I wanted to share our mortgage journey:
Starting scores: Feb 2016: (from myfico) 525, 555, 583 and 580, 595, 610.
Ending scores August 2016: 610, 657, 666 and 618, 658, 680
Purchase Price: $279,000
Down Payment: $0.00!
Property Type: Single family home
Type of Loan: VA, 30 year fixed
Loan Rate: 3.5%
Offer Accepted: 7/12/16
Closing Date: 8/30/2016
Keys in hand: 8/31/2016
Jan 2016: Bought a new car around 20k, found out how awful our scores were. We're both 30, neither of us had ever cared about our credit before, or knew much about it. We decided to start working on it to buy a home.
Started by pulling all 3 of our reports and scores through My Fico. This was a great place to start since we really had no idea what was going on with our credit, and it gave us a clear and simple picture of everything, all in one place, from a trusted source.
Husband: 4 older medical collections totalling 2k, 1 newer Verizon collection for $400, 1 unpaid judgment listed in error. 1 $400 car payment, 2 credit cards, one $400, one $1200, both around 90% usage. Last late payment 22 months ago.
Myself: 9 old various items in collection totaling around 4k. One paid judgment, one unpaid judgment. 1 car payment for $400. No credit cards or any type of revolving credit other than the car payment. No late payments ever.
Feb 2016, Dealing with Judgments: I had an unpaid judgment that was showing up on my husband's credit report. This was for a debt from before we were married, so I immediately disputed it on his report, and all 3 agencies deleted the judgment almost immediately.
For my unpaid judgment, it was for a $600 debt but I now owed over $2k after "fees." I called twice to try and settle with no luck either time. Finally a week later I called back resigned to pay it, and was able to have it settled in full for $1500. It was updated to "paid" on my report within a week.
My other Paid Judment was through Quick Collect. I had been garnished last year for it until it was paid in full. Even though it was my debt, I disputed it anyway, stating I had not been properly served, as I honestly don't remember getting any paperwork in the mail before the garnishment. All 3 agencies removed it. It doesn't even show up as paid, it just completely disappeared. I'm guessing maybe because I paid in full, they didn't want to bother verifying the debt after that, and just let it be deleted? Not sure, but glad it just went away.
March: Adding some Positives: I signed up for a $500 Secured Credit Card through USAA with American Express. Even though I had to get a secured card, USAA let me use my secured deposit to open a CD account for 2 years, after which if my credit card was in good standing, would just become my money plus interest. This seemed infinitely better than Capital One, which my husband has a secured card from, and even though it's been 8 years in perfect standing, they won't return the deposit without closing the account. I was also paying tripple payments on the car, to get the debt down quicker and to prepare for a mortgage payment, since we weren't currently paying any rent. I also paid my husband's credit cards off and kept the usage around 2%.
April 2016: Dealing with Collections. I settled my husband's $400 Verizon collection for $200, it remained on his report but was updated to "paid" and made very little impact on his score. This only left 4 unpaid medical collections, each 2-4 years old, which I just left alone and ignored.
I ignored all of my collections. All my collections were smaller, $300 here or $400 there, but it added up to a decent amount. However, since they were all 4-6 years old, I was hopeful I could just wait most of them out. None of them were for an amount large enough that I was worried about them suing, and I never heard from them other than they would send me settlement offers in the mail from time to time, which I ignored. I was worried by disputing they would rekindle their interest.
May 2016: Went and talked with a local lender, hoping to get info and not expecting to start the process yet. When he pulled our credit, my mid score was 598, and my husband's was over 620. He stated he only needed a mid of 600 to approve, and thus he actually gave us a 300k preapproval letter that day, as he was sure I'd get the extra 2 points before we needed the loan. This was quite a shock since we weren't expecting to be anywhere close to home buying yet!
June 2016: We started casually looking for a home. We were previously living rent-free in my grandmother's paid off house, as she is permanently in a nursing home, thus we weren't in a time crunch to move, however we wanted to own a home of our own, and get into a better school district as our kids were starting Kindergarten and 1st grade. The housing market here is CRAZY right now. With the excitement of having a preapproval in hand, we put in a dozen offers over a 3 week period, all with 10-30k over asking price, and were out bid every single time.
We were about to back off for a bit when the owners from one of the first offers we'd submitted contacted us to say the initial offer they'd accepted fell through and they would be willing to take our offer (265k asking price, our offer was 279k.. later heard first offer was 290k, not sure why it didn't work out though). We liked the house so we accepted.
July 2016: Now to underwriting... amazingly, when we went back to our LO and he repulled our scores, we were both above a 640 mid score which allowed us to avoid manual underwriting AND lowered our interest rate from a previous 4% down to 3.5%. Great!!
We were doing a VA loan with 0 down. It felt a bit unbelievable that we struggled to find someone to sell us a 20k car 6 months ago, and now someone was going to fund us $300k with 0 down.
There were MANY scary moments in underwriting. I knew our credit was fragile so I was paranoid about old collections popping up. We had to put $3k in earnest money down, which was most of our savings, leaving only about another $1500, plus our credit cards. I didn't want to have $0 in the bank, and I didn't want to max out our cc, so it was stressful to worry about all the potential emergencies that could pop up. We did get the $3k back after closing, since seller paid all closing costs (due to not being willing to do any repairs on the home first) which meant we literally got the home for no money upfront whatsoever. Go VA!
Our big plus was our income. Combined, husband and I made $91k last year on our tax returns, and our only debt was the car payment, making our DTI something like 21% after the mortgage, which the lender liked. We'd both had our jobs 5+ years, however I went on unpaid maternity leave right in the middle of closing, and then of course they asked for another paystub! Our LO was either great or a little shady, as I'm salaried so my income doesn't change each month, and he gathered Jan-Jun 6 months of paystubs showing the exact same gross amount, and magically made the lender withdraw their request for an August paystub.
Working with a local mortgage company was great. He was not worried about any of the collections, only that judgments were paid. Thus, I ended up not having to pay to settle ANY of my collections. Also having eligibility for the VA program really helped, since we didn't have a down payment.
Also a plus: right after we closed, I got approved for a $2k unsecured Discover card, yay!
In our situation, focusing on adding positives made WAY more of an impact on our credit than worrying about the negatives (collection, late payments). Paying off our credit cards, adding 1 more credit card, and paying down our car payment quickly seemed to help a lot, while the one collection we paid didn't do anything at all. YMMV.
Anyway, it IS possible to go from mid 500's to a home in less than a year, although I worked very diligently at our credit, constantly reading all kinds of info, learning about it, paying off debts, etc. It was hard work! I was very discouraged at first, but I finally feel like the world views me as financially resposible now. And the number of "preapproved" credit card offers that flood in! Where were you a year ago when I actually needed credit?? Feels nice to be able to be finally be picky! Our credit scores still aren't great, but I am hoping that with another year of ontime mortgage payments and smart credit card managements, we can break into the mid 700's. If I can do it, anybody can! I knew literally NOTHING about credit back in January.
Simply fantastic and an amazing journey. Good job and enjoy your new home.
P.S. Thanks for paragraphing your post. It made reading very easy.
This is so inspiring! Thanks for sharing!
thanks for this!! I am a single mom and had my score medium was 606. So close I can taste my first home.
This was very inspiring! We meet with a local lender this weekend and we are of course very nervous! Our situation is very similar we have about 5k total in the bank and my mid score is 676. I have a few negatives that I was worried about but a lot of positives as well so hopefully everything will go as smoothly as it did for you. Congrats on the new house and thank you for sharing your journey!