Do We Qualify for a Mortgage?

[Anonymous]

1. Mortgage Credit Scores:  

• My Fico Scores (5/4/2) = 651/641/648
• Spouse Fico Scores (5/4/2) = 638/595/599

2. Credit Negatives: 

My Own Negatives

• Type: Student Loan
• Status: Finished default rehab, loans with new lender but not reflected on credit report yet.  
• DOFD: 12/2011
• Most Recent: Sallie Mae lates started 12/2011 until default in 09/2012.  Loan defaulted and went to Government.  NY State Higher Ed took over and shows two 120 day lates 02/2013 and 03/2013.  Acct then goes to collections.  Both Sallie Mae and NY State Higher Ed reflect default status at this point.  Last year I started the rehabilitation program for that loan and finished 1st of 04/2017.  It's my understanding that all of the lates/collection/default remarks after 09/2012 (After Sallie Mae and the default) will be removed.  By that understanding, the only acct on my report showing a late for anything should be Sallie Mae, most recently 09/2012.
• Miscellaneous: 
• Starting to use credit cards again 08/2016 for the first time since 2005.  All revolving accts that are open are new, between 2 months and 8 months.  Total of 7 credit card accounts open.  $14,700 credit line combined.  Less than $100 balance across all cards.

My Spouses Negatives

• Type: Poor Credit Card History.  (11) 30+ day lates, (9) 60+ day lates.
• Status: High credit utilization, 67%.  Total available credit line is around $20,000: 
• Most Recent: 10 months since most recent late payment 
• Miscellaneous: She has 0 collections, 0 public records, 0 inquiries across all CBA's.

3. Gross Income. 

• For Myself, $48,000 
• My Spouse, $83,000

4. Source of income.  

• Both of our incomes are from employment

5. Monthly debt payments. 

My Debt payments

• Car loan = $347 monthly
• 1 credit card balanced carried over monthly = $25 min payment
• 1 student loan = $35 with IBR adjustment 

Spouse Debt payments

• Car loan = $355 monthly
• 4 credit card payments = $400 monthly 
• Several student loans deferred while in grad school.  Almost $60k in loans outstanding.  If it helps, spouse qualifies for public loan forgiveness program.  Before returning to grad school and increasing debt, the loan payments were $189 monthly and that is reflected on the credit report.

6. Employment (for those who are employed). 

Mine

• Type of employment: Full Time
• How long 8 months with current employer
• How long 9 years in this career field.  8 years with previous employer.  Changed for more money and advancement opportunities.  

Spouse

• Type of employment: Full Time
• How long 14 years with employer
• How long 20 Years in field of study

7. Assets/Reserves. This is to determine how much you could potentially have as a down payment and also as reserves to help qualify (for example if your debt to income ratio is high this could help qualify you anyway).

• $10k Combined Savings
• $3K Combined Checking
• 401k Mine $20K
• 401k Spouse $85K
• Gift  $10k from family member

8. Location:  

• Pennsylvania
• York County

9. Property Description: 

• Single Family Home
• Near new condition
• Occupied

10. Property Value. 

• Purchase transaction: Between $275k and $350k

11. Occupancy. 

• Primary residence
•  Both of us and one child

12. Transaction Type.  Purchase

We clearly have a little work to do on our credit scores.  With the above information we would like to know how close we are to making this transition possible and with what conditions (I.E. FHA, conventional, will the interest suck, etc.).  My spouse is about to use some of our cash reserves to pay off a closed credit card account that is actually affecting the utilization % according to MyFico.  Currently the balance is just over $7,000 and that is the majority of her utilization.   My credit score I am hoping will get a bump once the student loan rehab changes take effect on my credit profile.  That would make last late payment almost 5 years ago and only one account ever showing a late payment and zero accounts (currently two accounts) showing default.  Other than that, gardening the current credit cards, I believe, will mature my scores.

Will my spouses deferred student loans hurt us on a conventional loan if we can eventually get her score high enough to qualify?  If, while in school, we pull the deferred status and start paying on them with an income based repayment plan adjustment, will we get around the massive DTI calculation without hassle from a lender?  Would her last late payment going from 10 months to over 1 year yeild any significance?

Thank you everyone in advance!!

