topic Re: Help with plan to boost credit score in Mortgage Loans

Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 15:41:31 GMT

Hi there. I've been lurking the forum for a few days now and would like some input on a strategy to boost my credit score for an upcoming home purchase. My mortage banker came back with a middle score of 675 for me. He told me I needed to get that a little higher (not quite sure how much higher) to qualify for a conventional mortgage with 5% down and not pay too much for it. The main factors listed as hurting my score were "balances too high" and "too many accounts with balances".

The good news is that we are already under contract to sell our current home and will net about $6000. My mother has gifted us $20,000 that I will have in my account in the next couple of days. In addition I have a tax return coming worth $3000. So total I have about $29,000 to work with to pay down / pay off some cards and provide a down payment. Monthly gross income is $8000. I have $45,000 in a 401K.

My spouse is not working, but came in with a middle score of 725 so I assume we are fine there.

Here is my current debt not including the current mortgage that will be paid off at closing on the current home (BAL / Limit / Util %).

Bank Credit Line : 950 / 1000 / 95%

CC1: 540 / 1800 / 30%

CC2: 470 / 800 / 59%

CC3: 8525 / 9300 / 92%

CC4: 2995 / 3550 / 84%

CC5: 2053 / 3800 / 54%

CC6: 3155 / 4000 / 79%

CC7: 1950 / ???? / ????

CC7 is an AMEX gold card. $1950 is the amount I have in the "pay over time" portion. Not sure how to calculate UTIL on that or if it's even calculated. It shows a high balance on all three reports as 2478. So maybe 79%? Anybody know on this one?

The only other negative I have is a 30 day late on my mortgage from December 2008. For some reason though on the report it says time since last negative is 3.2 years??

I'm assuming a purchase price of $270,000 so would need to keep $13,500 for a 5% down payment. That leaves me with $14,500 to work with to improve my score.

One strategy I thought of was to pay every account down to a 30% UTIL and that would leave me enough to then pay off the bank credit line, CC1, CC2, CC5, and CC6 to zero.

I'd appreciate any advice. Where am I going to get the biggest bang for my buck? Any other comments? potential to increase score? How much do I need to increase it? I've just about analyzed this to death in Excel.

Thanks!

Re: Help with plan to boost credit score

edcampbell613 — Thu, 30 Jan 2014 15:44:32 GMT

.

<quote> One strategy I thought of was to pay every account down to a 35% ITIL and that would leave me enough to then pay off the bank credit line, ICC, ICC, ICC, and ICC to zero. >>> You are right on target with that! Get it to that Shish amount and your credit should pick up. Also remember that there are other banks out there that can go lower and still get you a good rate. Do your shopping.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 15:55:48 GMT

Thanks, I guess my other strategy would be to not pay down the AMEX at all (if it's not hurting me UTIL wise) which would leave me room to bring one more account very close to zero. Or I could simply bring down as many as possible to zero and leave the other UTILs as is.

As for score, I'm obviously going to have to pay PMI as well, and getting over 700 or even better 720 brings the mothly payment for that down pretty sharply as well.

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 16:23:27 GMT

Your loan officer can run a "What if?" simulator through his credit vendor (the company used to check your credit) to see what the potential impact of paying down/off certain credit cards would be as well. I've found the results to be pretty accurate.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 16:37:03 GMT

@ShanetheMortgageMan wrote:
Your loan officer can run a "What if?" simulator through his credit vendor (the company used to check your credit) to see what the potential impact of paying down/off certain credit cards would be as well. I've found the results to be pretty accurate.

That sounds like a good idea. I plan to meet with him next week to go over this senario.

Another question for you. I mistyped my income above, so ignore that.

I have a salary that pays $6000 per month. I also receive $1000 per month from my mother each month. It's money that she receives as part of a death benefit pension from my father who passed away 9 years ago and she just turns around and writes me a personal check for it. She doesn't need it and considers it part of my inheritence. I've gotten that check from her every month for at least the past 9 years without fail, so I consider it part of my income and I figure it into our household budget each month. Am I going to be able to use that as income on my loan application? If so, what kind of documentation do you think I would need? Canceled checks from her bank?

Whether or not it counts will obviously affect my DTI ratio. ($6000 vs $7000 per month in income) After paydown on my cards, we will have about a $550 per month total debt payment not including any mortgage payment. How high of a mortgage payment do you think we would qualify for?

Re: Help with plan to boost credit score

edcampbell613 — Thu, 30 Jan 2014 16:42:21 GMT

No, they wont use checks in her name even if she has been giving it to you for a long time.

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 16:49:48 GMT

@Anonymous wrote:

Would depend on what your other monthly debt payments (credit cards, student loans, personal loans, car loans, etc.) would be at the time you have your credit checked.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 16:53:10 GMT

@edcampbell613 wrote:
No, they wont use checks in her name even if she has been giving it to you for a long time.

I guess what I meant to say is that I can produce canceled checks from her to me for the past 9 years and I can document where she sources the funds if necessary. It seems like that should count for something? But I guess if it doesn't count then it doesn't count. I still have it to spend. Anyone dealt with something similiar?

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 16:57:31 GMT

@ShanetheMortgageMan wrote:
@Anonymous wrote:
Whether or not it counts will obviously affect my DTI ratio. ($6000 vs $7000 per month in income) After paydown on my cards, we will have about a $550 per month total debt payment not including any mortgage payment. How high of a mortgage payment do you think we would qualify for?

