Can A Substantial Downpayment Overshadow Bad Credit (esp. for FHA?)

[Anonymous]

Hello myFICO peoples... First posting here.

Let's say I have "Bad" credit, according to the chart. Like, say, 428. This is due to two specific accounts, one of which is a chargeoff, the other probably almost a chargeoff. However, I have paid off the latter, and am about to pay off the chargeoff one. I am also going to pay off any other smaller collections (medical, etc.).

If I am interested in an FHA loan for a house that costs $269K, and I am putting down $100K as downpayment (it's a gift), will I even be considered? The loan, if we get a decent rate, will be about $250 less per month than the rent we are paying now. We have almost 1.5 years of perfect rent history. We also have no other debt that we are paying monthly.

It seems like if you can get an FHA loan after bankruptcy, they'd be willing to talk to someone who has $100K to put down... Any thoughts? THANKS IN ADVANCE!

[Anonymous]

Unfortunately not. Most lenders are looking for 620 minimum... they're not going to want to touch someone in the 400s.

You will want to hold off on paying those charge offs too. Go to the Rebuilding Your Credit forum for some tips on raising your score. You have a "window" to neogiate with the creditor to *delete* the account from your report if you pay it. Paying it off first closes that window... they'd have no reason to work with you once they have your money.

You'll also want to follow the hippa process for removing your medical collections. If you have these deleted, you could see a pretty massive jump in score.

[Anonymous]

i thought there was a limit on gift funds?

[DallasLoanGuy]

a local bank or credit union may consider this with the down payment.

expect scrutiny of the funds.

likely, you will need to establish a willingness to pay your creditors though.

[Anonymous]

Pay the unpaid collections off and you will see you score go up. Give it a little more time. And get a lender who does the manual underwriting, not just basing it off fico.

[llecs]

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metaversatile wrote:

I am putting down $100K as downpayment (it's a gift)....

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There are tax considerations for the giftor (is that a word?).

[Anonymous]

Pay the unpaid collections off and you will see you score go up.

Simply paying unpaid collections will not improve your score. Paid or unpaid count against you equally. In fact, paying them can hurt your score a little because it makes them count as more recent items. However, if you're able to pay them you may be able to negotiate to have the items deleted completely, which would help. Read the Improving Your Credit board for more information and help.

[llecs]

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deemac wrote:

Pay the unpaid collections off and you will see you score go up.

Simply paying unpaid collections will not improve your score. Paid or unpaid count against you equally. In fact, paying them can hurt your score a little because it makes them count as more recent items. However, if you're able to pay them you may be able to negotiate to have the items deleted completely, which would help. Read the Improving Your Credit board for more information and help.

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Doooh. Missed that. Good catch. It doesn't matter if you owe $0 or $10,000, the damage from a CA is equal. Just like a PR, the mere presence of the CA is the damage. In fact, paying a CA, as deemac pointed out, can actually drop your score. Same also applies to non-CC COs. The very presence of a charge-off is the damaging aspect of it. Now paying CC COs will help your score if they continue to factor into util.

[Anonymous]

Thanks, everybody, for the input. I am definitely going to be spending some time in the "Rebuilding" forum working on getting the score back to normal one day.

I am still kicking myself for not settling the chargeoff with the OC (Chase) -- I was out of town when they sent a settlement offer and I called back like a day after they sent it off. They wouldn't talk to me. I then tried to negotiate a PFD with the first CA (of course that didn't work) and then I did a DV and they sent it to another agency. I then tried to negotiate a PFD with them, and they agreed, but wouldn't confirm the details of the PFD. I went ahead and DV'd them as well and they never got back to me at all. I don't know if they just gave up or what.

In the meantime, I think we are just going to get the person gifting us with the downpayment to actually purchase the house and we'll pay the mortgage. Then after I get all this stuff cleaned up, we'll refinance into our own names. Hopefully interest rates will still be low then...

Again, thanks for the info!