Average Credit Score, Applying for FHA Loan & Cash Down Payment in Missouri

[Anonymous]

Good evening!

Before I reach out to a loan officer, I want to be sure I'm ready to apply for an FHA loan or if there's anything more I should be doing prior. I would like to start looking at houses by March. I also don't know if all of this information would affect my ability to be approved for addtional assistance for things such as down payment assistance through MHDC, or programs that will provide lower interest rates. Below are the details regarding my financial situation and questions I have regarding this process:

Price Range for Mortgage Loan - $135,000 - $145,000 (MAX)

Credit Scores (as of 1/12/2020)

Experian - 608 (according to Discover ScoreCard, which is FREE even if you don't have accounts w/ them)

Equifax - 665 (CreditKarma & Equifax - both are FREE)

Transunion - 666 (CreditKarma & CapitalOne Credit Wise - FREE even if you don't have accounts w/ them)

Account Balances

Cap One CC - $1,307 out of $2,250 (paying $200 on this card in 2 weeks)

Cap One CC - $472 out of $750 (paying $200 on this card in 2 weeks)

Nebraska Furn. Mart - $110 out of $1,000 (paying $25 on this acct. in 3 weeks - don't owe any interest until this May so keeping pymnts low)

Late Payments

Honda Financial (closed 5/2017/paid off/refinanced) - 3/30 Day; 1/60 Day

Cap One Auto (closed 6/2019/paid off) - 0

Cap One CC (7 yrs old) - 5/30 day; 3/60 day; most recent was Sept. 2018

Cap One CC (3 1/2 yrs old) - 2/30 day; most recent was May 2019

Nebraska Furn. Mart (6 yrs old) - 0

Collections

Sprint/Convergent Outsourcing - Orig. Date of Delinquency 1/14/2016; Amount Due $687.07; Paid Sprint directly today, in full, and disputed accounts with Experian and Equifax; wasn't reported on TransUnion.

Down Payment

Savings Acct 1 - $1,660 (depositing about $400-$650 each month)

Savings Acct 2 - $470 (only depositing $100 each month, as it's harder to touch this acct. and I want this to be used as an emergency savings acct.)

Tax Refund - $2,500-$3,500 (this is a rough estimate of how much I've received the past two years)

Questions:

1. How much additional should I save? It's only myself and my child and we can furnish a new house, but I want to be sure I have enough saved for any additional fees that may come up at the close.

2. Should I wait until my credit score is higher before applying for an FHA loan? And if so, what should be my goal for the best interest rates without having an exceptional credit score (I want to be practical, not fantastical in my indeavors)?

3. I'm waiting for the collections to fall off of my report before aplplying for loan. In the case that the collections doesn't fall off report by March, can I show the loan officer the chat transcript I had with Sprint, bank statement showing I paid, and the account balance from Sprint showing $0.00 due, to increase the odds I will be approved or receive a lower interest rate?

4. How much more of my credit cards should I pay off before applying for a loan, just to be safe?

5. Has anyone had any experience in Missouri using programs provided by MHDC, that have a somewhat similar situation to mine? Or anyone using State assistance programs in general?

[Anonymous]

Question on your credit scores, what FICO model are you using? You mention Discover, which is FICO 8. As far as Credit Karma and Cap One credit wise, don't use those models either, most places don't use them. Mortgage credit scores are nearly always based on FICO score models 5 (Equifax), 4 (TransUnion), and 2 (Experian). Also, just FYI, when I compare my FICO 8 scores to those models, the mortgage scores always trend lower.

[Anonymous]

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@Anonymous wrote:
Question on your credit scores, what FICO model are you using? You mention Discover, which is FICO 8. As far as Credit Karma and Cap One credit wise, don't use those models either, most places don't use them. Mortgage credit scores are nearly always based on FICO score models 5 (Equifax), 4 (TransUnion), and 2 (Experian). Also, just FYI, when I compare my FICO 8 scores to those models, the mortgage scores always trend lower.

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I'm just going off of what I have free access to, so I'm not dinging my report with regular inquiries. Based on what you know about Mortgage scores, how much lower should I project my scores to be, based off of the information available from Discover, CreditKarma, and Capital One? I've tried looking up what the difference between FICO 8 and the FICO models that lenders use, and the information I've seen so far is either too ambiguous or the info is from a decade ago (presumably outdated and irrelevant by now).

