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MommyBirdB
Posts: 1
Registered: ‎01-21-2011
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USDA Loan....Bad Credit

We are really eager to apply for a USDA section 502 Direct Housing Loan. If we are turned down by this, I feel we have no other options! Let me explain.. My husband has Terrible credit, thanks to his youth (late teens-early 20's)..boys will be boys. He is just shy of 30 now, so I am hoping most of his credit past is far enough In the past to not be a problem. Doubtful. I do worry about his bad credit score being a problem however. (His score is mid to high 500's right now. Not 100% sure of the exact number at the moment) Not good. Unfortunately, I have not yet built up a credit history at all, so I'm not much help to the situation. We have an 8 month old son and REALLY need a space of our own. A home that we can comfortably raise our family in and even expand in over the next few years. Tired of the "renting an apartment" NIGHTMARE!! His bad credit history is mostly due to late payments (no more than a few days late at a time) and hospital debt. Thankfully, no federal debt whatsoever. Not that it's any better though I suppose. Due to his credit score, we are unable to get a loan through a bank in the traditional way.

Is there any point in applying?

Or should we just conclude that this is something we will not be approved for?

*sigh* If only we were married Then! haha. Thank you very much for your time in replying to this and your patience in putting up with my rambling! :smileyhappy:

Valued Contributor
IOBA
Posts: 2,667
Registered: ‎08-13-2009
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Re: USDA Loan....Bad Credit

From a different perspective....

 

If this was me, I would work on finding out what is on both credit reports.    Work to clean up the report while staying current on bills.   At this point, don't focus so much on the FICO score - work to build clean credit and expand your credit file.

 

There's lots of advice and shared experiences on the board.

 

* get a free copy of your credit reports

* make sure the information is accurate

* delete/correct incorrect information

* pay bad debt off

* stay current on bills

* start building a relationship with a bank &/or credit union

* save money for your "own" space  

 

It may take you 6 months or two years to be in a good space to buy a house.   Make it your goal, and incorporate it into everything you do.

 

For example, we want to move in a few years (now would be great, but refuse to go into debt for it!), so we downsized considerably.   When we want to go out to eat, we stop and think about it.   Our food budget is roughly $100 a week.   That's not a lot, but it's what we can do for what right now.   So we ask ourselves, do we have the cash in the food savings account to pay cash for dinner?   If yes, then the next question is will be we need the cash to pay for anything in the next week?   If the answer is no, then we ask if we could pay it on another bill?    Basically, if the money is really and truly extra, we ask ourselves if we want to put it i towards moving goal.   

 

Lol - MOST of the time, it goes into a bill, which is down the path to our goal - a house!   Ten bucks here, 50 cents there add up.   We just paid off a bill 18 months EARLY by doing that --- every spare penny, including those found on the ground were put on the bill.   Yes, I have the guts to walk into my bank and make a 17 cent payment on a cc, as well as a $2.34 payment.   Or do it online.

 

Set your goal (your own space) and figure out the path to get there!

 

Good luck!!!

 

ps - about 6-12 months before applying for a mortgage, do NOT apply for any credit or run your available credit up!

 

 

 

 

Valued Contributor
mauve
Posts: 2,487
Registered: ‎02-18-2010
0

Re: USDA Loan....Bad Credit

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

 

First, I'd go to optoutprescreen.com and opt out.  That will take you off the radar to some degree.  Then I'd contact my local USDA office and ask them what their credit requirements are.  Then I'd go to annualcreditreport.com and pull both of your reports from all three bureaus and look at them.  Make sure you print them out or, better, save a printable copy in pdf form for reference later.  If you want to / need to boost your scores, the Rebuilding Your Credit forum is very helpful.  DO NOT purchase any scores unless you know they're FICO scores unless you want to drive yourself insane (or realize that they're not related).  Lenders will be looking at your FICO scores, and non-FICO scores aren't calculated the same way.  There are factors that will boost your FICO that will lower your non-FICO scores, and vice versa.  If you decide you want to purchase scores here, you can search for and find discount codes (the one I usually use is 25%). 


Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
Previous High Score: EQ 700 TU04 712 EX 726
Current Score: EQ 740 TU(Discover) 750 EX(AMEX) 747
Goal Score: 740+ all around


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Valued Contributor
mauve
Posts: 2,487
Registered: ‎02-18-2010
0

Re: USDA Loan....Bad Credit

 


IOBA wrote:

From a different perspective....

