Enough for a bump + What are my chances?

[Anonymous]

Hi all, long time lurker, first time poster.   I hope to be going through pre-approval for an FHA loan in NJ (~300k) in the next month, and am looking for thoughts.

     a)  2009 & prior could best be described as a credit train wreck (no BK/foreclosure,  lots of 30/60/90, few accounts sent to collection agencies.  ALL paid off now.   One 30 day late in january 2010,  clean since then, TU myfico report shows one account in collection, balance paid, from 2009/2010 (173$ originally)

     b)  DTI curently at 10% (unsecured, and car loan).  credit utilization ratio higher,  ~87%.

     c)  Pre-tax annual base pay is 99.5k,  annual bonus starting at 10%

TU Score:  613 (myfico 3/4 pull)

Equifax:  619 (myfico 3/4 pull)

transrisk:  631

Vantage:  632

Since those pulls,   credit utilization was paid down from 87% to  64%.    3 questions

1)   Is that enough of a drop to get me the few points to get over 620?   I know sub 20% is best, but that's most likely not practical without stripping too bare  - end of lease on my apartment makes pushing out a purchase more too much less than ideal

2)   Are there thresholds other than 20%?   is it worth paying before 60%?  50%?

3)  What are my chances of an FHA loan?   from lots of forum reading, it seems to be a definate maybe.   Weichert broker (i'm assuming), seems to think it's almost definately possible

thanks all!

[cdtotten]

Couple things:

- Paying down your debt some to get your cc util lower may have given you the points you want to get to 620, but that utilization is still WAY too high. I don't understand when potential borrowers want to purchase a $300k home, when they can't get their CC debt under control. My general rule, if your CC debt isn't controllable under 10% (which will maximize your FICO as well) then you shouldn't be buying a home.

- Under 50% you may see a jump, then 30% then 10,although it varies by person. Keep in mind that the balance on each card matters as well... if you are 60% overall but one card is almost maxed out, that won't help you.

- Yes you can get approved for an FHA loan with a 620 average score, but I wouldn't even consider it until I got everything else under control.

- In current times, 2 to 2.5 times your annual income is the highest I think borrowers should stretch.

[Booner72]

Hi and congrats on the first post.

There are lots of "sweet spots" in terms of utilization for people, and those seem to vary from person to person.  For instance, I was at 19% utilization 2 months ago, but went to 20% this month, and lost 10 points.  Remember, anything over 70% is considered "maxed out" via Fico scoring.  So 64% isn't an ideal number, not to say that it won't get you those points.

How many cards to you have?  Are they all reporting balances?  Utilization is scored overall, individually, and then how many cards report a balance.  Ideally, shoot to have only one (Or at last less than half) of your revolving accounts report zero balances.

IMO, you could easily get over 640 and be a shoe in, if you could somehow pay those balances down further.  And 640 is better than 620, esp in your case you have to over-compensate for the pre-2009 train wreck.

Regardless of all of that, if you have paid down as much as you can, see if you are there, and if not, then you know what the answer is.  Hopefully this helped.  Good Luck!!

[Anonymous]

thanks for the comments.   10 open CC's, all report.   5 at 0 balance,  all but two sitting in a drawer not getting touched (remaining two are picked for cash back %, then paid before statement close).  1 LOC, plus car loan (opened october 2010, refinanced april 2011).

Do CC and LOC's count differently?  i could pay one more CC off completly, or pay the LOC down to ~15%

I think that's the first time i've seen the 2 - 2.5 annual pay rule - i've been going by 2 week take home (covering mortgage, pmi, tax), which fits in my own budgetting.

[courtney091082]

Just keep knocking down those cc balances. Ideally get to 1-9%. And I've heard to pay off all cards but one. Let that one report 1-9% balance for best fico scores. Good luck

[StartingOver10]

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@cdtotten wrote:

Couple things:

- Paying down your debt some to get your cc util lower may have given you the points you want to get to 620, but that utilization is still WAY too high. I don't understand when potential borrowers want to purchase a $300k home, when they can't get their CC debt under control. My general rule, if your CC debt isn't controllable under 10% (which will maximize your FICO as well) then you shouldn't be buying a home.

- Under 50% you may see a jump, then 30% then 10,although it varies by person. Keep in mind that the balance on each card matters as well... if you are 60% overall but one card is almost maxed out, that won't help you.

- Yes you can get approved for an FHA loan with a 620 average score, but I wouldn't even consider it until I got everything else under control.

- In current times, 2 to 2.5 times your annual income is the highest I think borrowers should stretch.

---

+1.  Especially to the bold part.

2 weeks to allocate to a mortgage payment leaves you ripe for problems after you buy.

Do you have a reserve account? Not because FHA requires it, but because you need to have savings readily available when you become a homeowner for repairs, improvements etc.

You mention in your post that you are worried about your lease coming up and you want to buy before it ends. Can you go month to month or write in a 60 day notice to terminate so you can look to buy something when you renew your lease without the time pressure?

[Anonymous]

additional details:

2 weeks pay is assuming a place at the high end of the price range - i'm looking at places 250-320k.   for me to bite at 320k, it would have to require nothing but paint - modern appliances,etc - fairly unlikely, but can't hurt to look.  it's also truely 2 week's pay,  26 paychecks, treating the extra 2 as found money

cash:  utilizing a 401k loan of 22k (leaving ~36k in 401k account) + cash on hand

21k :  mortgage related expenses - down payment, closing, inspections,etc - Legal portions being handled by an aunt, free of charge

4k: rent overlap, assuming 3 months (more realistically, i'd have to cover 2)

3k:  reserve.

1k - misc stocks.

by end of may i need either  terminate lease (60 day notice),  or use a one-time  extension - i can control how long it's for.  after that, it renews for a full year.

family is promising to contribute, but i'm treating that as just something to mitigate empty rooms and a ramen diet.

reducing CC debt to 0 would free up $250 a month - bulk of dti is in the car loan (just made a payment to 0 out another card, ratio to 59%) - 4 years left on that.

[Anonymous]

You need more than half your revolving credit accounts to show a zero balance. After that, take the rest of your account balances and bring them down by the same percentage. Your scores will come down incrementally.

The 2/2.5 rule has been a house buying standard forever but the real math usually comes in DTI and is calculated as a percentage of utilization. Here are all the calculators you will ever need. http://www.mortgage-info.com/

Get those cards paid down. They are 1/3 you credit score.

[Anonymous]

Any and all payments you absolutely cannot turn off should not exceed about 36% of your gross income. 40% absolute max in an ideal world. Car, insurance, mortgage, credit card minimums, etc.