topic Re: Advice for first time buyer with poor credit in Mortgage Loans

Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 17:45:19 GMT

Single 27 year old male, looking to buy a home in September (if possible). I make $89,000 according to my last W-2 and have been employed by the same company for 4 years and have solid employment before that until 2001. I pulled Experian and my FICO is 550. I will have $15,000 cash available and I'm looking at properties from $250-320k. I'm meeting with Chase on Friday to try and pre-qualify for an FHA loan or at least see what I need to do to qualify.

I have two car loans; One for a $12,400 [$480/mo for 72mo]($25k original balance) opened in April 2007 and has many 30-day late payments between 2008-2010, but has been current the past year. The other car loan was opened in August 2011 and the balance is $15,500 [$520/mo for 48mo] and has been on time every time. I'll have this car sold and paid off by July.

I had a reposession in 2007 with a $3,000 charge-off, which with the 7-year rule is due to come off this December.

From 2003-2005 I have 5 auto loans and a boat loan that show as paid off and always on-time.

I've paid rent on time every month (although I don't think this matters). My rent for the last three years: $1,600, $2,250 and $2,350.

5 collection accounts ranging from $50 to $600.

No credit cards for the past six years since I make enough to live off cash, but I think I probably should get a secured card.

Cliffs

Age: 27

Income: $89,000/year

FICO: 550

Downpayment: $15,000

Restricted Stock Units (unvested): $20,000

401(k): $22,000 vested value, with a $9,000 loan making the vested balance $13,000

Loans: Two cars, ($12,400 [$480/mo for 72mo], $15,500 [$520/mo for 48mo]) the higher balance loan will be paid off in July. Other loan paid off by April 2013.

No credit cards and no other credit accounts.

Reposession in 2007 with $3,000 charge-off, due to be removed Dec 2012.

Thanks!

Re: Advice for first time buyer with poor credit

Tpelc23 — Mon, 04 Jun 2012 17:44:30 GMT

I would work on doing some pay for deletes on the collections and even the chargeoff those would greatly increase your score if you can get them removed. It is going to be very hard to get a mortgage with those things on our credit and a very low FICO. Go to the rebuilding your credit page and those guys can tell you what to do they are wonderful!

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 17:46:35 GMT

Thanks for your reply! I've gone through on a yearly basis and disputed items on credit reports with some success. I'll check with the rebuilding your credit forum as well.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 17:48:00 GMT

BTW, you STILL don't know what your FICO score is.

You said you pulled Experian and it was 550. If you meant Equifax, then okay... but if you really did pull Experian, what they sold you was a FAKO. It's a score, just not THE score used by most lenders.

And yes, you will need to have some sort of line of credit showing. Even if you get a secured credit card, it's a step in the right direction.

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 18:22:50 GMT

Yeah id pull your Fico and see where you are really at.

Then id open at min 2 credit cards and start working to get PFDs on those collections. In a few months you will be good to go.

You would probably run into DTI issues if you were not paying off the second car.

But going up to 320k with your income sounds about right.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 18:36:16 GMT

Yikes, you're right. I just pulled my Equifax and it's only 510!

Okay, sounds like I need to be admitted to Financialholics Anonymous

Looking like buying something this year won't be realistic and I should take some of my down payment money to pay off all these collections and get a secured card.

Strange, this report doesn't show my second car loan at all. Maybe the lender only reports to Experian, which would be a bummer since I have a year positive payments on that

Number of your accounts that were ever 60 days late or worse: 9
Number of collections on your credit report: 3 Collections
Number of your accounts with a missed payment or a derogatory description: 10 accounts
Your most recent late payment happened: 6 Months ago
Ratio of your revolving balances to your credit limits
It's showing $4,228 past due on 3 accounts, but those are collection accounts and showing $1,696 revolving accounts.
Shouldn't the accounts circled in yellow below come off this year or in years past?
10 inquiries

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 18:46:15 GMT

You know what, I think you are in ok shape. 510 is pretty bad, but I think you can recover in about 6 months.

Get some new credit cards reporting ASAP, and work on those collections. You gotta settle or dispute those revolving balances, you they will tank your score.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 18:56:20 GMT

No offense but; making enough to live off cash may have made it a little too easy for you to ignore outstanding debts. Anything's possible but I sort of feel like your time-frame may be a little aggressive with so much negative history.

