Dreaming of a Mortgage but it seems impossible!

[Anonymous]

The scoop on my credit reports include 10 medical collections, a repo from 2 years ago, and several late marks on my student loans. These negative items arose from job loss. The only positive items on my reports include my Fingehut credit account with a $500 limit, my secured Cap1 card that I just opened with a $200 limit, and a $1,000 bank loan that I was able to take out. All of these have a perfect payment history. I can't get approved for anything else at this point. I know banks won't even bat at eye towards someone with a repo on their reports. I would love to be able to purchase a home by the end of this year but I know that is just not in the books for me. ANY advice on other things I could do to get to the home ownership point eventually would be much appreciated!!!

[Anonymous]

I think I can give you some insight. Sorry in advance that I’m writing a book here!! But I want to show what I’ve learned on these forums, from my job at a financial institution, and from shopping around for homes and mortgages myself at this exact time you are.

I’m also looking for my first mortgage. I lost out of the home of my dreams because I couldn’t get pre-approval, even though I was getting my mortgage from the credit union I work at. My mortgage officer was kind enough to tell me my scores at the time, so I could compare them to the free scores I was seeing form CreditWise (Vantage 3.0 scale), Credit Sesame, and Credit Karma (guessing Vantage 3.0 and FICO 8).

Here are my comparisons from that day:

TransUnion: I saw 602, report showed 567 (FICO4)

Equifax: I saw 608, report shows 561 (FICO 5)

Experian: I saw 593, report showed 534 (FICO 2)

So when I thought I was in the clear for even a conventional mortgage, I didn’t even qualify for an FHA. I’m buying a home on my own at the age of 26. My income is enough to get me qualified for around $135,000, and I’m trying to spend less than that.

Here’s the scoop: The scores you see on the free reports are NOT what are used for mortgages. If you order your scores from MyFico, you can see the mortgage scores. TU uses FICO 4, EQ uses FICO 5, and EXP uses FICO 2. There are no mortgage lenders I know of in the U.S. who use anything other than this. So when you order your reports, make sure these are the scores you are looking at, as these are the scores your mortgage lender will be using in the decision making process.

Here’s an update on my story:

The above scores were pulled on December 30, 2016. On December 31, 2016 I made some big payments: I was at more than 80% credit utilization. I had $298.49 on my Kohl’s charge with a limit of $300, and around $375 on my Capital One with a $500 limit. That Capital One card had been “permanently restricted” for the amount of late pays I had. The nice thing about CapOne is they keep that credit line appearing open, so that helps your score. I paid down to 2% utilization, and am still waiting for it all to report the bureaus. It’s a painstaking wait.

I also paid an old chargeoff that was in collections from American Express. While Amex refuses to remove the account even though I sent them a goodwill letter, I did agree with the collections agency to “pay to delete.” So the collections account should be dropping off soon also, leaving only the Amex that will show for another 7 years. Ugh.

CapOne mailed me an offer for a new platinum card with a $500 limit, so I opened that. The inquiry showed right away, but now my credit line will be reporting higher very shortly.

Apart from this, I continue to pay my other bills on time and keep my CC utilization low. I have a hard inquiry from my landlord that will be dropping off March 1, and as of today (January 20, 2017) only my Kohl’s charge payment has been reported to the bureaus, bringing me to 43% reported CC usage. Still waiting for it to hit that 2% mark!!!

My scores as of January 20, 2017 (only 21 days after the big payments I made)

TU: 587 (+20)

EQ: 585 (+24)

EXP: 543 (+9)

Keep in mind, these new scores do NOT have my other CC payment posted yet, and I am still reporting at 43% util. I expect when it drops to 2% I should see another similar bump in each score, getting me closer and close to qualifying for a conventional mortgage! A local bank I’ve inquired with does a “rent no more” program where, with a 600+ median score I can do a conventional mortgage with 3% down and NO PMI! I feel like a turn cloak for going there instead of my CU, but hey you gotta look out for #1!

Let me take a moment to preach about credit unions for mortgages for people like us. Credit unions are much more forgiving on late pays and other “baddies”. Of course they have to draw the line somewhere, but I find that many credit unions go as low as a median or best-2-out-of-3 FICO score of 580. That’s what mine does. They will walk you through the process and get to you know and your situation personally. While many CUs do not have onsite credit counselors, they can still give you good advice on what steps you need to take to get that mortgage approved. Many major banks require a 600+ or 620+. For people in our situations, that can feel impossible. But a 580 is much easier to achieve. Your payments will be higher, but if you can afford that then it may be the way to go.