[Anonymous]

Hi - I can tell you what my differences are (I've read from others on this forum who had similar variances, some more, some less). Anyway, for me my FICO 8 scores are 670 (Equifax), 698 (Transunion), and 677 (Experian). In the same order, my mortgage 5/4/2 scores are 629/664/620. It gives you a general idea. From what I understand, FHA can goes as low as 580 (they'll chose the middle of the three scores). Reading the info you provided, I would try to put 12 plus months between applying and any lates or collections (somebody with better experience can verify that). You'll want to calculate your Debt to Income ratio, which is your monthly debt divided my your gross income. Most likely a lender will use your monthly payments as stated on your credit report (so if you have a card and the credit report states you're paying $25 a month minimum, that's what they'll use).

[pgtackle2003]

To add a bit to this. You are never dinged for checking your own credit score. You can check your own scores everyday and this is not counted as in inquiry. If you want to get serious about raising your scores I would suggest signing up here on MyFico. You can get an account that shows you your mortgage scores with all 3 bureaus. You can monitor this month to month as you're preparing and see how your scores are doing.

[Anonymous]

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@Anonymous wrote:
Hi - I can tell you what my differences are (I've read from others on this forum who had similar variances, some more, some less). Anyway, for me my FICO 8 scores are 670 (Equifax), 698 (Transunion), and 677 (Experian). In the same order, my mortgage 5/4/2 scores are 629/664/620. It gives you a general idea. From what I understand, FHA can goes as low as 580 (they'll chose the middle of the three scores). Reading the info you provided, I would try to put 12 plus months between applying and any lates or collections (somebody with better experience can verify that). You'll want to calculate your Debt to Income ratio, which is your monthly debt divided my your gross income. Most likely a lender will use your monthly payments as stated on your credit report (so if you have a card and the credit report states you're paying $25 a month minimum, that's what they'll use).

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This was great information! So currently, my DTI ratio is 31%. However, I'm living rent free (with my parents for the past 5 months so I can save the majority of my income quickly and never have to rent again), so my debt is pretty low. Because of this, do you know, or do you think, they'll factor in expenses that the average person would currently be paying into my current DTI? Or do they only consider "debt" to be reoccuring, revolving accounts, charge-off accounts that I currently have? I've tried to Google these things and I swear my search results are only populating biased creditor/lender websites. And none of the posts on the forums have really asked these questions, that I've seen so far anyway. Also, if I go off of the percentage difference from the scores you've provided (as a general idea), my scores would be the following:

Experian - 555 @ 6.312% diff 

TransUnion - 633 @ 4.99 ≈ 5% diff

Equifax - 623 @ 8.789 ≈ 8.8% diff

The differences between TransUnion and Equifax seem more realistic compared to Experian but then again, I'm the one asking questions.

[Anonymous]

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@pgtackle2003 wrote:

To add a bit to this. You are never dinged for checking your own credit score. You can check your own scores everyday and this is not counted as in inquiry. If you want to get serious about raising your scores I would suggest signing up here on MyFico. You can get an account that shows you your mortgage scores with all 3 bureaus. You can monitor this month to month as you're preparing and see how your scores are doing.

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I was looking over the plans and the three options were either 1 bureau/mthly update for $20, 3 bureaus updated every 3 mths for $30, or 3 bureaus/mthly update for $40. Obviously the cheaper option sounds like a waste of $20, since I could spend $10-$20 more and receive all 3. But if they don't change by much within the next few months based on the method's I'm using to increase my scores, would it even be worth the monthly $30-$40? I wish there was a preview so I could see what my account would look like - without showing me my scores - so I knew the information provided was worth the money.

[pgtackle2003]

Since you aren't applying for a little bit it may be worth waiting. I signed up 3 months before applying for my mortgage (which I was approved for and closed in September). In my opinion it's absolutely worth the money for monitoring all 3 bureaus up until you apply and no longer need to monitor so closely. When I applied for the mortage, the scores they pulled were exactly what MyFico was showing for my mortgage scores. I was able to see my score changes based paying off a CC or other factors. This way you go into the process knowing exactly what your scores are and can talk terms and rates before they actually pull your credit. 

[AllZero]

Free mortgage scores 

[AllZero]

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@Anonymous wrote:

Account Balances

Cap One CC - $1,307 out of $2,250 (paying $200 on this card in 2 weeks)

Cap One CC - $472 out of $750 (paying $200 on this card in 2 weeks)

Nebraska Furn. Mart - $110 out of $1,000 (paying $25 on this acct. in 3 weeks - don't owe any interest until this May so keeping pymnts low)

If those are your only credit cards, you are being penalized for accounts with balances.

To optimize your score. Do AZEO All Zero Except One card (preferably a bank card, not a store card) reporting a small balance, e.g. $5-$10. EX2, TU4, EQ5 react positively with AZEO.