FHA Loan Question

[caribgirl11]

Hello, just wanted to ask some advice and would really appreciate any help at all:

My DH and I have been working on our credit for the past year.  We've paid off all collections and both of our scores are in the 660-670 range.  We would like to qualify for an FHA loan w/ 3.5% down and annually make 90000 gross/year.  Looking for a home in the 130000 range (hopefully less) in Miami, FL and just hoping we won't have any issues qualifying for a loan because we just recently paid off the bad debt (within the past year).  We've been responsibly using our new credit and have a 400/month CS payment.  Have about 7000 availabe credit between 4 cards and currently have about 1500 oustanding which we plan to pay off this month so this debt won't be an issue.  Can anyone out there tell us if we would have any issues qualifying for an FHA loan.  We also have the 3.5 % saved for a downpayment along with about 4000 for closing costs (hoping they won't be that much :-)) in addition, we're hoping to save a couple more thousand for reserves eventhough we have 401k that should be able to be used for that.  with a 130000 home we have about 8-9 months worth of payments in the 401k but would still like to have cash on hand for any incidentals that might happen once we purchase.  Sorry for so much info but wanted to put it all out there to get the most accurate advice.  What do you guys think? 

[mauve]

It sounds to me like you're in good shape - especially if you have at least 24 months of good payment history

[BrianB_The_Loan_Professor]

welcome to the forum

It sounds like you should be fine

Make sure you do not have any accounts listed as in dispute on your reports

also scores alone arent always enough but if you have paid all bad debt off and had clean credit for the last 12-24 months this should fly through automated underwriting

Good Luck

Brian

[caribgirl11]

Thanks.  There is one account that was just paid off.  It doesn't show as being paid yet on my CR but I have documents proving that it was paid.  Will I need to get it reported first before I can qualify for a loan?  Also, I have good payment history for only about 10 months...sounds like the rule is to wait a little longer to let my credit marinate for a bit...is that right?  I do also have several other accounts that never went to collections and that I was never late paying for the last 11 years or so.  I don't know how much the 3 collections that I did have in the last 4 years that were just paid a year ago (and the one that Ijust finished paying mentioned above) would hurt us.  Thanks again so very much.  Seems like no matter how much research I do, I still feel like I know so little on the topic.  I guess going through the process will teach me tons. 

[cdtotten]

One thing I wanted to comment on is your mentioning of your 401(k) as a backup source of funds. Please do not think of these funds as readily available unless it is the most dire of emergencies.

If your 401(k) plan allows loans, then you are a little better off then if not. However, 401(k) loans are paid back with post-tax dollars, and will be taxed again when you withdraw... so you will effectively pay taxes twice on any money you borrow. In addition, if your company happens to go under, or you are terminated, your loan will be due in full within 60 days usually. If you cant pay it back then, you will not only pay the early withdraw penalty, but also taxes will be due on the remaining balance.

If your 401(k) doesnt allow loans, and you take a hardship withdraw, that is the worst possible situation. You will not only have to pay the 10% penalty, but also taxes will be do on the distribution amount. That can make a $10,000 withdraw as little as $6,500 depending on your tax bracket.

I applaud you for saving up for your home and I wish you the best with the whole process, but do not think of your 401(k) as emergency funds. Keep in mind, they are one of the few things that cannot be touched if heaven forbid you have to file bankruptcy.

[caribgirl11]

Thanks for your post.  We have no intention of using our 401k for reserve money.  I read somewhere that it's good to have reserve money so we have saved for that but in addition we were hoping that from the lender's view they would see the cash on hand plus the 401k.  I believe I read that 70% of what  you have in the account would be viewed as possible reserve money.  Just wanted to have everything seem as strong as possible because we don't want to apply for a loan and get turned down and end up losing points on our score from having our credit pulled to have to turn around and do it again in a few months.  From the responses here it seems that we better wait a bit longer because our score doesn't really matter much.  Thanks again.

[Anonymous]

Just to build off the OP question, I hear 12-24 months is the magic time frame in relation to missed payments on credit cards and such.   This kind of worries me, as my 12 months of no lates will be next month.  Before that I had a lot of lates, some severe but nothing ever went to collections and I was able to get everything caught up.  I have decent reserves, 3.5% down, steady employment history, and low DTI.  I'm hoping that will outweigh my past credit mishaps.  I am so scared that they will require 24 clean months. 

OP, I did not mean to jack your thread, I just thought this might apply to you as well

[caribgirl11]

No problem.  Sounds like we are in the same boat...good luck..let me know if you find anything out about this and i'll share whatever i stumble on with you.  I basically have the same question you just summarized it wayy better. lol