Applying for a Mortgage - Any Tips

[Anonymous]

Hi,

First off, I would just like to say I love this forum. I have been reading non stop for the past few days on many of the articles and advice on this site. Thanks to everyone for all of the wonderful advice and tips.

So, my husband and I have been trying to buy a house for some time now. We thought we could only get a mobile home, then we thought we might be able to get a stick built, now we are back to settling for a mobile home.

I make great money and have a great job for about 4 years. Our issue is our credit scores. I have something around a 576 and he has a 580. This is the last time we pulled our scores about two months ago.

So on our credit reports we have one credit card together. It was at a high balance, about 91% utilization. I just lowered it to about 30%. I dumped a big chunk of money on there to lower the total utilization last month, waiting for this to show on our reports. There are two missed payments from 5 years ago due to job transition between my old job and new job and the way the pay checks came in. Never had a missed payment since then.  I also have a car loan I just got maybe 6 months ago after our old car broke down. I haven't missed a payment on that at all.

I have one old credit card from maybe 5 years ago with Capital one that was charged off (this is not on my husband's). I haven't started payments on it yet due to the prinicipal of the matter. I know it's stupid, but they lied to me. They said if I paid three ontime payments of $100, then they would reinstate the card (this was after like the first missed payment or something). So when I did the last payment of $100 and asked the rep about it she laughed at me and said it would never be reinstated. So I reversed the payment and haven't talked to them since. The balance of this is $500.

The other negative thing we have is about 1k worth of medical bills. I was wondering, should I pay all of these off? I have started paying on some of them, but I noticed they don't really change my score much. I was also thinking of either PFD on the others or paying then doing the GW letter to have them removed.

Also, I have another question, how is the debt to income ratio calculated for mortgage loans?

We are looking to get a USDA loan (since we live in a rural area) so our goal is to get at least a 640 score. Does anyone have any tips or thoughts on our situation? Thanks for all of your help and advice.

[Anonymous]

You each need to establish 2 additional revolving accounts (not shared). These can be secured cards to start out with. Get your current card down to LESS than 10%. Getting those additional accounts going will go a long way towards pulling up your scores.

Try to get the Cap One charge off settled as that is going against your UTI% as well.

You may or may not have to pay the medical collections, it just depends on the lender/broker. The one I've been working with has said not to worry about them. YMMV.

[Anonymous]

Thanks for your advice on the credit cards. I was also thinking of this. We have been getting those "pre approval" credit card letters in the mail. Some of the APRs are better than what I have right now with Wells Fargo. I have read other places that having around 2-3 cards is good for the credit score. Is this true?

[Anonymous]

Yes, three bank cards/revolving accounts is whats recommended.

[gdale6]

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@Anonymous wrote:

Yes, three bank cards/revolving accounts is whats recommended.

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+1, this is the minimum number of bankcards you want for rebuilding your credit. You would want to open your new accounts at least 6 months prior to any mortgage pull as you dont want new credit within that 6 month time frame. Welcome to My Fico

[Anonymous]

Thanks! Also, what is the difference from having a shared credit card between the two of us to each having seperate ones? I ask this because my husband is disabled and doesn't have any income. I wasn't sure if he would be able to apply for a card without me being cosigner on it.

[Anonymous]

Any time accounts are shared, or show "au" status, it muddies the water, so to speak, as that account *may* not necessarily accurately represent that persons credit behavior or history. Since income is generally not verified on CC applications, your husband can simply use your income.

[gdale6]

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@Anonymous wrote:

Thanks! Also, what is the difference from having a shared credit card between the two of us to each having seperate ones? I ask this because my husband is disabled and doesn't have any income. I wasn't sure if he would be able to apply for a card without me being cosigner on it.

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Joint accounts are accounts where 2 or more people are responsible for the debt, this is the way you would want to go. If a creditor allows HHI then he would be able to app using your income as his own.

[nativenyer]

I just got my first home loan in October and before I applied I asked the loan officer what they looked at on the credit report.  I would advise you to do the same.  

One thing I was told was that all collections need to be paid off and show a zero balance so I'm assuming that the 1K in medical bills you have have gone to c ollection.  I would pay those off and then aske them to be deleted the collection agency who more than likely will since they are medical collections and are the easiest to get deleted.  All of mine are gone and that helped me a great deal.

[newstart2010]

Yeah I can see you guys are super close, just make sure you take your time and don't rush to do something just cause you have wanted to for a while.  

If you have the money to, and its what is best, try to PFD the old accounts, and negotiate that CO to where you can get it in a more positive account status.  Get the 2 new tradelines, per eachof you, asap so that ypu have a good amount of history on them before applying for the loan.  Do 2 small limit secured cards and use them to get them reporting, then pay them off.  Get the current card down to somewhere between 2-10% utilization.  Then start saving money.  Even if you get into a zero down loan, ypu will be sitting withclosing costs to pay, so you want to get as much saved up as possible.

You do these and you will not only improve your credit quite a bit, but you will show the lender you are working at being the best you can be.  your loan officer might have some better ideas of what else todo based onyour personal profile.  Sign up for a free monitoring service like credit karma towatch what is on your report.  Not to monitor your score.  When youhave things to where you think you might be ready, then pull the 3 bureau report here to see the different scores for you both.