Advice for first time home buyer with rough (but improving ) credit

[Anonymous]

I've been thinking about buying my first home and trying to decide whether I should apply for a mortgage now or wait. I'm rebuilding my credit and inclined to wait because of that, however, I've seen a few properties that have piqued my interest significantly and which would make for very good investments (i.e.. Motivated sellers). Am I going to be able to gt a loan? I know that waiting until the CC debt is paid off would benefit me, but how much? Any advice, suggestions, or anything (short of snarky comments) would be sincerely welcomed.

1. Credit.   562 & 574 (I didn't get an Experian before they went offline). My dings come from a high revolving credit used (currently at ~$3000 of $4500 but paying it down very quickly, 800+/month at this point) and a 90+ delinquency paid off in December. It took a while for me to start really paying down the debt after getting the job because I was trying to get settled in the area after moving cross country. I'm also hoping to get a GW waiver on the 90+ days as I'm still using the CC issuer for my checking account.
2. Income.  ~$40k I also have a friend who has committed to renting a second bedroom to the tune of $5-600/month. I'm employed full time, paid hourly and get occasional overtime (though I don't factor it into my monthly budget). My company has had no layoffs (in fact, we're doing some modest hiring).
3. Monthly debt payments.  Aside from the CC's discussed above (which are ~$100/month owed but I'm paying more) I have $520 worth of college loans. Nothing else. I haven't owned a car in 10+ years and hope never to own one again.
4. Employment I've been with my current employer for 9 months and began working for them immediately after graduate school in 2008. My job (Intern Architect) is in line with my graduate degree (Masters in Architecture).
5. Assets/Reserves.  Pretty much nothing as I'm putting almost everything into paying down my CC debt. My parents have offered to put down a minimal Down payment for me with the understanding that they would be paid back (with a small amount of interest) when I eventually sell the unit.
6. Location.  Boulder, Colorado. I have investigated and am eligible for some for the local Permanently Affordable housing purchase programs
7. Property.  I don't have a particular property in mind, but I'm looking at 2 bedroom condos.
8. Value.  150k and lower
9. Occupancy.  Primary residence.
10. Transaction Type.  Purchase

[Anonymous]

Monthly income: $3300+$500

Debt: $620

Est Loan amount : $120.000 with 20% down

You could go for FHA with 3.5% but then your loan will be around $85.000. 

You don't have any installment loan and that's something that the UW will looking for.

Paying down your debt could raise your credit score by 30 points but you will still be under 600. 

Employment history has to be consistent. You need to have a good solid 2 yrs. 

Maybe be this is not the right time for you.

[WannaHouse]

I believe the above is incorrect. The income plus the 500.00 for the renter. I am pretty sure you can not count that as income.

Also, you can use other forms of credit in place of tradelines. Cell phone bills, utility bills, etc. Need 12 mos of on time payments.

With that being said...

Is there any way to slap about $2500.00 on that CC? It is definately killing your scores. Also, I do not think your parents can "loan" you a downpayment. It has to be a gift. 

Hopefully, you will get that late removed. 

Those two things will probably give you about 100 point boost!

So, I would check some no down payment like USDA or find some city/county programs to help you. Maybe your parents would be willing to pay off your CC?

Where there is a will, there is a way! 

Message Edited by WannaHouse on 02-24-2009 01:27 AM

[MattH]

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@WannaHouse wrote:

I believe the above is incorrect. The income plus the 500.00 for the renter. I am pretty sure you can not count that as income.

Also, you can use other forms of credit in place of tradelines. Cell phone bills, utility bills, etc. Need 12 mos of on time payments.

With that being said...

Is there any way to slap about $2500.00 on that CC? It is definately killing your scores. Also, I do not think your parents can "loan" you a downpayment. It has to be a gift. 

Hopefully, you will get that late removed. 

Those two things will probably give you about 100 point boost!

So, I would check some no down payment like USDA or find some city/county programs to help you. Maybe your parents would be willing to pay off your CC?

Where there is a will, there is a way! 

Message Edited by WannaHouse on 02-24-2009 01:27 AM

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Yes, the DP help from parents must be a gift, the source of all DP and reserve funds must be accounted for and the loan officer will want a letter from the parents stating this money is a gift.  Borrowing for DP is a major no-no.  When my wife and I bought in 2002, much of our DP came from a policy loan against the cash value of a life insurance company so I had to get a letter from the insurance company that said "there is no fixed repayment schedule for this loan, you can pay as much or as little as you like.  If there is any principal balance remaining when the death benefit is paid out it will be subtracted from that death benefit."

Incidentally, I have read that many financial advisors say traditional whole life insurance is not a very good investment, because one can do better getting term life insurance and then investing the difference between what whole life costs and what term costs.  Mathematically this is accurate.  However, my whole life policy kept me saving at times in my life when I was otherwise not able to save, and as a direct result when my wife and I decided we finally were ready to become homeowners we had a source for a substantial down payment that we would otherwise likely not have had.  Most Americans would probably be substantially better off if they had taken out whole life insurance policies when they were young.

[Anonymous]

Thank for all the advice and feedback. I think what I'm going to do is hold off on the buying for the moment and keep pumping money into my CC's and then my savings, while still checking out open houses and listings to get a better feel for the market and the process.

I do have one more question. should I consider going for a pre-approval in the event I find a property that can't be resisted for the price (i.e. foreclosure, REO, etc.)? How much would/could the inquiry from the pre-approval process hurt my credit?

[Anonymous]

scores need to get up to 620 as most programs are changing to 620 minimum.

The DTI is also going to be really tight if you have 520 per month in loans and 100 per month in CC.  You only have room for about 1400 in debt to keep under general DTI guidelines, so if 600 of it is oging to those, then you are only looking at about 800 to cover PITI.  Or around maybe 80K purchase price.  That number varies alot depending upon taxes, etc.