 

If this was me, I would work on finding out what is on both credit reports.    Work to clean up the report while staying current on bills.   At this point, don't focus so much on the FICO score - work to build clean credit and expand your credit file.

 

There's lots of advice and shared experiences on the board.

 

* get a free copy of your credit reports

* make sure the information is accurate

* delete/correct incorrect information

* pay bad debt off

* stay current on bills

* start building a relationship with a bank &/or credit union

* save money for your "own" space  

 

It may take you 6 months or two years to be in a good space to buy a house.   Make it your goal, and incorporate it into everything you do.

 

For example, we want to move in a few years (now would be great, but refuse to go into debt for it!), so we downsized considerably.   When we want to go out to eat, we stop and think about it.   Our food budget is roughly $100 a week.   That's not a lot, but it's what we can do for what right now.   So we ask ourselves, do we have the cash in the food savings account to pay cash for dinner?   If yes, then the next question is will be we need the cash to pay for anything in the next week?   If the answer is no, then we ask if we could pay it on another bill?    Basically, if the money is really and truly extra, we ask ourselves if we want to put it i towards moving goal.   

 

Lol - MOST of the time, it goes into a bill, which is down the path to our goal - a house!   Ten bucks here, 50 cents there add up.   We just paid off a bill 18 months EARLY by doing that --- every spare penny, including those found on the ground were put on the bill.   Yes, I have the guts to walk into my bank and make a 17 cent payment on a cc, as well as a $2.34 payment.   Or do it online.

 

Set your goal (your own space) and figure out the path to get there!

 

Good luck!!!

 

ps - about 6-12 months before applying for a mortgage, do NOT apply for any credit or run your available credit up!

 

 

 

 


I have to respectfully disagree with the "don't apply for any credit for 6-12 months prior" - if OP is buying in that time frame and needs a score boost and has no revolving credit, OP will probably *need* to open 1-3 revolving accounts to accomplish this.  That being said, in most cases I agree with this statement.  

 


Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
Previous High Score: EQ 700 TU04 712 EX 726
Current Score: EQ 740 TU(Discover) 750 EX(AMEX) 747
Goal Score: 740+ all around


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Valued Contributor
IOBA
Posts: 2,667
Registered: ‎08-13-2009
0

Re: USDA Loan....Bad Credit

There are both pros and cons to this advice - learn them and make an informed decision.  :smileyhappy:


"I have to respectfully disagree with the "don't apply for any credit for 6-12 months prior" - if OP is buying in that time frame and needs a score boost and has no revolving credit, OP will probably *need* to open 1-3 revolving accounts to accomplish this.  That being said, in most cases I agree with this statement."



Both pieces of advice are good.  Applying for new credit 6-12 months prior to applying for a mortgage could lower your FICO score.    Part of qualifying for most mortgages is a good FICO score.

 

Again, learn more, make an informed decision.  We have lots of great advice, knowledge, and experiences to share.   But when it comes right down to it, it's your decision, your journey, and even the best of us can't say 100% for sure what will happen in YOUR situation.  :smileyhappy:

 


Valued Member
angeldaria
Posts: 39
Registered: ‎09-09-2010
0

Re: USDA Loan....Bad Credit

 

 

Both IOBA and mauve have given you great advice. You want to find out  what both you and DH's FICO scores are as a starting point and then  review your credit reports with a fine fine tooth comb for accuracy. It may take 6 to 12 months(or longer)  to get scores that will qualify you for a mortgage. Patience,education, and persistence is key to success.  The forums here are really an invaluable source of information.

 

  As far as USDA direct loan goes the minumum credit score in most states I believe is a 640 mid credit score. They consider that to be of good credit.  I would contact your local USDA office for verification. In addition, have the UDSA send you information concerning policies and procedures that apply in the state that you live. In the state where I live you can go through a prequalification process. They pull your credit for free to see if you would qualify for the Direct Loan.  They also look at your income. If you prequalify then you go through the formal application process(which there is a fee to formally apply). If you don't preqaualify they tell you what you need to fix/do to qualify in the future. Other things to consider before buying a home is saving up 4 to 6 months worth of housing payments and an emergency house fund for things like repairs and other out of pocket expenses that unexpectedly come up.  Savings, even if you don't have to put a downpayment on your future home, is just as important as learning to responsibly handle your credit. IMO without both you're setting yourself up for failure. Well, I hope that was a good starting point for you....and good luck on your road to homeownership.


