topic Re: 9 month plan or rent? in Mortgage Loans

9 month plan or rent?

brownee — Fri, 25 Jul 2008 14:59:17 GMT

Hi everyone! I am new here and have a question. My husband and I want to buy our first house next year..May, to be exact. Right now our scores are in the 500's (530's, 560's). We have 2 cars that will be paid off by March, and some bad, old, charged off or in collection debt on our reports that we are going to pay off by the end of the year (about $2000 worth). I have student loans from the early to mid 90's that are in default, but I am in a 9 month program (ending in February) to get them out of default and into a *good* status again. After the cars are paid off and the *bad debt* is gone, we won't have any monthly bills except for things like insurance and student loans. Right now, we live with my mom so we have nothing in our names as far as utilities, etc. My question is this...do you think we'll be able to get a mortgage next spring/ summer? Will our scores go up enough and will we look good enough to banks for them to give us a loan? My husband is a vet, so we'd go for a VA loan-but are their credit requirements higher than other types of loans?? If you do not think we would qualify, do you think it would be a good idea for us to rent for one year..build up that sort of non-traditional credit (utilities, rent, etc) and then try again? Is that kind of thing even reported to credit bureaus? I'm sorry for the long question! Thanks!!!

Re: 9 month plan or rent?

ShanetheMortgageMan — Fri, 25 Jul 2008 16:26:30 GMT

brownee wrote:
Hi everyone! I am new here and have a question. My husband and I want to buy our first house next year..May, to be exact. Right now our scores are in the 500's (530's, 560's). We have 2 cars that will be paid off by March, and some bad, old, charged off or in collection debt on our reports that we are going to pay off by the end of the year (about $2000 worth). If this old debt that is charged off & in collections, paying it could actually update the date of last activity to make it appear it was recent... a human being underwriter could determine that they are old, but the FICO scoring system and automated underwriting system used by the lenders will factor it in as something recent. It's recommend that if you do pay it, do a pay for delete where you pay it in trade for them removing it from your credit report.

I have student loans from the early to mid 90's that are in default, but I am in a 9 month program (ending in February) to get them out of default and into a *good* status again. After the cars are paid off and the *bad debt* is gone, we won't have any monthly bills except for things like insurance and student loans. Right now, we live with my mom so we have nothing in our names as far as utilities, etc. My question is this...do you think we'll be able to get a mortgage next spring/ summer? Credit is just one part of the equation when qualifying for a mortgage.. however if you have 12 months of clean credit by the time you buy then that'll improve your chances tremendously with VA or FHA financing.

Will our scores go up enough and will we look good enough to banks for them to give us a loan? That is the $64,000 question... if you stick to your plan and make sure you have active credit that is reporting on time payments I think you should be able to get scores around 600 or better in the next 10 months.

My husband is a vet, so we'd go for a VA loan-but are their credit requirements higher than other types of loans?? VA guidelines are very similar to FHA guidelines, a little more strict, but not nearly as tough to qualify for as a conventional mortgage.

If you do not think we would qualify, do you think it would be a good idea for us to rent for one year..build up that sort of non-traditional credit (utilities, rent, etc) and then try again? Is that kind of thing even reported to credit bureaus? I'm sorry for the long question! Thanks!!! Don't be sorry, and it's not even a long question, don't even sweat it. Do you have much established credit other than the car loans & student loans? If not, I'd look into getting a couple credit cards that would help boost your reporting credit history. Non-traditional credit is only needed if you have insufficient traditonal credit, and since you are looking to buy next year you should have enough time to establish sufficient traditional credit. If you can stomach living at home or on the base still, do it, and save up the money that you would've otherwise paid on rent.

Re: 9 month plan or rent?

DallasLoanGuy — Fri, 25 Jul 2008 16:40:23 GMT

What Shane said: !!

Re: 9 month plan or rent?

brownee — Fri, 25 Jul 2008 17:46:24 GMT

Thank you so much, Shane! Ok, so I just got a BofA secured Visa card a couple of weeks ago. Does that qualify as *traditional credit*? Are you saying that we should both try and get some *real* credit cards in the next fe weeks, charge on them, pay them on time..and that will help our score as well? That Visa is the only thing, other than the student loans, that I have currently going on as far as things being reported. Oh wait..our cars! They'll be paid off soon, but they're still reporting. Once they're paid off, will that increase our score?