Credit scores pretty much reflect risk of default. Having a good income is only part of the equation for obtaining a mortgage.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 19:03:28 GMT

Yep, income is not all. The way I was raised was that you buy everything in cash, that been my view especially since I ended up abusing my credit. Of course now I know about utilization limits etc. I really think they should make classes on credit management mandatory in college or high school.

I think I need to get as much removed as I can in the next six months, I was just hoping I could bump the score up to 580 to get FHA approval, but I'm going to try to aim for 650+. How important is the credit limit on the secured card? Would two secured cards with a $500 or $1000 limit really help me all that much?

Re: Advice for first time buyer with poor credit

techgirl — Mon, 04 Jun 2012 19:08:02 GMT

I think using the savings to settle your other debts for removal off of you credit report AND having a couple of cards will help you... I would also continue to save so you can show reserves in your bank account. You also have to show consistent charging and paying off your credit cards to improve your score . You need to change your status to a bad risk to someone who knows and understands credit and pays their bills on time, etc.

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 19:45:32 GMT

I think if you settle those revolving lines and open a couple cards and keep the balances low. I can see you getting over 650 in 6 months.

Its those revolving lines with balances that is tanking you, mixed with no open credit cards. clear them up and watch your score fly.

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 19:46:35 GMT

Id bet that just paying off those revolving charge offs would get you to 600.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 19:50:04 GMT

Woo! So what's up with the revolving Charge-Offs? I thought that things in collections were just that... collections and charge-offs with either a balance owed, or debt sold to another company... but this one from LVNV Funding seems like it's an open credit account.

BTW, I love the responses on the forum. I've posted in other less friendly places and all the replies were nasty... I think people here realize we made mistakes and it's time to correct them.

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 19:51:44 GMT

That first account listed on your report appears to be a charge off, not a collection. It shows a balance. That alone is crushing you hardcore.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 20:00:15 GMT

Paying Toyota would be huge! It's likely being scored as an open account with full utilization. I don't believe they'll delete but it might be worth calling and ~~begging~~ asking. Perhaps an apology and believable story will do the trick. I think the main thing to worry about with them is getting something in writing saying that they'll at least report the debt as paid in full without updating the date of last activity. Last thing you want to do is pay them and have an account that old magically look current.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 20:22:25 GMT

The Toyota will come off in 2014 since it was reported in 2007, is it really worth it to spend $3000 to get it removed?

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 20:25:42 GMT

No way. leave it alone.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 20:41:47 GMT

@Anonymous wrote:
The Toyota will come off in 2014 since it was reported in 2007, is it really worth it to spend $3000 to get it removed?

Would you loan someone $250K knowing they had $5K in bad debt that could possibly complicate the mortgage with a lein, or ignore the possibilty that a judgement might affect their ability to make mortgage payments? Any lender would also have to ignore your payment history.

Don't forget..... collection agencies buy reports to monitor rebuilding progress. As you improve, they will be coming out of the woodwork to get paid because of finally having some leverage.

With what you've shared, even putting down half probably wouldn't get your loan through underwriting.

You could always give up on home ownership for now, save money until everything falls off, Hope Toyota doesn't sue you, hope none of the collections are re-aged, sold again, etc..., and start looking at houses in about 3 years.

FWIW, I had a paid CO with Toyota and asked for goodwill 2-3 years after. Their response was basically "bite me", LOL! You may have better success or none at all but having it paid will improve the chances of getting a house.

One odd thing; If you're from New York State, paying them will mess up your credit for another 5 years unless it's immediately deleted. Paid COs remain on your credit report 5 years from date of payment in New York, unpaid for 7. I'm all for paying debts but feel this is something every resident of New York should be aware of when dealing with debt collectors so they can either negotiate a better deal or make fully informed decisions.

Re: Advice for first time buyer with poor credit

tooleman694 — Mon, 04 Jun 2012 20:45:02 GMT

Banks loan money all the time with collections past SOL.

Re: Advice for first time buyer with poor credit

Anonymous — Mon, 04 Jun 2012 20:57:09 GMT

I'm not worried about the Toyota too much since it's due to be removed in 2014 and it's old enough that the right lender will look the other way. Also if the collections agency for that debt wanted to go after me for $3000, I could easily afford that. The last time I was contacted about this debt in 2007 when it was charged off and they threatened to sue me, I told them go ahead and that was the last I heard. After talking to a LO two months ago and having her examine my credit, I'm pretty confident that if I can pay off the collections then I can obtain FHA approval.