Student looking to buy first home - Questions on approval

[thatdudeyoulove]

Background:

I am a 23 yr. old (as of TODAY!) college student. 6 months ago I had zero credit history. Today I got my credit report for the first time (a FICO from EX) and it is a 754.

The primary reason for this is my AU status on my parents' cards that I put together last month. They are both reporting, a Chase with 10 years of perfect payment history and a $4,800 balance out of a $35,000 line currently and a Barclays with 6 years of perfect payment history and a $300 balance on a $18,300 line. Both payed in full each month.

These supplement my own first card which is a Citi Forward that I received in June with perfect payment history and a balance that is usually between $200 and $400 out of my $2,000 limit a month.

My income is $32,964.88 a year pre-tax (employed since May 2007, still part-time, hourly), with around $2,000 in supplemental income each year (about $1,500 of it 1099'ed). I have zero monthly obligations as I live with my parents ( to save money and help out with the siblings) and my insurance is paid by my parents until I graduate and get a full-time career.

I have no delinquencies, collections, public records, student loans, etc.

This property is not being purchased as a primary residence, but rather as for rental property. I will continue to live with my parents until I have enough reserves to endure renting/buying another smaller place as well as whether a few months of vacancy and unemployment should disaster strike. I am currently saving about 50% of my income.

I live in North Texas, Denton County.

I will have between $15,000 and $17,000 to spend.

The Loan

I am NOT planning on buying the home conventionally initially, but rather buying a property in need of repair with a hard money loan( short term high interest loan that will allot money for construction/repair costs etc. if the home can be bought for cheap enough due to a 70% Loan-to-(Estimated)After Repair Value). This is so if I find a property that is well under the market-value for it's features (# of bedrooms, baths, etc.) due to repair needs, motivated selling, or the like then I can capture a good amount of (unrealized until sold)equity. They generally are only cost-effective in very specific situations, although these situations are exactly what I am looking for!

I am looking for a 30 yr. conventional to re-fi into in the $40,000-75,000 range. I would like to be fairly highly leveraged as I am much more concerned with cashflowing monthly, taking advantage of low interest rates, and holding the home for 5-7 years to gain some appreciation than my total cost. Afterall, assuming I can keep it rented, the tenants are the ones footing the bill.

The Issue(s)

Because I am an authorized user on my parents' cards I am unsure what ramifications this may have on my approval. The one issue that jumps out at me is that my DTI is at 189% because my parents' expenditures report (The balances were given at the beginning of this post) and their income is much much higher than my own. It seems to me that I will have to pay the balances on the cards before they get reported OR stop using the cards (which is possible) for a month or so before and/or while I go through the approval process. Is there any way to find out which days the CC companies report balances so that I can keep pay ahead of time? Am I wrong in assuming that getting the balance low for the approval will work? For all I know they take previous balances into consideration and this won't work. Also, this high balance is one of the reasons my credit score isn't higher so I would assume I can get a few more points with super low or zero balances. Am I wrong about all of this and only the minimum payments are used whenever calculating DTI? The minimums for all of the cards sum to $107 haha.

Will being an AU have an affect on my approval?

What are your thoughts on my eligibility in general?

Notes

This community has helped me a ton in getting my credit score up quickly and has been very helpful, so thank you!

Please make the assumption that the hard money loan to conventional refinance plan will work. I know that it appears to be a rather odd move with the high short-term interest rates but it is very useful in certain situations and I know a lot of fellow investors who have done it to great success. It just takes a lot more searching and careful consideration. Luckily I have MLS access to aid me a bit and get in on deals early.

I will be burying my head in these forums for a while trying to absorb all the info I can.

Thanks in advance for taking the time to respond. I greatly appreciate any input.

[Booner72]

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@thatdudeyoulove wrote:

Background:

I am a 23 yr. old (as of TODAY!) college student. 6 months ago I had zero credit history. Today I got my credit report for the first time (a FICO from EX) and it is a 754.

The primary reason for this is my AU status on my parents' cards that I put together last month. They are both reporting, a Chase with 10 years of perfect payment history and a $4,800 balance out of a $35,000 line currently and a Barclays with 6 years of perfect payment history and a $300 balance on a $18,300 line. Both payed in full each month.

These supplement my own first card which is a Citi Forward that I received in June with perfect payment history and a balance that is usually between $200 and $400 out of my $2,000 limit a month.

My income is $32,964.88 a year pre-tax (employed since May 2007, still part-time, hourly), with around $2,000 in supplemental income each year (about $1,500 of it 1099'ed). I have zero monthly obligations as I live with my parents ( to save money and help out with the siblings) and my insurance is paid by my parents until I graduate and get a full-time career.

I have no delinquencies, collections, public records, student loans, etc.

This property is not being purchased as a primary residence, but rather as for rental property. I will continue to live with my parents until I have enough reserves to endure renting/buying another smaller place as well as whether a few months of vacancy and unemployment should disaster strike. I am currently saving about 50% of my income.

I live in North Texas, Denton County.

I will have between $15,000 and $17,000 to spend.

The Loan

I am NOT planning on buying the home conventionally initially, but rather buying a property in need of repair with a hard money loan( short term high interest loan that will allot money for construction/repair costs etc. if the home can be bought for cheap enough due to a 70% Loan-to-(Estimated)After Repair Value). This is so if I find a property that is well under the market-value for it's features (# of bedrooms, baths, etc.) due to repair needs, motivated selling, or the like then I can capture a good amount of (unrealized until sold)equity. They generally are only cost-effective in very specific situations, although these situations are exactly what I am looking for!