Re: 9 month plan or rent?

ShanetheMortgageMan — Fri, 25 Jul 2008 18:08:13 GMT

Yup, the secured Visa card from BofA counts as traditional credit as long as it reports to your credit reports. Perhaps they offer a secured MasterCard too (I'm not a BofA member so I'm not sure). You probably want to pose that question on the general credit section as I don't want to give you incorrect advice on the best way to increase your scores... but I think if you have at least 2 credit card accounts, along with your student loan installment loans, and your car loans you are paying off, that should be enough trade lines. I do recommend that you use the credit cards, leave a small balance at the end of the month, and then do that over and over each month, in order to maximize your scores with those credit cards though.

Re: 9 month plan or rent?

brownee — Fri, 25 Jul 2008 18:12:18 GMT

Cool Beans! Thank you!!

Re: 9 month plan or rent?

ShanetheMortgageMan — Fri, 25 Jul 2008 18:14:40 GMT

Welcome!

Re: 9 month plan or rent?

Anonymous — Fri, 25 Jul 2008 22:33:52 GMT

Just one correction/clarification to Shane's advice. You don't necessarily have to leave a revolving balance on the credit card.

Financially, it makes the most sense to pay your balance in full each month before the due date (called PIF for pay in full on these forums). If you do that, most credit cards will not charge you *any* interest, whereas if you pay any amount less than full statement balance (anything between the "minimum payment due" and the full statement balance), the credit card company will likely charge you interest on *every* purchase (i.e. you lose your no-interest float / grace period).

What you want to do (for best FICO score) is make sure that the credit cards show up on your credit report with some balance that's between 1% and 9% of your credit limit. This is what the FICO scoring models call "responsible use of credit". Also, you only want to do this on 1 "revolving" (credit card) account. You want all other credit cards to report a zero balance on your credit report.

All of my credit cards, for example, report the statement balance on the credit report, so I can still PIF each month and have the usage/activity show on my credit report. If your credit card(s) report the way mine do, and you can afford to, what you want to do is sign up for on-line management of your credit card and make sure you pay on-line before the statement "closing date" so that the "statement balance" (the value reported to the credit bureaus) is that number between 1% and 9% of your credit limit, and then when you get the statement, pay the statement balance in full. That means you actually make 2 payments each month on each card, if you need to charge up more than 9% of the limit.

Practical example:
You statement "closing" date is August 20th (the 20th of the month each month), your credit limit is $1000, and your current on-line balance is $300. On August 15th or so (or early enough that an on-line payment will post *before* the Aug 20th closing date), you go on-line and pay $210-$290 so that your "statement balance" will be $10-90 when your statement closes. Then, when you get the statement, pay the full balance shown on the statement, which will be $10-90 plus whatever purchases have managed to "sneak in" and post between when you made the on-line payment and your statment closing (if you've made purchases that haven't posted, you may want to pay down closer to the $10 balance amount rather than the $90 balance amount). The other alternative is to never spend more than $10-90 each month on your card - then you'll only have to pay the statement balance in full with you receive it and not worry about doing the "pre-payment".

Hope that's not too complicated!

Re: 9 month plan or rent?

ShanetheMortgageMan — Sat, 26 Jul 2008 01:31:10 GMT

Thanks for correcting me, that is great advice I'll use in the future for clients and my own self.

Re: 9 month plan or rent?

brownee — Sat, 26 Jul 2008 13:42:28 GMT

Ok, that DOES make sense Bob. I need to make sure that sometime before the statement dat that I pay down as much as I can on this card. I can do that!

I feel bad because we applied for a mortgage last week through Chase. We're not ready to move now, but the builder has units ready in March and they had all sorts of incentives if you bought before July 31. We decided it was worth a shot and they came back with a no. We kinda thought they would, but it still stings. We're supposed to meet with them on Monday to go over our reports and they're going to work on a gameplan to get our scores up in the next 6-9 months..is that normal behavior by a lender? I don't want to get sucked into anything crazy by letting them help us.

Message Edited by brownee on 07-26-2008 06:42 AM

Re: 9 month plan or rent?

