FHA Loan - Improve Mortgage Scores

[Anonymous]

Hello Everyone, 

First, I am so grateful for this forum - I have learned so much to prepare for buying my first home! 

I'm wondering how I can bump my mortgage scores just a bit. I purchased the Fico Ultimate 3B scores early in December and have since paid off about $2,000 in credit card debt. My Fico 8 scores have jumped some, but I was really hoping my mortgage scores would follow suit. I purchased all 3 reports again yesterday but no changes at all in the mortgage scores.

Out of the $2,000 I’ve paid to decrease the credit card balances, only about $1,000 is being reported so far between the 3 bureaus. New statements for most of my credit cards will be issued mid-January so I anticipate they’ll be reported by the end of the month. I’m still a bit surprised the mortgage scores didn’t budge, although my FICO 8 scores changed.

My goal is to get my middle mortgage score above 660 so I can qualify for a FHA loan through a local lender in MN, with down-payment assistance. I understand 660 is not the minimum to qualify, but my DTI is rather high so my lender informed me that a score of 660 is needed for approval with a DTI of up to 50%. Does that sound accurate?

Anyway – maybe I am being impatient with the mortgage scores to update. Once the remaining $1k is reported (and still paying more each pay day), I’m hoping my 2 top mortgage scores will bump a little bit so my middle score is above the 660 threshold. Is that unrealistic? Is there anything else I can be doing? I’m hoping to apply next month, close by end of April.

FICO 8 Scores as of 1/8/19:

Equifax: 634 (increased 14 points from Dec)

TransUnion: 626 (increased 1 point from Dec)

Experian: 635 (increased 17 points from Dec)

Mortgage Scores (FICO 5, 4 and 2, respectively):

Equifax: 641 (no increase from Dec)

TransUnion: 652 (no increase from Dec)

Experian: 606 (no increase from Dec)

Credit Information:

Income: $68,000/year gross

Employed full-time (W-2 wages). Same employer for 3 years, same line of work for 8 years

Auto Loan: $385/month, $11,200 remaining balance

Credit cards: 6 total, available credit $6,700, current balance $4,985. No late payments. Most recent card older than 12 months, oldest card 4 years

Student loans: $60,000, monthly payments $440/month. Last late payments reported in 2013 (over 60 days)

IRS debt: $219/month (no lien, installment agreement)

State tax debt: $200/month (no lien, installment agreement)

Chapter 7 bankruptcy: discharged April 2014

Any insight would be greatly appreciated!!  

[CreditInspired]

Since no one has come along yet I wanted to at least say welcome to MyFICO.

As the LO said, your DTI is high. IMHO, getting 20 pts by April is not going to be an easy task. So have you thought of contacting IRS, the state, and student loan, and ask for a reduction in monthly payments. You have nothing to lose by asking and everything to gain.

GL2U

[Anonymous]

Thanks! I appreciate the welcome

I have attempted to reduce the payments with my student loans, IRS and MN but unfortunately, they're stuck where they're at.

Do most DPAs have a Max DTI? Do you think I'm out of luck with the mortgage scores I have? Is 660 a requirement likely imposed by the lender?

[CreditInspired]

I’m not a mortgage expert but from my research, FHA lenders will approve mortgages with your middle score; but in your case, the problem is your DTI and that’s why I think your particular LO is requesting a higher mortgage score. What’s DPA?

I found the below on Google which might answer your question about DTI:

Debt-to-Income Limits

Conventional loans are typically 28/36. However, in some circumstances, the back end DTI could go up to 50%.

FHA limits are currently 31/43, though these can be higher under certain circumstances.

VA limits are only calculated with one DTI of 41.

USDA limits are 29/41.

[DollyLama]

Unless the IRS or State Tax is very soon to be paid in full, the only thing you can control is the credit card utilization.

The taxes and BK are the most hurtful to your scores. 

Utilization is still extremely high you do not want any adverse action taken, balance chasing, or worse closing accounts with a balance. 

To get a decent bump, is to pay down your CCs to <28.9% of the total credit line, which should be somewhere around 1800 dollars owed total. I know from working on mortgage scores, the less cards that have a balance reported the better. If you have 4, and carry a balance on only 1 at less than 28.9% (rather I'd shoot for 28% to cover any accrued interest), of that one cards total credit line, is better than a balance on all or even  2 or 3.  The biggest optimal is to have only 1 card to report a balance and it goes down to less than 8.9% of its' total credit line.  Trying for the suggest here, might get it near or at the middle, if doesn't at <28.9, your next threshold of less than 8.9% may just do it.