I am looking for a 30 yr. conventional to re-fi into in the $40,000-75,000 range. I would like to be fairly highly leveraged as I am much more concerned with cashflowing monthly, taking advantage of low interest rates, and holding the home for 5-7 years to gain some appreciation than my total cost. Afterall, assuming I can keep it rented, the tenants are the ones footing the bill.

The Issue(s)

Because I am an authorized user on my parents' cards I am unsure what ramifications this may have on my approval. The one issue that jumps out at me is that my DTI is at 189% because my parents' expenditures report (The balances were given at the beginning of this post) and their income is much much higher than my own. It seems to me that I will have to pay the balances on the cards before they get reported OR stop using the cards (which is possible) for a month or so before and/or while I go through the approval process. Is there any way to find out which days the CC companies report balances so that I can keep pay ahead of time? Am I wrong in assuming that getting the balance low for the approval will work? For all I know they take previous balances into consideration and this won't work. Also, this high balance is one of the reasons my credit score isn't higher so I would assume I can get a few more points with super low or zero balances. Am I wrong about all of this and only the minimum payments are used whenever calculating DTI? The minimums for all of the cards sum to $107 haha.  The balance will be reported from the statement.  Find out from previous months what date the statement is cut.  Then make sure you make the payment before then - a few days.  Then when it does get "updated" that new balance is what will report.  They only used the minimum payment due to calculate my DTI when I bought my house.  Yes you should get more points - since you have two credit card accounts, and your parents' is one, make sure yours reports a zero.  FICO scores how many report a balance, each account's utilization, and total utilization.

Will being an AU have an affect on my approval?I've read that some lenders won't allow the use of AU - in fact, on the cover sheet of my credit reports from the lender it said "AU accounts?" - So this will depend on where you go for a loan.

What would your score be if you REMOVED the AU account?  If you have time, go ahead and get it off, see your score, then if you need to, put it back.  Though it's getting trickier and tricker these days to get AU accounts to report at all, and I had a helluva time (took 2 months) to get myself off my husband's lowe's account.  I had to dispute with the CRA's bc Lowe's wouldn't remove the account from the CRA's when we called and demanded they do so. 

Yep, burying your head here is a great plan. 

Also since you have such great clean credit reports, do everything in your power to NOT SCREW ANYTHING UP!  EVER!!!!!!  As you can tell from reading posts here, this is so damaging to our financial lives, self-esteem, ability to buy houses/cars, etc etc etc. 

What are your thoughts on my eligibility in general?

Notes

This community has helped me a ton in getting my credit score up quickly and has been very helpful, so thank you!

Please make the assumption that the hard money loan to conventional refinance plan will work. I know that it appears to be a rather odd move with the high short-term interest rates but it is very useful in certain situations and I know a lot of fellow investors who have done it to great success. It just takes a lot more searching and careful consideration. Luckily I have MLS access to aid me a bit and get in on deals early.

I will be burying my head in these forums for a while trying to absorb all the info I can.

Thanks in advance for taking the time to respond. I greatly appreciate any input.

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[thatdudeyoulove]

Thanks. I have only one card, the Citi Forward that is 6 months old. I am AU'ed onto my parents' Chase and Barclays cards which have nice long histories with perfect payment. I *thought* I remembered reading on here that balances sometimes reported from an arbitrary date that may or may not be your statement date which is what worried me. I would be glad to be wrong about this!

As such that will leave me with just one card that has 6 months of good history if I remove the AUs. I can only assume that this will really drop my score, especially whenever you need such a good score to get a decent non-FHA these days. Will it actually hurt me to have AU status on a couple cards or will they just throw them out? I've been Googling this but can't find a lot of clear information.

Just pulled my TU and EQ as well and they are a 768 and 754 respectively!

[Booner72]

The only time the balance SHOULD be "arbitrary" if is the account didn't "update" each month.  Lenders are able to do what is called a "rapid rescore" and you could use this if you had a situation where your balance was way off.  Otherwise, take care of it with the credit card company by paying your balance to what you want it to be in time b4 the statement cuts.  Remember, though, it could still take a couple weeks for that new balance to hit the reports.

I think, but I'm not sure, that SOME banks just ignore AU accounts.  My LO encouraged me to try and get on my dad's credit card to help my score.  So I don't think AU accounts are in the category of "dispute comments" where they HAVE to be removed.  I used Academy Mortage if I didn't tell you that already.

Yeah, you could lose some serious pointage for removing those accts so as long as they have low balances and continue to help your score I'd keep them.  Au accounts are encouraged to help the FICO as long as they have low balances, long histories (longer than any of your accounts) and no derogs.

[Walt_K]

Where did you get your EX score from?  You said it was a FICO, but the only place you can get your EX FICO is from a lender, or from a credit union in PA called PSECU.  Just want to make sure you're working with the correct score.

[thatdudeyoulove]

Walt you are correct, it seems that I mixed up EQ and EX and ordered another EQ through their website thinking it was the one that wasn't available through myFico. I had read the same thing and thought that I had found a new real FICO product from them, not realizing I was just purchasing the same credit report I already had! Ugh! Thanks for clearing that up though. There goes $20.

[frogfan12]

I would suggest waiting until you have more stable income and a longer credit history outside of being an authorized user.

[thatdudeyoulove]

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@frogfan12 wrote:

I would suggest waiting until you have more stable income and a longer credit history outside of being an authorized user.

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The issue with that is that the market is prime with deals right now. Now is the best time to buy a house in the last 20 years and the interest rates won't be here forever.