Best of luck to you!!!!

[JayTee1]

You can do it.

I am awaiting the completion of the construction of my condo, and should be closing and get the keys in April.

Four years ago, I had scores in the low 500s, and many, many negative items across all three reports.  

I won't go into every last detail of my rebuilding process, but what it boiled down to was:

1.  Painstakingly taking care of each and every negative item on my report (and I had a lot more than you do), whether that meant making payment arrangements, disputing the debt because I didn't believe it was accurate; I always tried to get whatever I could deleted in exchange for payment -- it worked a lot of the time.

2.  This may not apply to you, but it did to me.  Only buy what I decided I could afford and pay every single bill on time without exception.  I started living within my means.  Even though I too had gone through financial difficulties that were not entirely my fault, I never learned to manage my money well.  When I encountered difficulties, whether it was the economy in general or personal difficulties, I wasn't prepared financially, and I had terrible habits.

3.  Wait it out.  Some people have a few negative items, or they've just declared bankruptcy, and it seems like they're in the 700 range in no time.  This may or may not be the case for you.  It took me a year or more to get into the 600s (when I could start getting a little credit -- i.e., capital one secured/capital one QS).  It was at least another year until I started seeing a bit more of an increase and could start qualifying for prime cards.

I finally  was able to get preapproval for a mortgage last summer after finding a great USDA-qualified new construction condo in my area.  Now I'm just ensuring I have enough for closing costs and waiting for the construction to be completed.  I never, ever thought I would be in this position.

It really wasn't just the credit score alone for me ... it was the entire change in my thinking about finances.  I have about $50k in available credit across my cards now, but I don't (generally speaking) use more than I can pay off in a month or six weeks.  Not only do I have a mortgage preapproval, I have confidence I will be able to meet the mortgage committment while continuing to manage my own personal finances wisely.

I have more financial goals -- getting more money into the bank, investing more, saving more for retirement, etc., but I've come a long with in the last four years, and I've learned a lot of it here.  It also took a firm committment to disciplining myself to change my habits.  

[ls2016]

Keep hope alive!!! You can do it with hard work. Hopefully, you can connect with a lender who will tell you exactly what you need to do in regards to your credit. Some will say not to bother very old collection accounts, some will say pay them. I was told both when I purchased my home.
I'm personally feeling that home ownership is a little over rated. I feel this way because my homeowner insurance just doubled, which in turn my mortgage will increase, my home owner association fees just increased, my husband left me, and my dream home is severely under water . At this point, I'd rather rent. Lol
But any how...Try to get your scores as high as you can in hopes that your interest rate will be at the lowest point. When I purchased my home, my middle score was a 620, just barely enough to qualify. Thinking back on it now, I would have waited another year or so.
Just know that it's not impossible. You can own a home sooner than you think...You just have to commit your self to cleaning up your credit. Best wishes!

[RobertEG]

Has the net delinquency after sale of the vehicle now been paid, or does it remain unpaid?

Are the student loans federal, are they still delinquent, and have you looked into the rehab program for removal of delinquencies?

[Anonymous]

Be careful with oversimplifying this or that regarding the FREE credit scores

People have to really consider that OF COURSE the scores aren't the same...

Free scores are generally for EDUCATIONAL purposes only and they are labeled as such....

If we Americans are going to be big enough boys and girls to mortgage homes, we'd better learn to read and pay attention to detail.

*As to the OP
As mentioned, sure you can get a mortgage
More importantly the timeframe is where the issue may be at odds with your expressed DESIRE

You said by the end of THIS year, as in 10-11 months from today

There are repos, student loans medical bills etc
Even if many of these accounts are mistaken , would the OP actually be financially ready to not only obtain to service a mortgage without being in foreclosure by next year?

Sometimes IMO simply being marginally qualified winds up being a COURSE... Because
A) Too many ppl aren't ready actually pay a mortgage and all the expenses associated without a hiccup, party because they really were never great players in the 1st place

B) Because their terms SUCK it makes things tougher than they may have been, had the applicant built a slightly better credit profile, over a few more months.