topic Re: Should we even try to prequalify?? in Mortgage Loans

Should we even try to prequalify??

Jdaisy0805 — Thu, 19 Dec 2024 19:35:41 GMT

Hi there! We are long term renters, 10 yrs at the current place, 6 yrs at the last. Dh and I are 46 and 44 now, but we really want to buy a house! We have a large sum of money from a large job my husband recently completed, and will have about 50k for a down payment. Now, onto the fun stuff. His current my FICO score is 585 (I don't know what the two paid scores are on medico yet). All of the other scores are higher-637, 616, 624. But of course those don't matter. Currently he has the following accounts in good standing, all paid on time in full:

-auto loan: $6343 current/highest 24572, opened March 21

-CC1: opened June 24, $300 limit/$0 bal

-CC2: opened Aug 24, $500 limit/$0 bal

He also has two closed auto loan accounts from 2019 and 2022 with all payments being made on time. He has a closed personal loan with all payments made on time from 2021.

Now onto the bad!

-One collections account from February 23 that I paid last week, $104. I didn't even know it was a bill owed. I disputed for them to update as being paid and balance of $0.

-One credit Card that was "closed by creditor". Opened 7/22; balance is $0. there are late payments; a total of 5, oct nov of 22 and Feb mar apr 23. Closed aug 24.

-One credit card listed as a "charge off" now, and showing late payments, most recent is dec 23. We didn't realize it was owed! They used our deposit to pay the balance, and I didn't realize there was an outstanding until too late. I paid that in apr 24, but it's showing as charge off with the balance owed ($175).

i filed a dispute, and they didn't change the balance or the "charge off"!! I did include the actual statement from the cc company showing my payment and the $0 balance. They did remove the missed payments from apr until now. I don't understand as it was never charged off, and it was paid. What else can I do here??

my husband is self employed, and we have 4 years worth of good, verifiable income. Last 2 years are 100k average. What can I do to improve his odds of approval for an FHA? I know conventional is off the table. Also, purchase price would be around 250-300k, again with a large down pmt. We live in Lancaster county, Pa. Thanks in advance for your help.

Re: Should we even try to prequalify??

ShanetheMortgageMan — Thu, 19 Dec 2024 21:01:06 GMT

I'd recommend considering obtaining your husband's mortgage FICO scores. Not sure if the 585 score you have is a mortgage score, as there are various versions of someone's FICO scores depending on the type of credit they are applying for. If the middle credit score is below a 580 then FHA requires 10% down, so you seem to have that covered either way, but this will help determine which lenders you can/can't work with as not all FHA lenders go down to lower credit scores.

If those are the only two credit cards your husband has then to maximize his credit score I'd recommend putting a small balance ($20 should suffice) on one of them and let it report to the credit bureaus before credit is checked. It's called the AZEO method.

His payment history seems to meet FHA guidelines, even if the loan has to be manually underwritten. A summary of FHA's payment history guidelines when a loan is manually underwritten is:

Acceptable Payment History:

All housing and installment debt payments must be made on time for the past 12 months.
No more than two 30-day late payments on mortgages or installment debts in the past 24 months.
No major derogatory credit on revolving accounts in the past 12 months:
- Major derogatory credit is defined as:
  - Payments over 90 days late.
  - Three or more payments over 60 days late.

So if your husband's credit history meets that, then the credit history will be fine for FHA and you should feel comfortable applying. I'd still do the AZEO method, because higher credit scores equal better interest rates for you.

Let us know if you have any follow up questions.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 19 Dec 2024 21:30:27 GMT

Thanks so much for taking the time to reply and to include such helpful info! It's very much appreciated! You talked me into spending the money to see his mortgage scores, and they're 603, 603 and 641. I'm hopeful this new year will bring new home ownership!

Re: Should we even try to prequalify??

ShanetheMortgageMan — Thu, 19 Dec 2024 21:50:32 GMT

You're welcome! Scores are looking just fine for FHA too but you'll see a rate improvement if he can get 2 of them up to a 620. Happy holidays!

Re: Should we even try to prequalify??

Jdaisy0805 — Fri, 17 Jan 2025 14:27:28 GMT

Thanks so much for all of your help! After "cleaning" things up on his report by paying a collections (deleted) as well as the charge off, his scores have come up quite a bit. It probably helped that I paid down the small balances on CCs to 9%. His FICO mortgage scores are now 644, 680 and 665. We are now considering going the conventional loan route since we're interested in a new build of a "custom home" on a plot. I feel like FHA may be a bit too restrictive, but I'm really not sure.

We will likely seek prequal in April/may, but I'm curious if you have any input in the meantime. Specifically, would it be possible, theoretically, to pass automatic underwriting with the lates on his report for a conventional mortgage? They are as follows:

2/23, 3/23 & 4/23 (30, 60, 90) CC-now paid in full, closed in August 24 by creditor for reasons unrelated (and unknown to me lol).

6/23-1/24 (30, 60, 90, 120, 150+)-CC Charged off and paid in full with original creditor.

