Getting approved for a FHA loan?

[Anonymous]

Hi everyone! I have recently began working with a Mortgage company in NC in hopes of being approved for a FHA insured loan. Here are the basics:

Lender pulled scores on 4/7/11

Experian 624

Transunion 615

Equifax 586

I have several collections listed on my report. Most of which are for minor medical collections.

Stern & Associates ($44, 25, and 10) - all of which were paid to the original creditor within the last week since discovering they were on my credit report

RJM Acquisitions ($896 and $149) both were settled for a deletion and should come off within the next month. I got documentation from the CA stating that these items would be deleted.

EOS CCA - $180 for an old Sprint PCS phone that is scheduled to drop off early next year

Progress Energy - $316 for an old electric bill that I never received a final statement for once I moved (this account was also paid to the OC last week).

E-recovery solutions - $181 for a medical collection (when calling the original healthcare provider they show no record of these services and cannot find the account number anywhere in their files.)

ARC - $32 for medical (which has also been paid since last week)

Paragon Revenue group - $1559, $661, and $111 ( the 1559 and 661were updated as paid and closed after disputing them with the CRAs) $111 balance remains on my credit report from the CA even though after speaking to them they say they no longer own the debt and it was sent back to the original creditor.

I have 5 accounts listed in good standing.

HSBC that has a $0 balance. This CC has been reporting since 2003. However, this account was charged off many years ago. The account used to be listed on my credit as a charge but evidently has aged off as far as the CA is concerned. The file has a comment that says "Account transferred or sold, Closed 04/04".

Badcock Home Furniture which also has a $0 balance but states that it was closed in 05/03. Marked as "pays as agreed".

Capital One has a balance listed of $257. However, this is incorrect and this card has been paid of since and now holds a zero balance. Credit limit however is only $300 so it is showing a high utilization of credit.

BB&T with a balance of $31,095. This is for my current car loan with a monthly payment of about $560. No lates and was opened in September 2010 as a joint account with my mother.

Fashion Bug with $0 balance and $200 limit. This tradeline has been reporting since 03/02 and states it was closed in 10/03. I have never used this account and it was evidently provided as a pre-approved offer because I never applied for this account.

What is my best course of action to get approved for a FHA insured loan within the next 4-6months. I have accepted a new job and need to relocate to about 2 hours away from where I live now. I can commute for the meantime but don't particularly want to do this longterm. Rental rates in the city I am relocating to are outrageous and I really don't want to give anybody $1500 a month in rent if there is a way I can purchase instead. I have been talking to a mortgage lender and he says I need at least a 640 score in order to start the process. Is this true because looking at FHA loan requirements it says that 580 is the minimum score. How do I get to this minimum rather quickly?

Will my score increase with the two collections of $896 and $149 coming off as agreed with the CA and with the others being paid?

Also, when the lender pulled my credit my TU score is 615 and when I pull it on myfico.com it is 643. Why is there such a big difference?

Any advice on my best course of action here?

[ShanetheMortgageMan]

There are some lenders doing lower FICO scores for FHA loans, however 640 is still by in large the industry standard.  I can tell you over the past 60-90 days several lenders have lowered their score requirements to 620, 600 & 580, and there are still lenders that go down to a 500 score (580 score is needed for just 3.5% down, 500-579 requires 10% down)... but below 640 the requirements become pretty strict, for example here is some requirements of one lender who goes down to a 600 score:

In the last 36 months cannot have any Short sales, “Settled for less than amount owed”, Public records, Judgments, Bankruptcies (Chapter 7 or Chapter 13), Foreclosures, Deeds-in-lieu of foreclosure, Tax liens.  No collections other than medical in the most recent 12 months.  No housing late payments in the most recent 12 months.  No more than one 30-day consumer credit late payment in the most recent 12 months.

When those collections occured, as well as their dates of last activity, would need to be known to determine if them being removed from your credit report would likely improve your scores or not.  For advice on best ways to improve your scores the General Credit Topics section would likely be best.

The TU score here at myFICO.com uses the scoring model of Classic 98, whereas mortgage lenders use the TU scoring model of Classic 04.  Classic 98 tends to give higher scores than Classic 04 when the credit isn't so great.  With good to great credit, Classic 98 scores tend to be lower than Classic 04 scores.

[Anonymous]

Thanks for the response Shane!

I don't know what state you are located in but do you know of any lenders who can get me approved with my current score assuming that all of my collections are paid off. I have two left to pay and I have send out PFD letters to those two. I am ready to PIF if they accept my PFD but probably will settle with them if they will not delete the accounts. Any suggestions would be greatly appreciated. I am in NC by the way. I am particularly interested in FHA because I don't have that much for a down payment.

[ShanetheMortgageMan]

Personally I'd recommend you work on your scores a bit first - get them to the 640 level so underwriting isn't extra hard on you.  Also will depend on if any of those accounts went to collections in the past 12 months - if any of them have then you'll need to wait until you have 12 months of no new collections, late payments, etc.

[Anonymous]

The last collection was in May of 2010 and it was for a medical co-pay of $10. Everything else was opened in 2008 or earlier. Any suggestions on getting to that minimum score of 640?

[ShanetheMortgageMan]

Medical collections are usually OK to have in the last 12 months, they aren't great to have, but underwriters don't make a big deal about them.  However given all of the other collections, it may make an underwriter think twice.  In June (2 months) you would have 12 months of clean credit, and so you'd just want to work on improving your scores.  As I said before, the General Credit Topics or Understanding FICO® Scoring boards would be the best place to get advice on how to improve your scores - I imagine your scores would increase a little once those PFD's go through.