Well...how do we look?

[Anonymous]

The wife and I are looking at applying for a mortgage within a few months.  We hope to be preapproved by May.  Just wondering how we look from some of the knowledgeable people here on the boards.  (Love these forums BTW...I've learned so much and my score has jumped at least 40 pts since November.)

My wife's credit should be no problem.  She has a good thick file, lots of different account types, the mortgage we currently have is under her name and she's never missed a payment in 9 years (we've only been together 4 years).  She has over 20k in credit with about 32% utilization.  She's not enrolled in any credit score monitoring, but her Discover account shows her FICO at 756 as of last month.

My credit will be the issue, I believe.  Here is a breakdown:

*8 yr old ch7 bankruptcy

*tax lien on TU report;  this was filed in error and I've gotten it removed from EQ and EX;  I'm disputing TU for the third time right now

*4 collections totaling around $1800 all filed in 2011 (these will be paid before we actually apply)

*listed as AU on wife's Discover; 18 mos old, $8400 CL at 39% utilization

*listed as AU on wife's Zales retail card; 6 mos old, $3500 CL at 14% utilization (will be 0 balance by mid-Feb)

*Fingerhut acct opened 11/15; $80 balance

*Capital One Secured Card opened 11/15; charged $70 and then PIF yesterday

*Wards Retail acct; opened 12/15, $80 balance

*Auto loan paid off/closed last year

*DSRM credit account opened 3/2000; open and no missed payments

As you can see, I have a few baddies, but they will be knocked out before we apply.  Our credit utilization is pretty decent although we are continuing to pay it down, usually paying $200-300 on each of her cards every month.  The past 3 years we have grossed around $100k together.  A quick addition of all our credit card/loan minimum payments, and also my $600 a month child support payment comes up to around $1400 monthly.  Together we have over 40k in our 401k accounts, and plan on taking out 10k each for a down payment of 20k.

Credit Check Total is currently putting my EX Fico 8 at 644, but the CC balances haven't been updated to show the smaller balances (about $1800 less).  Equifax is showing nearly the same score with outdated balances also, but TU is the one giving me trouble, showing right at 600 due to the tax lien I believe.  I realize I have a new/thin credit file.  What kind of shape do you guys think we're in?

[Anonymous]

Firstly, I'm no expert, and am using my experiences, plus what I've learned here on the forums. YMMV.

1. The 32% UTI is going to hurt you, I would recommend paying that down as most lenders like to see around 15% UTI. Especially the 39% Discover.

2. Your tax lien will more than likely need to be removed, paid, etc. If it's on one report, your lender will use it.

3. Pay all of your collection accounts and make sure to receive PIF letters.

4. Pay all of your other small balances down to $0 before applying.

5. Your income, DTI, and Down payment put you in the $250k - $300k budget. Depending on loan type.

6. Some loans do not allow 401k accounts to be used for down-payments. YMMV here.

Just my opinion, I would loan against your 401k, not withdrawal from it. Your tax advantages of your 401(k) will most likely be lost if you pull the money out early, and ripping out that $20k now, may leave your 401k in much worse shape than what you may realize. Just my $.02. Another option is just go for the FHA that requires 3.5% down.

Best of luck!

[Anonymous]

Thanks for the input! Yes, we were actually planning to pull a loan from the 401k. The way it's set up, we couldn't actually withdraw from it unless we no longer were employed by our employer. The 250-300k range is nice to hear, although we are looking to stay in the 180-220k range for more disposable income. I didn't know that some loans don't allow for a 401k down payment. Ours has an option to draw a loan specifically for home buying that is able to be used even if you've already got a personal loan out on the plan.

[Anonymous]

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@Anonymous wrote:
Thanks for the input! Yes, we were actually planning to pull a loan from the 401k. The way it's set up, we couldn't actually withdraw from it unless we no longer were employed by our employer. The 250-300k range is nice to hear, although we are looking to stay in the 180-220k range for more disposable income. I didn't know that some loans don't allow for a 401k down payment. Ours has an option to draw a loan specifically for home buying that is able to be used even if you've already got a personal loan out on the plan.

I did the same thing with the amounts. I was approved for $315k, purchasing for $198k. I've only heard that some lenders/loans do not like to see 401k used as downpayments. Again, YMMV and I'm no expert on that topic, I've just extensively researched mortgages as much as I can over the past 6 months.

I think you'll be good to go when the time comes, just keep up the good work!

[Anonymous]

Using the 401k loan option is fine. Thats what we did and it worked out great. Just make sure you dont wait to long to pull it out as it can take some time to get approved and in your account.

[Anonymous]

Awesome.  I've kinda become obsessed with credit the past few months when I never really thought much about it before.  Now I'm perusing these forums all the time and nitpicking my credit reports lol

[Anonymous]

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@Anonymous wrote:

Awesome.  I've kinda become obsessed with credit the past few months when I never really thought much about it before.  Now I'm perusing these forums all the time and nitpicking my credit reports lol

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Same for me. I think it's the mortgage that is doing it for me. I'm in the garden until at least 5/1. Hoping for 700's by that time.

Again, good luck with everything!