FHA with poor credit

[Anonymous]

So I currently have very poor credit, and have already begun putting a plan in place to start fixing the credit immediately. My FICO is at a 540 median score right now.

I have only one open credit card, and that is with Maurices, it currently has a $200/$300 usage on it.

Collections:

Amazon - $1,186
Discover - $483
Kohl’s - $614
Capital One - $1,383
Capital One - $1,006
Progressive insurance - $191
Medical - $45
Medical - $100
Medical - $160
SpeedyCash: $405

I also have several smaller cash advances that I took out a few years ago when I was laid off, that are not showing in collections, but I plan to pay them this year one at a time to ensure they don’t pop up down the line.

I also have $35,000 in student loans spread across several Fed Loans reporting as late every month. My goal is to combine/finance them into one loan and work out a payment plan with them.

I also owe the IRS $7,000, however no liens or garnishments, as I currently have a $96/month payment plan that I pay on time every month.

With all this said, my goal is to fix my credit as much as possible this year, and try to get an FHA loan for a small piece of property, about an acre in the area near my hometown, for $30k-$35k. My goal is to pay it off quickly by paying extra each month, and then put a mobile home on it, and then build a small home later down the line. Right now, I just want to get the land first, and take it one step at a time.

I currently make $36k a year at my full time job, and I work a small part time job on the side that brings about $5k a year right now ($400-$500 a month).

Just looking for any and all advice, as I could really use whatever expertise and knowledge you all have to offer in this situation.

[chiefone4u]

Welcome to the forum.

I think you'll be better off rehabbing your student loans instead of refinancing them. If I understand correctly (someone will be along shortly to confirm or correct me), if you refinance the student loans they report paid but continue to show you were late. If you rehab your loan's, the (recent) lates are removed.

The collection accounts are hurting your scores, getting them paid off so the lates can begin to age will help a bunch.

Good luck with your purchase.

[Anonymous]

You also need to improve your credit score. For FHA loan, the minimum credit score requirement is 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent.

[pgtackle2003]

Just to comment on the student loans. I did rehab my loans and it is still the better choice than refinancing/consolidating. If you rehab the loans they will open a new account, that is back dated from your original loan account opening but now showing good payment history since you started the rehab payments. So this helps with AAoA and now has a positive installment loan on your CR. However, they do not remove the lates from the old loan. It will just show closed with 0 balance but will continue to show the 60/90/120 day lates or whatever you used to have. The benefit is the account will stop reporting as late each month and kind of stop the bleeding on your credit score. If there are 120 day lates on it, they will unfortunately haunt you until the account is removed at 7 years from DoFD (which is still killing my score).

[Anonymous]

Also, just in case, please make sure you're tracking the right FICO score Model. You'll want to monitor FICO 5,4, and 2.

[TXPocohontas]

On the collections, depends on how old they are.  Do not pay old collections.  Anything over 2 years from the first late can be disputed.  Collections fall off after 7 years from the first late (final no pay) date.  Over 3 years of no pay, you would call the credit reporting agency they are on and dispute.  They must by law prove by providing you a wet ink signature you signed on the contract.  They can't.  And if they cannot prove, the credit reporting agency must remove.  Most companies do not keep original paperwork after 2 years.  They may have scanned it to their computers but those don't count.  That is the loophole.  I am not saying this for you or anyone to take advantage of companies.  But credit reporting agencies were put in place to show good credit.

How old are the collections?  If they are over 5 years old, let them go.  

[CreditInspired]

When applying for a mortgage, UWs do NOT want to see any disputes on credit reports, regardless of reason(s).  

[Anonymous]

Hey first I would like to say that as long as you have a plan and stick to it you will get where your trying to go...I just purchased my first home 12/31/19 .And during that process it wad the most stressful experience ever.Just whenI thought everything was going well I hit a collection that dropped my score under 640 which is needed for the FHA loan approval , this happened 30+ days before closing they have a system that will single out everthing you need to do to get that score where it needs to be.I started in 2016 and gave up slightly until 8/2019 because of my credit barriers you can do it. Work on those collections and reachout to make a new arrangement with the student loans or go back to school for a while and don't use the loan this can put them in a deferred state.If you have a payment plan it will be counted in the dti which may or may not hurt but while your getting debts in order you don't need to focus on student loans. Just my p
option being one that has and is going through it currently.

[Anonymous]

Thanks for all the great advice everyone!

TX Pocohontas, the medical bills are over 3 years old, the C1, Kohl’s, Discover and Amazon are over 2 years old, coming up on 3 this year

[NC_Mtg_Loaner]

How long have you been on this full time job?
How much money do you have saved in retirement accounts?

Why only one credit card?   Open another ASAP even if it has to be a secured card.    You might even be able to settle with CAP 1 and get an account re-established with them.

HUD (insurer of FHA loans) won't finance land without a building on it so you will need to buy, build and finance all at once but it's certainly doable in this day and age.