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New Member
Posts: 5
Registered: ‎08-01-2007
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Mortgage loan possible? FICO in mid 500s

My husband and I just found out our FICO's are in the mid 500's. Do you think it is possible to get a mortgage loan with such low scores? We're only wanting a loan for around 80k. The plan is to buy a starter home and try to sell it in about 4 or 5 years. My husband is meeting with a lender this afternoon to submit an application.
Regular Contributor
Posts: 218
Registered: ‎07-29-2007
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Re: Mortgage loan possible? FICO in mid 500s

You'll need 10 - 20% down most likely - but it depends on your credit.  Some of the programs like MyCommunity and Fannie Mae "levels" products aren't directly score driven.  WHY are your scores low is more the question...as in, are there delinquencies?  Collections?
 
Also, debt-to-income and liquid assets (including 401k's and retirement accounts) are important.
 
From BK to 700 FICOs in 4.5 yrs.
New Member
Posts: 5
Registered: ‎08-01-2007
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Re: Mortgage loan possible? FICO in mid 500s

Yes, we both were stupid 18 y/o's with a ton of credit cards. We both had judgments and paid them off, but they are still on our report (7-10 years right?). We both have collections (mainly medical) which we are going to try and do PFD. I just received a large inheritance, so we are going to get all of our old debts taken care of and put a down payment on a home and invest the rest.
Regular Contributor
Posts: 218
Registered: ‎07-29-2007
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Re: Mortgage loan possible? FICO in mid 500s

Make sure to send PFD letters to anyone you plan to pay off if it's a derogatory account.
 
You do that and you could probably go FHA as well.
 
From BK to 700 FICOs in 4.5 yrs.
Moderator Emeritus
Posts: 9,252
Registered: ‎03-19-2007
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Re: Mortgage loan possible? FICO in mid 500s

When you minimize the risk to the lender.  The approval process is much easier.
 
I had to put 40K down on my fist house.
Frequent Contributor
Posts: 351
Registered: ‎04-02-2007
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Re: Mortgage loan possible? FICO in mid 500s

FHA would probably be your best option if your scores are in the 500's.  FHA does not use credit scores when considering someone for a home loan.  However, all of the CO's would have to be resolved (paid) first and there shouldn't be any late payments within the last 12 months, preferrably the last 24. 
 
I've learned all of this in my homebuying classes.  I would recommend that anyone - any type of credit - check with their state housing department to see if they offer these type of classes.  You may have to pay a little but the information is worth a million bucks.
Regular Contributor
Posts: 197
Registered: ‎06-08-2007
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Re: Mortgage loan possible? FICO in mid 500s

Nicole... all of the replies are accurate, but don't let the "20% down" stuff scare you. That simply means a lender might finance you for 80% of the value of the property. That is called your "LTV" rate... "loan to value"...

If you can find a house, negotiate one hell of a deal on it and snag it as far below its market value as possible, then you are going to be a better candidate for a home loan. Also, in my experience, most lenders aren't going to reject you for stuff on your bureaus that's older than a couple of years. They tend to look for what you've done in the past 12-25 months, particularly with your housing payments.

This means that if you've been paying RENT on time, you should produce some records to validate that... canceled checks, receipts, etc.... and that should also go a long way in getting you approved.

Take a few days and gather your thoughts and come up with a game plan. Dispute any accounts you feel are reporting wrong to the credit bureaus. Do what you can to get your scores up, including paying down your charge balances as low as possible. If you have any old collections that have been paid, see if writing a goodwill letter to the original creditor will help you get those deleted. Gather some housing history information and payment records. Look around for a house or two that you might get for less than market value.

You'll be on the right track... and yes, you CAN get a mortgage with scores in the 500's, but the higher in the 500's you go the better. From what I can tell, 580 seems to be an important benchmark to get a decent home loan, but it will still be considered "sub-prime" with many lenders. You'd be surprised, however, how much of a jump you can get on your scores with just a little hard work and diligence on your credit reports. Once you get to a 620 score mid score, I think your options will be even better. Good luck to you and your husband and let us know how you do!
Established Member
Posts: 22
Registered: ‎07-19-2007
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Re: Mortgage loan possible? FICO in mid 500s

Nicole, thank you for asking this question!  My husband and I are in a similar boat right now, but really need to move into a home.  We are both teachers and can benefit greatly from the mortgage programs geared toward teachers, but have some serious stuff to clean up on our credit reports (these include some collections and derogatories).  While we will almost be done cleaning those items up shortly, I am afraid it won't get our scores up to the minimum we will need to completely benefit.  Many of my derogatory tradelines have already been resolved through payment (as well as any judgements).  Is there still a way to get the scores up, or will it be a waiting game until some of those things fall off?  I wish someone could literally tell us EXACTLY what course of action we should take to get the scores up in the shortest time possible.
Frequent Contributor
Posts: 436
Registered: ‎06-15-2007
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Re: Mortgage loan possible? FICO in mid 500s

If you have any credit cards, you will want to make sure your utilization is between 1% and 9%. FICO will reward handsomely for this. Otherwise, start to aim for no more than 35% utilization which will give a bump as well. This is usually the quickest way. But, also make sure you do not miss any payments. Everything that is currently on-time, continue paying it on-time. Missing (1) payment can kill your FICO scores.

Also, make sure you buy all three scores from the myfico website. This will ensure you get an accurate score, so you know what work needs to be done to maximize your numbers. Scores purchased at other sites are FAKOS and mean nothing to FICO.





KarimaKC wrote:
Nicole, thank you for asking this question!  My husband and I are in a similar boat right now, but really need to move into a home.  We are both teachers and can benefit greatly from the mortgage programs geared toward teachers, but have some serious stuff to clean up on our credit reports (these include some collections and derogatories).  While we will almost be done cleaning those items up shortly, I am afraid it won't get our scores up to the minimum we will need to completely benefit.  Many of my derogatory tradelines have already been resolved through payment (as well as any judgements).  Is there still a way to get the scores up, or will it be a waiting game until some of those things fall off?  I wish someone could literally tell us EXACTLY what course of action we should take to get the scores up in the shortest time possible.




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