Would depend on what your other monthly debt payments (credit cards, student loans, personal loans, car loans, etc.) would be at the time you have your credit checked.

$550 would be the total of all other debt payments. My wife has a student loan for $227 per month and the new payments on the other credit cards including hers would be about $320. We have no car loans or anything else.

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 16:57:02 GMT

@Anonymous wrote:
@edcampbell613 wrote:
No, they wont use checks in her name even if she has been giving it to you for a long time.
I guess what I meant to say is that I can produce canceled checks from her to me for the past 9 years and I can document where she sources the funds if necessary. It seems like that should count for something? But I guess if it doesn't count then it doesn't count. I still have it to spend. Anyone dealt with something similiar?

To use the income the death benefit beneficiary would need to be you, not your mom. Now if your dad had a will that states you'd get paid $1k/mo as part of your inheritance from him, you got paid directly from your father's estate, and you had claimed the income on your tax return in the past, then it would have a good chance of working.

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 17:01:15 GMT

@Anonymous wrote:
@ShanetheMortgageMan wrote:
@Anonymous wrote:
Whether or not it counts will obviously affect my DTI ratio. ($6000 vs $7000 per month in income) After paydown on my cards, we will have about a $550 per month total debt payment not including any mortgage payment. How high of a mortgage payment do you think we would qualify for?

Would depend on what your other monthly debt payments (credit cards, student loans, personal loans, car loans, etc.) would be at the time you have your credit checked.
$550 would be the total of all other debt payments. My wife has a student loan for $227 per month and the new payments on the other credit cards including hers would be about $310. We have no car loans or anything else.

Not sure exactly where you are buying, but with $75/mo for homeowners insurance, $4,065/year in property taxes, and a .89% per year in PMI your max sales price would be about $305k with a monthly payment of around $2,100/mo.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 17:02:03 GMT

OK, I can see the point from a lenders perspective. I suppose I would need to explain the $1000 deposits in my checking account every month anyway though right?

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 17:05:25 GMT

@Anonymous wrote:
OK, I can see the point from a lenders perspective. I suppose I would need to explain the $1000 deposits in my checking account every month anyway though right?

Yup, definitely. Just provide copies of the checks for whatever deposits are on the bank statements you supply + a LOE on it.

Re: Help with plan to boost credit score

edcampbell613 — Thu, 30 Jan 2014 17:09:17 GMT

Based on your income the 1,000.00 is less than 50% of your income, only if you had real large deposits. Then a source of deposit would be required. Now the bank might "back out" the 1,000 for your deposit, to fight that you can get a gift letter from your mother and use it as "gift funds". Welcome to the age of "prove it"

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 17:12:22 GMT

@ShanetheMortgageMan wrote:
@Anonymous wrote:
@ShanetheMortgageMan wrote:
@Anonymous wrote:
Whether or not it counts will obviously affect my DTI ratio. ($6000 vs $7000 per month in income) After paydown on my cards, we will have about a $550 per month total debt payment not including any mortgage payment. How high of a mortgage payment do you think we would qualify for?

Would depend on what your other monthly debt payments (credit cards, student loans, personal loans, car loans, etc.) would be at the time you have your credit checked.
$550 would be the total of all other debt payments. My wife has a student loan for $227 per month and the new payments on the other credit cards including hers would be about $310. We have no car loans or anything else.
Not sure exactly where you are buying, but with $75/mo for homeowners insurance, $4,065/year in property taxes, and a .89% per year in PMI your max sales price would be about $305k with a monthly payment of around $2,100/mo.

We would be buying in Union County, NC. The combined city / county tax rate there is .8528 per $100. I assume that is with the $6000 / month? What front and back ends are you using?

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 17:14:59 GMT

Yup, with $6k/mo of income. 45/45% is what I am using.

Re: Help with plan to boost credit score

edcampbell613 — Thu, 30 Jan 2014 17:26:00 GMT

NIce, I am in Cabarrus County.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 18:01:39 GMT

@ShanetheMortgageMan wrote:
Yup, with $6k/mo of income. 45/45% is what I am using.

I'm surprised it can go that high. Not that we would want to. We are trying to get into the 270,000 range. I keep reading that front end ratios on a conventional are in the 30's.

Re: Help with plan to boost credit score

Anonymous — Thu, 30 Jan 2014 18:04:58 GMT

@edcampbell613 wrote:
NIce, I am in Cabarrus County.

Hi neighbor! We are currently in Mecklenburg but are wanting to escape the higher taxes and the school system is better in some areas as well. Property taxes would be about 55% of what we pay now.

Re: Help with plan to boost credit score

ShanetheMortgageMan — Thu, 30 Jan 2014 18:36:59 GMT

@Anonymous wrote:
@ShanetheMortgageMan wrote:
Yup, with $6k/mo of income. 45/45% is what I am using.
I'm surprised it can go that high. Not that we would want to. We are trying to get into the 270,000 range. I keep reading that front end ratios on a conventional are in the 30's.

Manual underwriting is 31/43%, which is what everyone safely references since debt ratios at that level are perfectly acceptable, however very few banks will manually underwrite a conventional loan as it's difficult to do, and so with automated underwriting approvals the max ratios are 44.99/49.99%... although above a 45% back-end ratio is difficult to get approved (need to be extremely well qualified).