AS my title says, I'm looking to get my first mortgage in the next year, and I need to figure out what will best serve me to get the best approval...
I'll start with the negatives--
1- I have a chapter 7 bankruptcy that was discharged in July, 2016. It wasn't due to overspending or racked up credit cards, but was medical as a result of crappy insurance and having triplets that spent quite some time in NICU at birth. I did have to include all debts, so there were some credit cards and car loan that were also included, but medical was the vast and overwhelming majority
2-I am the sole verifiable income in my household, and my income is primarily commission based. I do get a small salary, but it ends up being mostly commission, so there are variable amounts I get paid every month. My wife is classified as a hobby photographer. She has income, but its not anything she can prove if she needs to qualify for a mortgage.
3- My wife doesn't care very much about her credit before or since the bankruptcy. I've rebuilt to approximately a 680 FICO now in the past 14 months, but hers is 495 last time I checked. She has several missed payments on post discharge credit cards and so I a inclined to believe that she will be more of a hindrance than a help when it comes to qualifying.
Those are the major potential negatives.
On to the positives.
1-My credit score as it stands today is about 680, and I know I can't get a mortgage until two years past filng or discharge, which will put me in either April or July, 2018. This will hopefully give me enough time to crest the 700 mark.
2-I've done a pretty good job with my rebuild since. Two cars loans, several credit cards, a line of credit, and a rediculously high installment loan on a mattress.
3- I'll have approximately $10-15,000 available by the time I'm ready to buy to use as a down payment/reserves/ or whatever.
So I'd like some of the mortgage gurus here to tell me what I should do. I am carrying balances on the credit cards I have now, and my utilization is well above 50% currently. Not maxed out above 90% but far from the 1-9% that is recommended, or at least used to be recommended. Would I be better off using some of the down payment money to get my utilization down to where it should be, or will a larger down payment be better?
Current debt load:
Kohls Credit card --$78 on a $1500 limit
Victorias Secret Card-- $305 on an $850 limit
Overstock card--$369 on a $550 limit (currently 0% until April, 2018 on the one and only purchase)
Discover secured card-- $990 on a $1000 limit (currently 0% until July, 2018 and my regular daily use card. High usage, but also high payments monthly)
Lowes credit card-- $3062 on a $5000 limit. (5.9% until June, 2020)
Cabelas club Visa-- $3,700 on $3,900 limit
Penfed Thrifty credit service-- $395 on $500 limit
USAA secured Amex card--$0 on $1000 limit.
Purple mattress through Affirm--$1,660 remaining balance at 30% interest
GM Financial lease-- This is her car, but I had to cosign. I've also made every payment. 2 years left on the lease
VW Credit--This is my car. Leftover 2015 TDI that I bought when they became available about 3 months ago.
These are all current balance as of today. The small balances like Kohls and Victorias Secret will be pif this month and they aren't used all the time. The remainder are where I'm not sure what to do. I could use lets say $10,000 and pay off all the credit cards and mattress and that would put me to the 1-9% utilization goal, but would leave me with only a couple of thousand available to have as a down payment, or it would leave me renting for another year.
I could also sell one of the cars and get a beater of some sort to lower my dti ratio. Unfortunately, a lease isn't easy to get out of, and with my car, three months into it, I've got quite a bit of negative equity, even with 0% for 72 months and a $5000 rebate. Plus, it has an awesome warranty, and consistently gets me 50+ mpg, so I'd like to keep it. Another option would be to pay a big chunk down on it, say again that $10,000 mentioned above, and refinance it. But then I won't get 0% on a refi, but the payment would still be lower, and I would still have the credit card debt.
What is your current income? and what are the Minimum payments for all of your consumer debt? also what, state do you live in? need to know if its a Community Property state....
We live in Ohio, so not a commuity property state. Income varies, but figuring conservatively, $60,000. Minimum payments, including the two cars, is $1285. (cars, since they are a possibility to get rid of are $360.50 for the Traverse lease of my wifes, and $382.54 for my VW.
Also, even without factoring anything in, the installment loan mentioned will be paid off in March, unless I pay it off sooner, so it'll be gone before the mortgage would come into play no matter what, and that is about $220 a month that will be freed up. If you wanted to have a more detailed breakdown, its below;
Victorias Secret $27
What is the price point of the homes that you are interested in?
I would stick with the plan that you are working on now...pay off the small ones, keep the cars, and save as much as you can.
Your utilization is high on some accounts but its not brining your score down to the point that you wont qualify.
If I were you I would set up a spreadhseet with your accounts and the balances, and then set up five scenarios. Scenario 1 is to only make minimum payments and try to save everything toward your downpayment. Scenario 5 focuses on paying off debt with the DP being the lowest priority.
Scenarios 2, 3, and 4 move gradually toward paying off more and more on debt, while still saving some.
Then see if there is a scenario that enables you to pay off as much debt as possible while still saving enough toward the DP. If the only scenarios that enable you to save enough toward the DP are scenarios 1-2, then (if it were me) I'd view that as a flag that you are just too overextended to consider a home. That would mean renting another year, living an extremely frugal life, saving toward the DP and paying off debt.
As far as your scores go, you would benefit a lot from getting all accounts at < 49% and then creating as many zero balances as possible. It will also help you during the manual review done by underwriters. The several $0 balance accounts is something the mortgage scoring models like and it will obviously help your DTI. The scoring models also dislike seeing accounts that are above 49% individually.