FWIW, all three installment loans, the personal loan and three other CC s have all on time history, going back to 2015. I have zero knowledge in this area, and would like to be as prepared as possible when seeing a lender. Thanks in advance!

Re: Should we even try to prequalify??

ShanetheMortgageMan — Fri, 17 Jan 2025 15:22:31 GMT

You're welcome, nice score improvement. However, with those scores, and if you are putting down less than 10%, the monthly payment with conventional financing will be quite a bit higher than FHA financing will be. Most builders are fine accepting FHA financing as well, so talk with the one you're interested in to see if they are open to you buying with FHA financing.

It's not impossible to get an automated underwriting approval for conventional with your late payments, but there is less of a chance vs. FHA. A loan officer can run your application through both conventional and FHA automated underwriting, using the same application and credit check, so it doesn't take much time or effort at all to see if either are an option.

Re: Should we even try to prequalify??

DebbsSeattle — Sun, 26 Jan 2025 18:20:08 GMT

Using my own experience, albeit several years ago, I began consulting with a mortgage broker for several months before the shopping began. I had credit challenges in my way after a destructive divorce really messed things up on my reports. I did my first sit down in April and closed in December of that same year. He gave me the road map to work through my uglies and I began just chopping them down one by one...doing exactly what I was told to do. He was never further than a phone call away. I strongly recommend this. You might be closer than you think. He also had the knowledge and the experience to be able to get newly changed items to report quicker as he needed it to qualify a mortgage borrower. He was able to give me the word tracks that needed to be spoken exactly for desired outcomes. Having a trusted advisor in your corner is a nice thing. He had motivation...skin in the game...a dog in the fight...he would not get paid on the loan unless I got qualified and ended up a buyer. It was a win win symbiotic relationship. In the end he also had great gut feelings on the interest rates fluctuating. He only missed the best rate day by one day and got me a fabulous rate locked in with a prime lender. Good luck and enjoy the journey. It was long and hard for me but I would do it all over again for the pride of accomplishment. It is but a rung on my ladder to building wealth and obtaining safety and security in my life.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 20:44:46 GMT

Thanks again! I'm back to ask again, more specifically, as we're getting closer to "game time". We've had two credit line increases, albeit still minute, haha, so revolving limits are now $2250. Balance is $20. The above mentioned charge off and lates still applicable, and there is literally nothing left I can do to improve scores other than time. Scores will update again in 4 days, but I'm expecting very similar numbers to those previously mentioned (middle mortgage around 665, maybe a touch more).

self employment income-average of 2 yrs-$110k

potential down payment-$40k (we're aiming for 10%)

purchase price-somewhere around 350

0 debts otherwise since we only have 8 auto payments left

The reason I'm reaching out again is we're finding very little inventory within an hour of our current location, and even then only about half of properties will even accept FHA financing. Most want conventional approval before we can even tour. It's becoming a bit depressing honestly. Well likely see a lender in April and go from there, but I guess I'm looking for guidance on what to anticipate. Also, any recommendations as for institutions?

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 21:02:03 GMT

Thanks for taking the time to reply! I appreciate it. We found a real estate agent we really love, and he's super understanding and patient. We haven't found a broker/lender yet, though. I've been working through credit since November of last year, and there truly is t anything else we can do to make improvements on that front. The charge off refuses to delete, and my goodwill letters for the CC lates resulted only in "disputes" that were then resolved. The only thing that will help at this point is time. We do have a lot of good history there, too 🤷‍♀️.

Re: Should we even try to prequalify??

ShanetheMortgageMan — Thu, 20 Mar 2025 21:04:25 GMT

You're welcome.

I used the figures you provided and it should be possible to get approved up to around a $450,000 sales price, using estimated property taxes of about $9k/year (those can vary quite a bit in PA, depending on if you are within an incorporated city or not).

For those properties that say they'll only accept conventional financing it's probably because there is something about the home that won't meet FHA minimum property requirements. In that situation FHA has a renovation loan that will finance any needed repairs in order for it to meet FHA minimum property requirements, it's called the FHA 203(k) loan. Most sellers aren't aware that type of financing exists, so they just say they're only accepting conventional financing.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 21:39:55 GMT

Thanks for that. It's appreciated!! When you say it "should be possible", are you taking the charge off and lates into account?? Most recent was the charge off in 1/2024. I'm just so disappointed with myself because it was totally avoidable and over $125 :-(.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 21:42:49 GMT

Also, thanks for the tip regarding 203k. I was aware of that program and definitely open to using it. My husband is a contractor, ha.

Re: Should we even try to prequalify??

ShanetheMortgageMan — Thu, 20 Mar 2025 21:55:48 GMT

@Jdaisy0805 wrote:
Thanks for that. It's appreciated!! When you say it "should be possible", are you taking the charge off and lates into account?? Most recent was the charge off in 1/2024. I'm just so disappointed with myself because it was totally avoidable and over $125 :-(.

Yes, I was assuming worst case is you'd qualify via a manual underwrite. In that scenario the maximum housing & total debt ratios are listed below.

