more important--money in savings vs. credit score?

[valley_man0505]

I had some pretty major issues about 5 years back with some cc's that have been charged off.  Many of these debts were sold from CA to CA.  As a result, the same debt was oftentimes showing up in numerous places under numerous names on my CR.  I recently got divorced and, after the divorce, began doing some work on my credit (FYI...the issues occured BEFORE the marriage).  I ended up paying a repair company to assist me in writing the necessary CV's, GW's, etc. to get my report cleaned up.  I also did two PFD's.  Now, my scores are up, but, as a result of the divorce and all the money spent on getting my score back up, I have no money saved up.

I recently made a no money down offer on a house that was accepted, and my financing appliction will be processed soon.  What are my odds of getting approved. I am going for an FHA loan, so the credit requirements should be a little more relaxed, but I don't know how my next-to-nothing savings balance is going to affect the underwriter's decision.  Which will be more important to them:  my credit or the amount of money in my savings?  Again, the offer itself was a no-money down offer (seller pays down payment and closing costs), so I won't actually need money up front (except for some minor stuff like inspection, appraisal, etc.), but are they going to doubt my ability to pay the mortgage since my recent bank statements make it look I have been living paycheck-to-paycheck as a result of the work I have put into my score?  Also, my credit issues were for reasons outside of my control--long story, but I have a very good letter of explanation that will be included with my application.

MyFICO's:  TU 561, EQ 626, EX 606

[Anonymous]

Hi,

Well...what was told to me was that they like to see at least 3 months of reserve.  I will say its probably safe to have at least 2000.  As I have the same deal you have where the seller is paying down and closing but the bank still wanted to know what was in my savings.

Hope this helps a little bit. 

[DallasLoanGuy]

FHA doesn't have a reserves requirement.

[valley_man0505]

Even if there is no reserves requirement, isn't this still something they will look at when deciding whether or not to approve me?  I know my loan officer said that the underwriters would like to see a couple months of reserves, but I don't know how much this weighs into their decision.

[Anonymous]

I agree with the previous posters, however you might want to start building up an emergency savings fund now. When you are approved (and I pray you will be) you will be considered a homeowner which means no landlord to fix busted pipes or anything else that comes along with owning a home.

[valley_man0505]

Thanks WisingUp.  Funny you should mention the "emergency funds" topic--I just posted on the credit card forum about how long it will take my score to climb to CC approval range after the intial dip from my mortgage.  I would like to have a CC for emergencies.  Of course, having cash on hand would be a first choice for emergenies, but it never hurts to have a "just-in-case-card" on top of that.   I should be able to start building my savings pretty quick over the next few months.  Unfortunately, that would be a few months too late for the house I am currently trying to get.  Oh well, if this one doesn't work out for some reason, that will give me more time to build up my reserves before I try for the next house.

[DallasLoanGuy]

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valley_man0505 wrote:

Even if there is no reserves requirement, isn't this still something they will look at when deciding whether or not to approve me?  I know my loan officer said that the underwriters would like to see a couple months of reserves, but I don't know how much this weighs into their decision.

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exactly. reserves is one of the many things looked at.

i have seen some pretty low scores still get into a mortgage with little reserves because they bought within their means. i.e. low debt ratios <= another factor

[valley_man0505]

Dallas, my debt ratio will be 29% with the offer I made.

[Anonymous]

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@DallasLoanGuy wrote:

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@valley_man0505 wrote:

Even if there is no reserves requirement, isn't this still something they will look at when deciding whether or not to approve me? I know my loan officer said that the underwriters would like to see a couple months of reserves, but I don't know how much this weighs into their decision.

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exactly. reserves is one of the many things looked at.

i have seen some pretty low scores still get into a mortgage with little reserves because they bought within their means. i.e. low debt ratios = another factor

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So Dallas I have a question....Dh and I grossed 79,000 last year and we only have one student loan payment of $279.00 and no other payments....the house we want to buy if we could get a loan today is only $129,000 is that low enough debt ratio to help overcome low reserves? We have been paying $1,100.00 a month rent for 4 years don't know if this would help our case at all.

Message Edited by wildcat on 06-18-2008 12:47 PM

[valley_man0505]

While I am at it, I have a question about what will be considered as "reserves".

1)  I have a secured US Bank CC.  I used $1100 cash to secure in Sept. 07.  This $1100 is technically sitting in a savings account at US Bank, but it is an account I can not touch until my card gets upgraded to unsecured and they are unable to issue monthly statements per se (they can, however, give me a printout of a teller computer screenshot showing all of my accounts with them, and this shows a "Security Savings" account with a balance of $1,000.53 (includes interest) as well as my actual credit card and checking accounts.  I should get upgraded to secure in Sept. 08 and will get my money back.  How will the underwriter treat this?

2)  I have the ability to borrow up to $1050 against my 401(k).  Since it is my own money that I would be borrowing, would they consider this as reserves?