Am I ready?

[HopeThruFaith]

I think I am finally ready to apply for a loan for a new build. They are down to only 5 lots available and I have been anxious to get in this community. I have cleaned up my credit to the point that I think I would have a good chance.

I have a car loan (2- 30 day late payments due to hospitalization that they refuse to delete), two credit cards that have never been late, one line of credit with my bank never been late. My fico scores are currently EX: 663, EQ: 604, TU: 624. My credit card utilization will be below 9% at the end of this month so that TU score should go up to the required 640 (Utilization on last report pull was 25%)

I have two small medical collections on all three reports, one for $50, and one for $61 that will not PFD so I have been holding off on paying them because I was afraid it would lower my score to pay them and they not get removed. I have an unpaid account with Verizon for $1229 that won’t PFD so I am leaving it as well until I am told by lender it needs to be paid. I have one paid collection that reports settled for less that refuses to delete, and one charge off credit card that reports paid after charge off on TU but just a charge off on EX, and EQ. I have successfully paid and removed 14 old collections (yay me).

I make 34K a year, will be getting down payment assistance with a state program plus the lender will give me 3.5% for the down payment with their home equity program and has agreed to cover all the closing cost in addition to kicking in for some upgrades. I do however still have about 3K in savings for whatever may come up. The cost of the home is $129,990 and I am at 17% debt to income ratio (prior to purchasing the home). I will only need a loan to finance 120K for the home.

Here is the dilemma: when I first started this process I was told by my credit union (that denied me for the loan after I had jumped through several hoops with them) that it would look good to open up a line of credit with them. They report to EQ and she led me to believe that it would help to increase my score. So I opened up a line of credit that I use and pay off every month thinking it’s helping to build my credit. My issues is that I am concerned that they will look at my bank statements and see this deposit every month and be worried that I can’t do without the line of credit. Do you think an LOE will cover this? Secondly, despite my efforts to be diligent with my credit and payment history I had a NSF last month due to an oversight on my part. (Forgot to make a deposit) It is the only NSF I’ve had in over 3 years and I have been with my credit union for 15 years. Will the line of credit and the one NSF be a deal breaker? Also, my lender plans to use the Credit Plus service to pull my scores for a pre-approval, the scores should be similar to what My Fico reports….right? With so many different models to calculate the scores how do you ever know if you are really ready score wise?

[ShanetheMortgageMan]

CreditPlus is a standard credit vendor that many mortgage companies use to check credit.  The scores from it will be based on

EXPERIAN, FICO v2

TRANS UNION, FICO Classic 04

EQUIFAX, BEACON 5.0 FICO

To my knowledge myFICO uses the same Equifax scoring system, but myFICO's TransUnion score is based on the old Classic 98 system, so TU won't be as accurate.  I am not sure what they use for Experian.  They used to use FICO v2 from my memory, but since they started up again a few months ago I'm not sure if they still use FICO v2 or not.

I'd recommend you wait until your lower balance on the credit card reports to credit before you have your credit checked.

You have a bit of layered risk - the down payment is coming from a state program + a home equity program, the scores are so-so, you have the NSF, and you are withdrawing money from a line of credit and depositing it into your bank account (you probably should use the LOC to pay for other items, rather than depositing it into your bank account).  I've seen worse get approved and I don't mean to make you anxious, but it's going to come down to a full underwriting review before I'd set in stone any plans to move.  I'd recommend you be prepared with an LOE for the NSF & the line of credit, and a separate one for the derogatory items still on your credit.  The issue with the line of credit deposits into your bank account is that those are "borrowed funds", and the underwriter cannot use those funds to calculate how much you have in your account.  If the LOC is completely paid off, then it'll look better to an underwriter than if there is an owing balance on it... so I'd make sure that is a $0 balance when you apply as well.

[HopeThruFaith]

Thanks for your response Shane. The LOC has been paid off. It was only for $500 and i paid it off each month when i did use it. I guess I will wait a few more months to apply to give it time to not show up on my statements since they ask for the last two statements. That too will give my credit cards time to update with the 9% utilization. Ill go ahead and get my LOE ready for the NSF and the few items on my credit report. The models of the credit reports you mentioned earlier; TransUnion FICO 04 ect...is there any where I can go to pull them myself in order to see what the lender will see?

[ShanetheMortgageMan]

I am not aware of any place you can get your TU & XP score that mortgage lenders use, I believe there is a thread in the general credit section that lists pretty much all of the places you can get your scores from online and which scoring system they use.