Thinking about trying for a mortgage, will we qualify?

[Anonymous]

Hi everyone,

I am new here. What brought me to the forums is that my wife and I are trying to fix our credit so that we can purchase a home. We are currently renting the house we want to buy and have been told by the sellers that they would like for us to buy it in the next year, or they will be putting it on the market.

To proceed with the owners, they have offered us the following deal: for each 6 months we rent the house and they keep it off the market, they would like us to deposit $2500 into an escrow account to be held as down payment (we lose it if we don’t end up buying the house), and they will take half of each month’s rent off of the purchase price of the house- so, we pay $1100, they will take $550 per month off the purchase price. The purchase price of the house is $180,000. That adds up so that at the end of the year there will be $5000 sitting in an escrow account to be used as down payment and a $6600 reduction on the purchase price bringing the purchase price to $173,400 and total loan of $168,000 after the $5000 down payment. The home recently appraised for $202,000

I am hoping for some thoughts on if we have a shot at qualifying on an FHA loan in 12 months .

Here is the info:

1. Credit.  Our credit is the worst part- My scores (all from MyFico) are 580, 609, 591. My wife’s scores are 589, 592, 587.

We had a chapter 7 bankruptcy discharged 4 years ago (will be 5 when we try to get this loan), we have a few 30 day lates on credit cards, a couple of 60 day, and 3 small collections each (each less then $100) and my wife’s student loans were 120 days at one point (due to a mix up about payment plans/deferments etc) but are now current and up to date. Our credit cards (we have 7 between us) are currently 100% utilization, but we plan to pay them all off completely in the next month or so. We have two car loans, both about 3 years old, both with perfect payment history. We also have perfect payment history on rent.

2. Income. Our combined annual income is $92,000

3. Source of income.  Our income is from run of the mill salary from our jobs working for the state government. No big drops or raises expected other than COLA in the next year.

3. Monthly debt payments. Another bad area: total debt payments right now: $1329 for the two car payments and our student loan payment (we are using Income Based Repayment on the student loans)

4. Employment (for those who are employed).  We work for the state government and get W-2. We have been with the same employer for 4 years. My wife has been in the same position for 3 years. I have moved around a lot, but always in the same organization- I will have been in my most recent position for 1 year when we apply.

5. Assets/Reserves.  About $6000 now. Could be more if needed

6. Location.  Taxes on the house are $2400 per year.- located in Colorado

7. Property.  It is a single family home with a 1/3 acre lot. It is in good shape, well cared for with a recently remodeled kitchen, recent bathrooms, new furnace, new roof, etc.

8. Value.  Purchase price $173,000. Appraised value: $202,000 (claimed by owners and third party realtor that is not connected with owners

9. Occupancy.  Primary residence.

10. Transaction Type.  Purchase of first home.

[ShanetheMortgageMan]

Debt ratio should be fine, and you should have no problem using the $5k they want you to put down to use as a down payment as long as there is something in writing confirming it is to be credited towards the down payment & you write a personal check so a copy of the cancelled check can be produced as verification it was paid to the sellers.  The reduction in the sales price is fine as well.

When did the 30, 60, 120 day late payments occur?  When were the 3 accounts sent to collections?  Paying off the credit cards should give you a nice increase in scores.

[Anonymous]

The 60 day late was about a year ago, as were all but one of the 30 day lates. The 120 day late on my wifes student loan was only 2 months ago. A couple of the collections are from a couple of years ago. One is from last year. We are hoping that with everything else looking OK (and if we get our scores up a bit more by paying off the credit cards and paying everything on time for another 6 months), that we will be ok to get an FHA loan.

Thoughts?

[ShanetheMortgageMan]

You'll probably need to wait at least 12 months from your wife's most recent 120 day late payment before you'd get approved, 120 days late is pretty serious and is magnified by a previous BK.  But that seems to allign with your timeframe on when you want to purchase by, so just make sure there aren't any more mistakes in the meantime.