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Frequent Contributor
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Registered: ‎02-07-2011
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Preparing to Buy First Home in 6-15 months... Some Questions

[ Edited ]

Looking to buy a first home in the near future. Sooner is better, but it's not out of necessity, just tired of paying rent with no skin in the game (and I think the current buyer's market could begin to fizzle over the next two years).

 

Status: Married, purchasing only in my name (wife's credit is poor, and she's on a long-term healing plan).

My Income: 53k gross, salary, same employer, improving last three years

Liquid Assets:

- 15k in 401k (contribute 10%), 1/2 loans available

- 2.5k in HSA (potential kiddos in the future as well)

Debt:

- Car: 14.5 k @ 3.5%, monthly payment 436, ~three years left

- Car: 5k @ 17%(!), bi-weekly payment 192, ~one year left [If curious, DriveTime car note, got to repair credit. Expensive, but worked]

- Two Cap1 cards, 750 limit each, carry about 200 on each (40% util on average, pay off each month and use for 1-2% cash back rewards, meh)

- 1.3k on Care Credit card (0% APR plan, pay off in 4 months)

Credit:

- 670, fluctuates mostly because of util ratio (by 5-15 points or so)

- One collection paid off ($230, orig 9/08, paid in full 1/11, utility)

- One collection open ($584, orig 4/07, still open, appartment with "sub-optimal" management)

- Inquiry in 2/11 (Car), two other inquiries in 7/11 for Care Credit and Cap1 card (all are open accounts)

- Zombie debt that was unresolved, but has fallen off

 

ULTIMATE GOAL:

Reasonable mortgage in 6-15 months, probably 100-125k range. Payment amount isn't a huge concern, but down payment might be. We won't be able to save a ton, and also have additional cash for renovations/appliances, etc. So, probably looking at minimum down

 

QUESTIONS:

 

Q: Does using my wife's income for savings matter? Would I need to be concerned with her income or credit during the loan process? (Texas, community property state)

 

Q: Does it make sense to (any of these)

1) Re-fi the 3.2% car note to drop payment to ~250/mo, and make additional payments on the 17% note, paying it off by Summer? Or, use the extra money towards savings?

2) Open another credit card now, in order to improve the available credit amount? (Obviously, keeping it clean)

3) Pay off the $584 collection, or hope the lender doesn't care much?

 

Q: Would considering a 401k loan for extra down-payment be worthwhile, assuming it was small (<3000)?

 

Q: Should I wait to roll my wife's old 401k into mine (~3k), as to not confuse assets?

 

 

Any other thoughts or advice is much appreciated.

  

Thanks all, the family has appreciated this community for some time. I wish I knew it existed when I was a teenager Smiley Happy

 

(edits: spelling and clarity)

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Established Contributor
Posts: 872
Registered: ‎10-16-2010
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Re: Preparing to Buy First Home in 6-15 months... Some Questions


cassembler wrote:

Looking to buy a first home in the near future. Sooner is better, but it's not out of necessity, just tired of paying rent with no skin in the game (and I think the current buyer's market could begin to fizzle over the next two years).

 

Status: Married, purchasing only in my name (wife's credit is poor, and she's on a long-term healing plan).

My Income: 53k gross, salary, same employer, improving last three years

Liquid Assets:

- 15k in 401k (contribute 10%), 1/2 loans available

- 2.5k in HSA (potential kiddos in the future as well)

Debt:

- Car: 14.5 k @ 3.5%, monthly payment 436, ~three years left

- Car: 5k @ 17%(!), bi-weekly payment 192, ~one year left [If curious, DriveTime car note, got to repair credit. Expensive, but worked]

- Two Cap1 cards, 750 limit each, carry about 200 on each (40% util on average, pay off each month and use for 1-2% cash back rewards, meh)

- 1.3k on Care Credit card (0% APR plan, pay off in 4 months)

Credit:

- 670, fluctuates mostly because of util ratio (by 5-15 points or so)

- One collection paid off ($230, orig 9/08, paid in full 1/11, utility)

- One collection open ($584, orig 4/07, still open, appartment with "sub-optimal" management)

- Inquiry in 2/11 (Car), two other inquiries in 7/11 for Care Credit and Cap1 card (all are open accounts)

- Zombie debt that was unresolved, but has fallen off

 

ULTIMATE GOAL:

Reasonable mortgage in 6-15 months, probably 100-125k range. Payment amount isn't a huge concern, but down payment might be. We won't be able to save a ton, and also have additional cash for renovations/appliances, etc. So, probably looking at minimum down

 

QUESTIONS:

 

Q: Does using my wife's income for savings matter? Would I need to be concerned with her income or credit during the loan process? (Texas, community property state)

 

Q: Does it make sense to (any of these)

1) Re-fi the 3.2% car note to drop payment to ~250/mo, and make additional payments on the 17% note, paying it off by Summer? Or, use the extra money towards savings?

2) Open another credit card now, in order to improve the available credit amount? (Obviously, keeping it clean)

3) Pay off the $584 collection, or hope the lender doesn't care much?

 

Q: Would considering a 401k loan for extra down-payment be worthwhile, assuming it was small (<3000)?

 

Q: Should I wait to roll my wife's old 401k into mine (~3k), as to not confuse assets?

 

 

Any other thoughts or advice is much appreciated.

  

Thanks all, the family has appreciated this community for some time. I wish I knew it existed when I was a teenager Smiley Happy

 

(edits: spelling and clarity)


If you're looking to buy in 6 months, you shouldn't refinance anything or apply for new credit of any sort. However, if you are applying in 12-15 months, that would be OK. I would suggest that you pay the car off first with the 17% interest rate. That would free up nearly $400 a month. You also need to get that collection paid ASAP. No lender wants to extend a loan to someone who owes on a collection. If you can, try to GW and PFD to get it removed completely. It's worth a try.

