that you'll have to "shop" them one at a time... a very lengthy process. A mortgage broker could contact dozens of possible lenders in an afternoon to determine if you meet their guidelines. It all depends on how much time you want to spend on hunting around for a loan.
If FHA Totalscorecard comes back with "Refer/Eligible", you would have to work on the debt ratio to bring it down to 43% or less (to meet manual underwrite guidelines). Lenders vary widely on how to restructure your debt... again if you work with a bank or direct lender like Countrywide (now part of Bank of America), you would have to shop lender after lender until you found one that has the right combination of guidelines, investor tolerance of compensating factors, and of course pricing and rate. A mortgage broker could help you with various debt restructuring scenarios (pay down credit card debt, increase down payment, etc) to match the best lender guidelines.
By the way I've been a mortgage banker, mortgage lender, and run a mortgage brokerage. All have their advantages and disadvantages. In your case, it would seem that a broker might be able to speed the shopping process.
I am certified to demostrate the differenr downpayment programs available today. Some of these programs you may not have to repay. Please call me with any questions you may have.
This is a great success story! Congratulations again - it sounds like you're a "professional investor" now!
"It seems my cash reserves(401K etc) were enough to compensate for a high back end ratio. " - Eureka!
"...the fellow from Countrywide(who frankly did not take the time to ask me about other assets)..." - unfortunately, failure to properly complete FNMA Form 1003 (mortgage application) is all too common and the leading reason why banks/lenders/brokers lose business. It's amazing that the Countrywide mortgage sales rep never bothered to ask about assets (especially after running into debt ratio concerns) and indicates a lack of experience and training. Getting accurate and complete asset and income information is Mortgage Origination 101. It seems that a lot of banks and lenders are hiring inexpensive rookies rather than more costly pros in their call centers and internet centers.
I'm glad you didn't take Countrywide/Bank of America's "word for it" about your chances for FHA approval... and that you were able to get a correct answer from an experienced professional.
I'm with OC Buyer on this one. With FHA you will either receive an automated underwriting or manual underwriting decision. With a manual (an underwriter has to physically review the file) approval your back end ratio must be less than 50%. Sounds to me like you simply need to speak with a lender that's willing to take the time and figure out the best way for you to structure this deal. Sell one of your properties?! Wow, I sometimes wish it were more difficult to work in this industry.
Currently FHA provides loans with only 3% down. If someone cannot come up with 3% down and closing costs, they are not ready for homeownership. First time buyer or not, people have to have the financial capability of being able to save some money before they take on a home.
No, it is not too early to start talking to real estate agents. This is only one of the buyer agency type of services we have, and since we work with mortgagors all day every day, we can usually suggest some good ones.