[Anonymous]

1. Mortgage Credit Scores:  

• My Fico Scores (5/4/2) = 651/641/648
• Spouse Fico Scores (5/4/2) = 638/595/599

2. Credit Negatives: 

[Anonymous]

My Own Negatives

• Type: Student Loan
• Status: Finished default rehab, loans with new lender but not reflected on credit report yet.  
• DOFD: 12/2011
• Most Recent: Sallie Mae lates started 12/2011 until default in 09/2012.  Loan defaulted and went to Government.  NY State Higher Ed took over and shows two 120 day lates 02/2013 and 03/2013.  Acct then goes to collections.  Both Sallie Mae and NY State Higher Ed reflect default status at this point.  Last year I started the rehabilitation program for that loan and finished 1st of 04/2017.  It's my understanding that all of the lates/collection/default remarks after 09/2012 (After Sallie Mae and the default) will be removed.  By that understanding, the only acct on my report showing a late for anything should be Sallie Mae, most recently 09/2012.
• Miscellaneous: 
• Starting to use credit cards again 08/2016 for the first time since 2005.  All revolving accts that are open are new, between 2 months and 8 months.  Total of 7 credit card accounts open.  $14,700 credit line combined.  Less than $100 balance across all cards.

My Spouses Negatives

• Type: Poor Credit Card History.  (11) 30+ day lates, (9) 60+ day lates.
• Status: High credit utilization, 67%.  Total available credit line is around $20,000: 
• Most Recent: 10 months since most recent late payment 
• Miscellaneous: She has 0 collections, 0 public records, 0 inquiries across all CBA's.

3. Gross Income. 

• For Myself, $48,000 
• My Spouse, $83,000

4. Source of income.  

• Both of our incomes are from employment

5. Monthly debt payments. 

[Anonymous]

My Debt payments

• Car loan = $347 monthly
• 1 credit card balanced carried over monthly = $25 min payment
• 1 student loan = $35 with IBR adjustment 

Spouse Debt payments

• Car loan = $355 monthly
• 4 credit card payments = $400 monthly 
• Several student loans deferred while in grad school.  Almost $60k in loans outstanding.  If it helps, spouse qualifies for public loan forgiveness program.  Before returning to grad school and increasing debt, the loan payments were $189 monthly and that is reflected on the credit report.

6. Employment (for those who are employed). 

[Anonymous]

Mine

• Type of employment: Full Time
• How long 8 months with current employer
• How long 9 years in this career field.  8 years with previous employer.  Changed for more money and advancement opportunities.  

Spouse

• Type of employment: Full Time
• How long 14 years with employer
• How long 20 Years in field of study

7. Assets/Reserves. This is to determine how much you could potentially have as a down payment and also as reserves to help qualify (for example if your debt to income ratio is high this could help qualify you anyway).

• $10k Combined Savings
• $3K Combined Checking
• 401k Mine $20K
• 401k Spouse $85K
• Gift  $10k from family member

8. Location:  

• Pennsylvania
• York County

9. Property Description: 

• Single Family Home
• Near new condition
• Occupied

10. Property Value. 

• Purchase transaction: Between $275k and $350k

11. Occupancy. 

[Anonymous]

• Primary residence
•  Both of us and one child

[Anonymous]

12. Transaction Type.  Purchase

[Anonymous]

We clearly have a little work to do on our credit scores.  With the above information we would like to know how close we are to making this transition possible and with what conditions (I.E. FHA, conventional, will the interest suck, etc.).  My spouse is about to use some of our cash reserves to pay off a closed credit card account that is actually affecting the utilization % according to MyFico.  Currently the balance is just over $7,000 and that is the majority of her utilization.   My credit score I am hoping will get a bump once the student loan rehab changes take effect on my credit profile.  That would make last late payment almost 5 years ago and only one account ever showing a late payment and zero accounts (currently two accounts) showing default.  Other than that, gardening the current credit cards, I believe, will mature my scores.

[Anonymous]

Will my spouses deferred student loans hurt us on a conventional loan if we can eventually get her score high enough to qualify?  If, while in school, we pull the deferred status and start paying on them with an income based repayment plan adjustment, will we get around the massive DTI calculation without hassle from a lender?  Would her last late payment going from 10 months to over 1 year yeild any significance?

[Anonymous]

Thank you everyone in advance!!

[ShanetheMortgageMan]

You will likely see a very nice boost in your scores once the rehab is complete.  The impact that account will have is a complete 180.

Good plan to wait on your spouse's scores to increase.  With a 620 it gets your foot in the door for being able to qualify for conventional financing with lower down payments.  Conventional interest rates are very sensitive to your credit score, so even if your spouse's scores get to that level, FHA may still be a better option for you.  In the York, PA area the max FHA loan amount is $275,665 though, so depending on how much you are going to put down would determine if FHA would limit the sales price of home you could buy.

Using the IBR payment, your debt ratios would look fine for conventional financing (you shouldn't have any hassle as long as the payment reports to credit).  Unless the fully amortizing student loan payment is $2,500/mo or more, then you should also be OK for FHA.