 

I think you should build up some savings and use that towards the down payment. How old are you? Based on your age, if you use your 401K, you could potentially be missing out on some good compounding. What kind of salary does your wife have?


Starting Score: 760
Current Score: 716 Equifax 754 TU 736 Experian
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Frequent Contributor
Posts: 470
Registered: ‎02-07-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions


frogfan12 wrote:

 

If you're looking to buy in 6 months, you shouldn't refinance anything or apply for new credit of any sort. However, if you are applying in 12-15 months, that would be OK. I would suggest that you pay the car off first with the 17% interest rate. That would free up nearly $400 a month. You also need to get that collection paid ASAP. No lender wants to extend a loan to someone who owes on a collection. If you can, try to GW and PFD to get it removed completely. It's worth a try.

 

I think you should build up some savings and use that towards the down payment. How old are you? Based on your age, if you use your 401K, you could potentially be missing out on some good compounding. What kind of salary does your wife have?


I think you're confirming what I already knew... The longer we wait and save, the better.

 

I'm 33, so touching the 401k will hurt down the road, even if it was only 3k. My wife's income is about 28k, which I understand would help us qualify for more, but we're planning on her not working anyway soon enough (again, if we're fortunate enough to start having kids).

 

Paying the collection is a bitter pill to swallow, but I probably lost my chance to fight it in court (it's a silly little "I shoulda got that in writing" thing). But, that might be easy to pay for delete because I can go to the debt originator, and skip the collector.

 

As for the re-fi, and maybe additional line fo credit, will the inquiries matter much in, say, Q4 if we try to start shopping for loans then, even though we may not buy until 2013?

 

Thanks

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Valued Contributor
Posts: 1,863
Registered: ‎09-20-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions

Don't pay the collection.  It's small and old.  Only pay it if the lender requires it as a condition to close. 

Member
Posts: 13
Registered: ‎01-30-2012
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Re: Preparing to Buy First Home in 6-15 months... Some Questions

I think that the way the lenders are operating now, it would be good to get the debt settled.  It would be best if it were settled in full, but if you can work out a settlement for less than the total that would work, too.  Also, start preparing written explanations for  any derogatory items because they'll ask for them.  But, if you're getting the loan in only your name, your wife's scores won't matter to the lender.  (I'm buying a property this same way, my lender got rid of my spouse's information  altogether).  Good luck!

Established Contributor
Posts: 866
Registered: ‎09-22-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions


boomhower wrote:

Don't pay the collection.  It's small and old.  Only pay it if the lender requires it as a condition to close. 


The open collection is over 2 years old.  Forget about it!  You won't be asked to pay that off. 

Frequent Contributor
Posts: 470
Registered: ‎02-07-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions

[ Edited ]

Thanks for the advice. After discussing with my wife, the prudent path is to pay off the high APR car note, which we'll save on insurance as well (going to min liability). Save throughout the year, and start looking in Q4 some time. Not going to refi the other car, the payment is comfortable and will be paid off in 2 years anyway (if we're aggressive).

 

Question is now, if I apply for one more CC to help my utilization, will the inquiry matter much in 6-9 months? I understand I'll have to explain it. My full history is 24 years, and my AAoA (by my math) will be about 4.7 years(ish) in October (assuming I open in February). Without the card, my AAoA will be 5.5 years(ish).

 

Will the added util/available credit offset the AAoA hit? Or will the added util be meaningless if I keep the other cards paid down to 5% ish?

 

EDIT: as for the $550 collection, I'm going to wait for a lender to tell me otherwise. I would pay it off just for ethics, but I'm not happy about why it exists in the first place. If it was $1, I'd still feel the same way.

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Frequent Contributor
Posts: 470
Registered: ‎02-07-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions

I should add the reason I'm even considering a card... The two Cap1 accounts I have are both capped at 750 limit, and I understand they're not super peachy about upping that, ever. So down the road, I don't believe $1500 limit will be enough to even really use much, if I want to keep util low. That said, cash is king, right?

 

I'm over-analyzing this methinks Smiley Happy

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Established Contributor
Posts: 866
Registered: ‎09-22-2011
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Re: Preparing to Buy First Home in 6-15 months... Some Questions


cassembler wrote:

Thanks for the advice. After discussing with my wife, the prudent path is to pay off the high APR car note, which we'll save on insurance as well (going to min liability). Save throughout the year, and start looking in Q4 some time. Not going to refi the other car, the payment is comfortable and will be paid off in 2 years anyway (if we're aggressive).

 

Question is now, if I apply for one more CC to help my utilization, will the inquiry matter much in 6-9 months? I understand I'll have to explain it. My full history is 24 years, and my AAoA (by my math) will be about 4.7 years(ish) in October (assuming I open in February). Without the card, my AAoA will be 5.5 years(ish).

 

Will the added util/available credit offset the AAoA hit? Or will the added util be meaningless if I keep the other cards paid down to 5% ish?

 

EDIT: as for the $550 collection, I'm going to wait for a lender to tell me otherwise. I would pay it off just for ethics, but I'm not happy about why it exists in the first place. If it was $1, I'd still feel the same way.

I would not apply for any new credit at this time.  Wait until you get your home financed.   Just work on saving money and keeping debt to a minumum.  When you get the keys to your new home then app all you want.  Good Luck!

 

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