ShanetheMortgageMan — Sun, 27 Jul 2008 18:53:47 GMT

Chase has minimum credit score requirements whereas some other lenders do not. You can definitely listen to Chase's advice on improving your credit but I'd put much more weight into the advice given here at the FICO forums.

Re: 9 month plan or rent?

brownee — Mon, 28 Jul 2008 15:12:13 GMT

Ok, i'll do that. I've been reading through the forums here and have seen some good advice. I've written up some PFD and GW letters to send out to creditors, and hopefully that will help our scores increase. We found the perfect house this weekend in a new subdivision with homes ready in March-May of 2009 (right when we'll be ready!!!), so now we're REALLY excited. I know we should both calm down, but its such an exciting time for us!!!

Re: 9 month plan or rent?

ShanetheMortgageMan — Mon, 28 Jul 2008 15:15:48 GMT

Make sure you put the cart before the horse, take care of your credit first and then get excited by a house. I know the idea of buying a home is exciting but you don't need an emotional roller coaster & stress.

Re: 9 month plan or rent?

brownee — Mon, 28 Jul 2008 15:53:51 GMT

Yeah, I know I know...it's already been stressful on us and we aren't even moving until May no matter what! :-)

Re: 9 month plan or rent?

brownee — Wed, 30 Jul 2008 17:23:49 GMT

Ok, so we just came from our meeting with Chase. First, let me say a big Thank You to all of y'all because I went in with so much more knowledge than I had even a week ago. I knew about having a mix of credit, having less than 9% utilization, PFD's, GW letters..just so much and I felt like a more savvy consumer!

Anyway, so it turns out there is a judgement on my report that doesn't show paid when it was paid last year. He says once I get that changed, it should add to my score. We've got a plan in place to pay off the old collections and get everything squared away. He thinks we should be able to apply and get a mortgage by April of next year if we stay on top of things and have no late's, etc.

He also told me something that I have not seen or read anywhere. When I asked what kind of interest rate we could get if our scores were in the 620's, he said that it didn't matter because the interest rate is whatever the VA says it is at the time..is that true? OMG..that totally mkes me so so happy because I had been thinking we would be saddled with some insane interest rate because of our past. Please someone tell me if that's true.

Anyhow, I feel so much better right now than I did a few days..heck, a few hours ago!!!

Re: 9 month plan or rent?

ShanetheMortgageMan — Wed, 30 Jul 2008 17:34:54 GMT

In my experience a judgment stating paid or unpaid doesn't affect your scores... it's the sole fact of having it on your credit report that does damage. Case in point, I had a client in an identical situation with a recent paid judgment being marked as unpaid, we did a rapid rescore, had it changed to paid with a $0 balance and no change happened in the credit scores.

For VA lenders do not have a difference in interest rates that is determined by the credit score... they might have a minimum credit score you must reach, but once you are at that level the interest rates are the same whether you have the minimum score required by the lender, or an 800 score.

Re: 9 month plan or rent?

brownee — Wed, 30 Jul 2008 17:48:05 GMT

Awwww...way to bum me back out, Shane! So it showing *Satisfied* or *Paid* in the status column doesn't hurt me any more than it saying *Judgement* , as it does now? Dangit...

Well, I suppose it needs to be right in any case, so i'll get that done. I do feel a lot better, though, about the whole situation.

Re: 9 month plan or rent?

Anonymous — Wed, 30 Jul 2008 18:44:32 GMT

...and thank your mom for letting you live with her!

Re: 9 month plan or rent?

brownee — Wed, 30 Jul 2008 18:57:46 GMT

Ah, yes..of course!

Re: 9 month plan or rent?

brownee — Thu, 31 Jul 2008 19:56:11 GMT

Ok, did I do this correctly??? My BoA card has a statement date of August 7th and a due date of the 28th. I have a $300 credit limit and had charged up $236 of that. I paid them $ 210 yesterday and it has posted. Now it shows that I owe them $26. That is within the 1-9% utilization, Bob, correct? Now I can sit back and relax because when they report to the bureaus it will show $26 being used and paid on time, right? I still need to pay this $26 AFTER the statement date, but BEFORE the due date to get it to show up that way, right? This is the way I need to do this every month? Use it and pay for all but up to 9% of it, then pay the rest off after the stmt date and before the due date. Do I have it right???