Best course of action for quick points

[Anonymous]

My husband did a pre approval for an fha loan. His mid score was 572, the mortgage company requires a 580 for fha. So he needs 8 points. We had a collection deleted from February 2016 like 3 days ago. Well we got word 3 days ago that they were going to delete. So I'm hoping that yields an 8 point increase. Here is what his credit report looks like- any advice is appreciated!

Discover it secured $200 limit- $16 balance
AU on cap one secured- $500 limit $447 balance (just paid $100 on it will report next statement in mid August)
AU on cap one journey- $750 limit $671 balance (paying it down before it reports in mid August)

$2300 collection with ncc business service from 2015
$530 collection with trident asset management from 2013/2014
$780 collection from credit union (incorrect balance, won't be paying till corrected) this is from 2013
$160 collection from credit union from 2013

This is all he has. No loans, no car payments. Only one card in his name, and an authorized user of 2 of my cards. All collections are 2+ years old. Will paying down the cards he's an AU on help his score? Should he open another secured card? He's has the discover it secured card since April, there have been 2 statements on it, so 2 on time payments. He's been an AU on my cap one secured that has been open since January 2015 and has never been late and my journey card that has been open since February of this year and never late. Just got a $250 CLI on that card. Obviously we're focusing on mortgage scores here. Are the AU cards helping him at all? Especially the one that is 2 years old and never late. Thanks in advance!

[Anonymous]

Yes, the AU cards are being factored in to his mortgage scores. With the information you posted, the AU cards are both at 89% utilization right now. His total utilization is 78% which is definitely hurting his mortgage scores. 

If you can pay both the AU cards down to $0, that would be best. If not, try to at least pay the CapOne with the $500 limit down to $100, and pay the Journey down to at least $150. 

With the deleted collection, be mindful that the process could take at least 30 days. You may want to call the company and ask them when they do their monthly reporting to the credit bureaus and if you'll be on the list for this month or next. 

[Anonymous]

Yes I plan to pay down the 2 cards he's an AU as fast as possible. Which would be better to work on getting one paid down, or to pay them both down together? For instance pay $50 to each or $100 to one card? I do know that it will take a while for his report to reflect the deleted collection as well, so I planned to pull his scores from here again after the 2 cards report next month. They usually both report around mid month- 20th of the month. So I'm waiting till the end of August to check his mortgage scores again. Would paying down the cards he's an AU result in a big jump for him? If we could get over 600 that would be great!

[Anonymous]

How much of a boost I can't say. But the best scoring scenario comes when you have all cards showing a $0 balance and letting one show a balance of like $20. So his Discover card is fine. 

How to pay the cards off determines on when you want to apply for the mortgage. If it were me, I throw all the money to one card and then move to paying the next one off if you can't pay the full balances on both. The quicker you can pay the card off, the less interest you'll be paying. I would probably start with the Journey first since it has the higher balance. 

[Anonymous]

Thanks!!! I paid $100 toward the other one just bc the balance was lower and I can get it paid off faster! lol I'll cancel it and throw the $100 towards the journey card! I expect to have at least one paid off by next month. We won't have the down payment fha requires for a couple of months anyway, so there's no rush, I mean there is but only bc we're impatient and ready to be home owners haha and house prices are def not going down!

[Anonymous]

Just out of curiosity did they say anything to you about the collections?  I was under the impression that you could not have more than $2,000 in non-medical collections in order to get an FHA approval.  I have read different things about if this is a lender overlay or if it they then take 5% of the collections total to count in your DTI ratio.

[Anonymous]

No they didn't say anything other than what collections there were and to try to get some deleted to gain points.

[Anonymous]

After doing some research, the fha guidelines do state if you have more than $2000 in non medical collections they put 5% of it towards your dti. So, We are done ever trying to buy a home. It's not in the cards for us... we've been trying since 2014 and it's been one set back after another and now home prices have sky rocketed.

[Anonymous]

This is where it would be helpful to speak with a lender in your area. FHA has their basic guidelines, but lenders usually tack on their own additional guidelines which are known as "lender overlays". You mentioned in an earlier post that your lender requested that you try to get some of the collections deleted, which sounds like an overlay they have. 

I had medical and non-medical collections on my credit. At the suggestion of my lender, I was told all of my non-medical collections needed to show a $0 balance on my credit report. For my lender, it didn't matter if I paid the collection in full or settled the debt for a lower amount. Our lender is also against the 5% rule for DTI calculations, which is their own overlay. 

I don't know how much money you have to put towards the collections, but I do notice that one of them is $160. That's one where I would definitely call and offer to pay the entire $160 in exchange for them deleting the collection. 

Don't get discouraged. I understand the feeling you have and it's overwhelming. When we signed the contract for our home back in February 2017, I just knew there was no way I would be able to get everything done to qualify us for an FHA loan. Fast forward to today, and my scores are high enough where we are now considering switching to a conventional loan!

[Anonymous]

Don't get discouraged!  It's just a temporary set back!  Have you tried doing PFDs with the CAs or seeing if they will settle for less?  Since some of them are older and probably falling off in the next 1-2 years (or sooner depending on DOFD), they would likely settle for quite a bit less.  At the very least try to get rid of the NCC one.  Do you know the SOL for your state and the DOFD for those collections?  I've had settlements for less than half of what I owed (granted there were a lot of fees and such in there raising the amount in the first place), but it is worth a shot.  Take what you have saved for your downpayment and see how many of them you can get taken care of.  You might need to save a little longer to get a house, but it will be worth it in the long run as you will be more financially stable.  

I was in a very similar situation as you back in February, but my credit was nowhere near ready for an approval (all scores in the low-mid 500s), but I had more than enough saved for a down payment.  I paid off all of my collections and credit cards, and now all of my scores are comfortably in the 600s.  I am waiting on one last round of disputes on some stubborn things and slow reporting and then I should be good to go (fingers crossed)!