Short term goal would be get your spouse's score up to a 620, wait until the student loan shows rehabbed and credit card balance shows paid off/down, and then apply to see if you'd be able to get an automated underwriting approval for FHA or conventional.  With the large amount of assets/reserves you have, it may be enough to compensate for your spouse's payment history.  Putting more than the minimum required down payment can help as well.

[Anonymous]

Thank you so much ShanetheMortgageMan! 

FHA does sound like it would offer a better interest rate with our combined credit scores but I wonder how much paying mortgage insurance for the life of the loan would impact us on a $300k home.  We're probably only going to have 10% ($30k) as our down payment.  

Going to go with your short term plan of increasing spouses credit score while waiting for the student loan rehab details to post to the associated accounts.  In two months my spouses late payments will push past one year so I'm hopeful that gives us a couple extra points with her scores.  In the mean time, so I'm not sitting on my hands, I'm going to give these goodwill letters a shot and see what happens.  Maybe I'll get lucky and have a few of the most recent lates removed.

Thanks again for you're detailed and encouraging reply!

[Anonymous]

I didn't rehab my student loans, I did a consolidation to get rid of two defaulted Perkins loans that was on my credit report. The updated information should hit my credit report by Tuesday or Wednesday of next week, so I can come back and let you know what kind of impact it had for me. 

I will also note that my credit report does not reflect the "default" language anywhere. It does note that the $1,300 is in collections and it updates every month so I have SEVERAL 90-120 day lates on it. However, when I log into my NSDLS account, I do have the default flag on my account. 

[Anonymous]

Thank you, Rookie08!  I would love to hear how the score changes for you.  I also do not see the word default on MyFico but Sallie Mae says "Perm assigned to government" and NY State Higher Ed says "Collection".  What's funny is under my credit report I have zero accounts showing in collections.  I have zero doubt these are default accounts though, I've been told that by several people and I wouldn't have been put through the rehab program.  I also had to send additional paperwork to a college I applied with regarding my default in order to gain FASFA eligibility.  

What I expect to change is:

Sallie Mae to keep lates but change account status from "Perm assigned to Gov" to "Pays as Agreed"

NY State Higher Ed change account status from "Collection" to "Pays as Agreed"

NY State Higher Ed payment history from 10/2012 to present date to change from "Charge Derogatory" to "OK".

NY State Higher Ed balance of $17,800 to change from "Past due" to "Current"

[ShanetheMortgageMan]

---

@Anonymous wrote:

Thank you so much ShanetheMortgageMan! 

FHA does sound like it would offer a better interest rate with our combined credit scores but I wonder how much paying mortgage insurance for the life of the loan would impact us on a $300k home.  We're probably only going to have 10% ($30k) as our down payment.  

Going to go with your short term plan of increasing spouses credit score while waiting for the student loan rehab details to post to the associated accounts.  In two months my spouses late payments will push past one year so I'm hopeful that gives us a couple extra points with her scores.  In the mean time, so I'm not sitting on my hands, I'm going to give these goodwill letters a shot and see what happens.  Maybe I'll get lucky and have a few of the most recent lates removed.

Thanks again for you're detailed and encouraging reply!

---

You are welcome.  If you put 10%+ down, mortgage insurance only lasts for 11 years on an FHA loan.  Good luck getting her scores up.

[Anonymous]

By putting 10+% down is it a rule after 11 years have passed to no longer pay PMI or just getting to 78% of the homes value if you can afford to pay more to make it happen more quickly? I know this is an olderish post but I've been reading deep into this category.

[kjade1030]

Hopefully you have closed on a home by now and figured everything out, but for future readers, please note consolidating student loans in default is not enough.  They have to report on credit that they are no longer in default which takes about 90 days.  The lender will then run your name through a system called CAIVRS which checks to see if you owe the federal gov't any money.  Defaulted student loans pop up here, and you'll be unable to close.  Get a head start on these because the consolidating lender usually needs 3 on time payments before they go to the Dept of Ed to remove the default status.

That said, if you happen to not have closed yet, I'd take your wife off totally.  Just let her be on title so she owns the property with you but she is not on the mortgage.  I do York County and you're looking at about $1800 on the payment (estimate only obviously I would need the exact address to pull the exact taxes, and York has some crazy high school taxes!).  Factor that in with your $407 in debt payments, you're at 55% dti and that is using base only and very high taxes.  Keep in mind FHA loan limits for York county will limit you some, the max is $275665.  If you want to go higher, you'd defiintely have to keep her on and get your scores way up to go conventional or USDA.  

[kjade1030]

FHA mortgage insurance drops off after 11 years if you put 10% down.  If you put down less, it never goes away even when you get to 78%.  Most people get rid of it by refinancing into a conventional loan.