01-28-2013 08:33 AM - edited 06-17-2013 07:42 AM
My wife and I received a letter from our preferred lender pre-approving a new construction loan (FHA) with the purchase price as well as the property taxes and proposed interest rate. We can't actually complete an loan application because my wife is not yet two years from her bankruptcy discharge ( one of the conditions listed was that they can't actually take the loan app until mid March).
The lender has reviewed all of our W-2's, my wife's bankruptcy filing, tax returns, pay stubs and credit reports, so the pre approval is based on our actual verified income and so forth.
However, one of the conditions is as follows: FICO Score must be 640 or above for both borrowers. For me, that's not an issue, my scores are in the 700's. For my wife though, her mid-score at the moment is 630. It was 639 about two months ago, but dropped after we leased a new car. Dumb idea, i know, but we honestly didn't think we were going to try and build a house until next year and the purpose was to give her a new trade line and get the score up. But, we decided to try to buy a home now so here we are.
At the moment, beyond her bankruptcy, the big issues with her credit are a high revolving debt utilization, as well as the fact that the new loan is on there and it's overlapping for the moment with the old car loan it replaced. That loan is PIF, and we have a PIF letter. Also, obviously, we have two relatively recent inquiries - the car a couple months ago, and the mortgage lender about 5 days ago.
Now, with time, she will recover the points lost after the new loan was reported. As for the credit card debt, we are going to be paying a signifcant portion of it off within the next month. I assume the credit inquiries will be a little less detrimental with the passage of time as well.
My question is, do lenders necessarily need you to hit that 640 score at the time you apply or would the condition on our letter be suggesting that she needs the 640 before we can close on the loan? Because that would mean we would have until July basically to get her score up.
If i can provide any more information, i can certainly try. Thank you in advance for your feedback!
01-28-2013 08:46 AM
01-28-2013 09:09 AM
01-28-2013 09:20 AM - edited 01-28-2013 09:26 AM
Well, between now and then, the plan is to pay down the revolving debt from about 84% to 50%. In that timeframe, that's about as aggressive as we can get without accessing funds we have set aside for a down payment, closing costs, reserves, appliances and whatever else may be necessary.
Now, you said that until my wife's score meets the requirement, the application will not be processed. Does that mean they will deny the application or does that mean the file will just sit until the score is gets to 640?
01-28-2013 10:49 AM
01-28-2013 11:37 AM
I know all lenders and builders do things differently, but here is what we were told and what we are currently going through:
We are in the process of building new (just went this weekend and they are halfway done framing, yay!), we submitted the contract with a 30 day financing contingency at the beginning of November. They gave us an additional 14 days because my husband's score was 4 points shy of the required 680 (for conventional), so we paid down some cards and waited for the new balances to post. We hit a few snags and came super close to losing the contract, because our builder will not start on your home until you have a real loan approval, first through the desktop system, then through the underwriter. If we had failed to bring the score to where it needed to be they would have released our lot to someone else (we snagged the last one, so I know there was plenty of interest).
Now we have approval, but since credit scores are only good for x days we will have to pull credit again before we close this Spring. So I make myself sick on a daily basis, logging into each and every account we have to make sure nothing is awry. Never realized building new and waiting it out could be SO stressful.
Anyway, hopefully your builder will work with you some. But I think you would be out of luck if they require a real approval before starting the build...
01-28-2013 11:56 AM
I'm sure our situation will probably involve something similar to that. I believe we should be in pretty good shape to squeak through with a 640 or so score for her by the time the application rolls around by paying enough debt off as well as having a car loan that has a zero balance actually reflect that zero balance. Aging the new car lease will help as well, usually you take a hit in your score and then it goes up within a few months so i'm expecting a rebound there. It's ten points. If we're sitting there at the beginning of March with a mid 630's score i'm sure there's something we can do to boost it just a few more points so that they can start building. We are lucky in that there are a bunch of lots available where we are. In addition, there's another development they are just starting in another area where we live, so if we happened to miss this window and all the lots were gone, we would probably just retry around this time next year but we'd rather not wait if we don't have to.
01-28-2013 01:20 PM
A 30% utilization rate is ideal for revolving credit, so if you could take some of the money you have set aside for appliance purchases and pay your credit cards down to the 30% mark you'd see improved scores and could then later then use the cards for the appliance purchases.
01-28-2013 01:30 PM
Any predictions on how the overlapping car loans getting cleared up will effect the score? As I said earlier, there's a loan showing a balance of around $1000, but it's actually paid in full. The two auto loans are overlapping. Also, we have no collections or charge offs or anything of that sort, but there is a late payment on there from October 2010. My wife insists she made payments over the phone on time every month, i'm just wondering if that late payment is even impacting the score at this point?
01-28-2013 03:14 PM
In my experience late payments have always fallen off after 12 months. If you're still seeing something on there it might merit a closer look.
As far as the overlapping car loans go, I would contact the lender as to why it's they haven't reported the loan as paid in full to the credit bureaus yet.