The $450k sales price is using a housing ratio of no more than 40% and a total ratio of no more than 50%.

But with 10% down I think there'd be a good chance you'd qualify with an automated underwriting approval, which would allow the housing ratio to qualify up to 46.99% and the total ratio to 56.99%.

The 203(k) program doesn't allow your husband (or you) to be the general contractor, but hopefully since he's in that line of work he'd know someone licensed & insured who would act as the GC and give you guys a deal.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 22:54:12 GMT

For clarification purposes, the model I'm looking at is FHA, yes? I can't tell you how much I appreciate you, going above and beyond to help me understand and anticipate possible scenarios. Extra KUDOS to you <3!

So you don't think we could do a convention then? TIA

Re: Should we even try to prequalify??

ShanetheMortgageMan — Thu, 20 Mar 2025 23:01:03 GMT

You're welcome and correct, it's FHA.

I think it's unlikely to qualify for conventional automated underwriting, and even if you do, FHA should offer a lower monthly payment due to your credit scores. The great thing is we loan officers can run both scenarios - first for conventional to see if that'd even be an option and then for FHA.

Re: Should we even try to prequalify??

Jdaisy0805 — Thu, 20 Mar 2025 23:04:41 GMT

Thank YOU! 😊

Re: Should we even try to prequalify??

FicoMike0 — Thu, 20 Mar 2025 23:32:06 GMT

Congratulations on the progress! I'm not an expert, but this might be a help. If I read you post correctly, your only installment loan is a car loan with 8 payments left. There are fico points to be gained by having an open installment loan, which you have. There is an additional boost when your balance to loan ratio is less than 9%. This should occur, roughly, when you have 9% of the payments left. For a 60 month loan, 5.4 payments. If I'm correct here, you should see a small boost soon. Depending on your loan term, you might make it happen sooner by preparing a couple of payments.

Re: Should we even try to prequalify??

Jdaisy0805 — Sat, 22 Mar 2025 01:50:38 GMT

Thanks for the tip! I had actually considered that yesterday, and it looks like we would have about 2.5 payments to push the remaining balance to 9%.

we've run into a couple things, though. First, actual transcripts are required from IRS for 2024?? I didn't think that was the case for pre approval, and we haven't yet filed. All of our financials are in order, and they should be filed next week. I anticipate it will take some time for those transcripts to update, though.

another thing, in regards to tax, apparently, we also then need to then apply for and get an approval letter for a repayment plan for the owed tax from 2024. Is that accurate?

Lastly, I'm wondering about trade lines.. we only have the one that's over 12 months. Will that pose an issue. If so, we might be looking at August to get 12 months of reporting from one of the newer CCs. As for a third, the only other things would be cell phones or car insurance. I don't want out LL to know of our inquiries until necessary.

Re: Should we even try to prequalify??

ShanetheMortgageMan — Sat, 22 Mar 2025 19:35:15 GMT

IRS transcripts are only required if you are self-employed or otherwise using your tax return to document your income, the other situation it's common to use tax returns to document income is if you have rental properties/rental income. If you are just relying on W-2 income to qualify then you shouldn't need to provide your tax returns or your tax transcripts. Further, in those situations where tax returns are required then if you file a tax return filing extension then the 2024 tax returns or transcripts wouldn't be needed until October 15th.

If you have owing income taxes then they either need to be paid in full or set up on a payment plan. It's really easy to set up a payment plan, usually can be done on the IRS website but otherwise you can just call them up (I recommend first thing in the morning) and get one set up over the phone. The payment is included in your DTI calculation.

If you get an automated underwriting approval then that means your credit depth/history has been found acceptable. Some lenders may have "overlay" requirements for a certain # and duration of tradelines but that isn't very common these days. If your loan needs to be manually underwritten then underwriters are looking for 3 trade lines of 12 months each - and you can use non-traditional credit to meet that requirement. For FHA it requires that you have one of: rental housing payments, telephone service or utility company reference (gas, electricity, water, television, internet) and then the other 2 can also be one of those or it can be insurance premiums not payroll deducted (like automobile insurance, medical, life, renter's insurance), payment to child care providers made to businesses that provide such services, school tuition, retail store credit cards (for example, from department, furniture, appliance stores, or specialty stores), rent-to-own (for example, furniture, appliances), payment of that part of medical bills not covered by insurance, a documented 12-month history of savings evidenced by regular deposits resulting in an increased balance to the account that that are made at least quarterly, or a personal loan from an individual with repayment terms in writing and supported by canceled checks to document the payments.

Re: Should we even try to prequalify??

Jdaisy0805 — Sun, 23 Mar 2025 01:56:14 GMT

Thanks for the in depth explanation! Yea, income is self employment only. He's been an owner for a long while, but 2022 revenue wasn't sufficient for our deaired price range. We will need 2024 taxes as well which we will owe a bit. Good to know about the trade lines not being too much of an issue! Looks like we will get these taxes filed and go from there :-).