Starting Score: TU 617 EQ 625
Current Score: TU 722(11/30/11) EQ 687 (11/21/11) EX 703 (lender pull, 11/19/11)
Goal Score: TU 700 EQ 700


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Valued Contributor
mauve
Posts: 2,487
Registered: ‎02-18-2010
0

Re: USDA Loan....Bad Credit

Having been through a homebuyer program (not USDA), I can tell you that reading the Rebuilding forum *can* be much more help than talking to the credit counselors.  I was advised to simply pay off any collections - they weren't familiar with things like PFD.  It's true that I needed to have no outstanding money owed for their programs, but using their criteria in combination with the knowledge that I had other options for more favorable reporting was good.


Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
Previous High Score: EQ 700 TU04 712 EX 726
Current Score: EQ 740 TU(Discover) 750 EX(AMEX) 747
Goal Score: 740+ all around


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Senior Contributor
mickie08
Posts: 3,299
Registered: ‎04-22-2008
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Re: USDA Loan....Bad Credit

One option to look into, and it is a long and somewhat arduous process, is NACA.  Youshould be able to do a search.  Actual credit score is not as important with them and the costs/fees are great.  What they do is they send you through a whole series of workshops to figure out your situation, get any debt under control, and put you on a path to buy.  This will include saving money for maintenance and projected mortgage payments.  When you get to the point they think you are ready, thye give you a loan that has a great fixed rate (often times about 1% lower then the going rates out there). 

 

As far as the debate about opening or not opening credit, Mauve has it a bit wrong.  They do want to see 3 open tradelines, but they have to show a full year of history.  So NO, it does not do anything but hurt to open credit in the 10-12 months prior to getting a loan.  Those credit lines need to be established for a year for them to be counted in good standing.  Also, if you rush out and open 3 new credit cards right before applying for a loan, the UW may want to wait until they season and show history just to make sure you are not going to run them up.  Espically if DTI is high and there are low reserves.

 

As already stated, you need to find your scores (from this site, or a lender) and work to having a mid score in the 600's before you even talk to any lenders.  To be safe, you really need to shoot for a 660 score.  This is because lenders are generally doing a second credit pull before close and the intitial credit pull may drop your score by the time you close.  SO if you have a 640 (generally the minimum with some exceptions) and the initial inquiry drops it down to 630 when it hits, it could cost you the loan and possibly your earnest money.

Valued Contributor
mauve
Posts: 2,487
Registered: ‎02-18-2010
0

Re: USDA Loan....Bad Credit

I was pointing out that if they don't have any revolving credit, they may need to do so for score purposes.  It's possible they can't achieve those scores without one, dependent on their existing credit history.


Starting Score: EQ 583 TU04 619 EX 592 (lender pull) 2010
Previous High Score: EQ 700 TU04 712 EX 726
Current Score: EQ 740 TU(Discover) 750 EX(AMEX) 747
Goal Score: 740+ all around


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Senior Contributor
mickie08
Posts: 3,299
Registered: ‎04-22-2008
0

Re: USDA Loan....Bad Credit

True, but those accounts will need to be open for more 12 months to count as tradelines, and will most likely need to be open 12 months to recover from any initial point loss from the inquiry and new account.  Typically, it takes about 6 months to recover from the initial sting of the card point wise (inquiry, new account, average age of account) and another 6 months of usage to see any reall point growth.  Again, it can vary a bit based on the credit file and usage.  The OP should definitely get some credit opened up if they have none, but they should have realistic expectations that from that point on they should expect to need a year to see the full benefits from that and be ready to buy.  Being realistic, if the OP has no credit at this time, has a bunch of credit issues that need to be dealt with, and has roughly about 100 FICO points they need to gain, then 12-18 months is a honest timeframe anyways.  So they should open a secured card or two.  If they each opened 2 secured cards and kept them paid off while using them sparingly over the next year while dealing with the credit issues, by the end of this year they would probably be getting into the ballpark  for approval.  Again, without knowing alot more, it is hard to say more than that.  Unless the baddies all magically disappear, it is going to take awhile to get the score up. 


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