Go to your local nonprofit housing group for credit counseling before you go to a bank. The credit counselor will go over your credit reports with you and advise you what steps you need to take. When your husband's credit score is at least 600, then you can go to a mortgage officer to discuss getting preapproved.... more
Income is all about stability. I'm from Michigan so I know the pain the region is feeling with unemployment.
With that being said, if your year-to-date income is not up to previous years it normally requires an explanation. The lender needs to determine whether being laid off is/was a temporary isolated incident or if it is likely to continue. They need to guage not only your willingness to make the payment but your ability going forward. And unfortunately layoffs are a sign of the times right now.
You can't use unemployment income to qualify normally, unless there is a documented 2 year track record of stability. And as far as DTI requirements, these can vary depending on the type of loan and the lender.
For example, conforming loans with less than 20% down payment or equity , since they require PMI are capped at a 41% debt to income ratio not by lenders but by the PMI companies who recently have tightened their guidelines.
I'd recommend seeing if your husband's employer can write a letter explaining that his layoff was isolated and that he is back to work full time and is expected to remain fully employed going forward (if that is in fact the case). If not, then you can check with other lenders but be prepared that you may get the same type of answer.