How close am I to applying for a mortgage?

Anonymous · ‎05-23-2015

I have started with my journey of becoming a homebuyer since October 2013. We moved out of a rental 5BR/3BATH $1250/mo rent and into a 2BR/2BATH bungalow $850/mo rent at that time to become on our way to stop paying someone else's mortgage!

My credit score at that time was 533.

Since then, I have paid off all medical debt appearing on my credit report. Over $3000 in unpaid medical debt. I have paid off my car and received my title. It was always paid on time, every month. I have paid off a judgment of $2390 and also paid off a lien for state taxes that I was unaware of. My student loans are out of debt rehabilitation and I haven't had a garnishment in 18 months. Yes, I am fully aware that I have done some very stupid things.

I paid off Midland and accepted a settlement of $406. Stupidly, I paid this only to find out that it was nolonger on my credit report

Last month, my score was at 628.

I have a secured Capital One card with a $200 line of credit. My most recent pay down showed that I had a $35 balance. This month I left it with only a $10 balance.

I called in to Credit Control and offered them a settlement of $1950.00 on a $6823.00 repossession from 2009. They accepted my offer and I paid them the next day.

I called in to Pinnacle and offered them $405 on a $1136.00 old Verizon bill. They accepted my offer and I paid them the next day.

I have one remaining bill on my credit report, Virtuoso. This is an old utility bill for $907, currently at $850 with a payment I sent in to them of $57 in February.

My score went from 628 to now 636 this month according to Credit Karma.

We are working with a Homeownership Center in our area and she cautioned me that my scores will drop possibly with the recent pay offs/settlements. Is this true? It appears that they went up from Credit Karma's site shows.

Also, we pay our rent to our landlord in cash every month. We pay $850 anywhere from the 5th-15th of the month. Will this be a factor with rental history?? This is my biggest fear that we may face as an obstacle. He also does not provide us with receipts....

He always praises us and tells us that we are his best renters, never needing him to come over for anything. I just hope he stays nice and helpful!!

For income, I have been at my present employer for five years in July, working as a nurse. My income with my new position within the company has given me a pay increase of $7,200 annually. I bring in $55k per year with that job and $5k with my second job that I have been employed with for two years in June.

I have $8k in 401k that I plan to use as a first time homebuyer to withdraw without penalty. My husband is going to ask his Dad for $3k in gift money and we are going to apply for a grant through Ohio Housing Finance agency that gives approx $3-4k at closing.

I think we are going to apply for our mortgage with my name only as I have the better credit at this time and have just one outstanding debt to pay off. (Do I have to pay this off betore applying for a mortgage or should I call and ask to go on a payment plan)

What are the odd that we could get approved for $150-$160,000 in Ohio?

Thanks for taking the time to read this long post!

StartingOver10 · ‎05-23-2015

You have done quite a bit of work and it is beginning to show. You are almost ready. Think about writing a good will letter for those debts you have paid off that still show on your report. I think you are in very good shape so far. Getting 'pay for deletes' and writing goodwill letters helps get the debt off of your report so it ends up as a clean report rather than a paid debt. This is ideal but not mandatory.

Don't use Credit Karma's scores though - as those scores aren't used anywhere in mortgage approvals. Pull your 3 B report here at MyFICO and it will show you your actual mortgage scores (at the time you pull the report) along with your bankcard scores, auto enhanced scores and FICO 08 scores, which are different from the mortgage scores. Try this link: http://www.myfico.com/Products/FICO-Score-3-Report-View/ You might be surprised about your actual mortgage score. I know my mortgage scores are substantially higher than my CK scores.

The thing that I see that will be an issue is your rental verification. The cash rental payments won't fly with the lender. You will need to have proof of timely rental payments for 12 months. Proof would be a cashed check written to the landlord, or money order or some method that the lender can verify. Your landlord may not like it, but the lender wants to know that you are paying for your rent on time each month for the 12 months preceding the mortgage application.

As to the first time homebuyers programs, compare the programs in your area with the standard FHA program. On the standard FHA loan, you can usually get a seller to contribute toward your closing costs and pre-paid expenses but it depends on your specific market (sellers vs buyers) and the specific seller. It has to be written into the contract. Normally cc's & pp's run in the neighborhood of about 4% of purchase price on top of your 3.5% down payment.

I have found some of the city & county first time homebuyer programs are good and some are not so good (higher interest rate and higher closing costs + income restrictions and geographical restrictions). Without reading the specific program requirements it is impossible to know which works for you.

Anonymous · ‎05-23-2015

Good luck in your journey, and I will be watching closely as I want to buy a house in Ohio soon as well (live in NW part of the state).

Anonymous · ‎05-23-2015

I applaud what you are doing. Working 2 jobs, and methodically working to rectify past mistakes. I like the way you didn't blame someone else, or ask for help. You just went to work.

The recent closed accounts undoubtably will tap your CS, only question is by how much. But don't let that bother ya. My guess is you might still be a year away from a mortage. You have to let the dust settle on recent developments. Nurture you secured CC, in your situation you're gonna hafta to prove to them you can be responsible, all you're asking for is a chance to do that. Soon someone will offer you a better card, and from there you're on your way. Nothing builds a good score like a solid performance in revolving credit.

I'd keep the good fight till my score reached the 670s. If you go looking for stuff with a 640, but rising score, it will cost you some money by not being just a little more patient. Scores in the 670-700 opens up more options at better rates and terms.

But thats just what I'd do.

Anonymous · ‎05-24-2015

I agree that the lack of rent payment documentation is probably going to be a problem. One thing you could try is to go to Staples or Office Depot and buy a receipt book. Fill out a receipt for each rental payment you've already made to the landlord, including the date and amount paid, then ask the landlord to sign each one. Going forward, hand your landlord a receipt with each cash payment and have him sign it. Or pay by Money Order from now on and keep those receipts.

Lenders are skittish about any kind of cash transaction without a paper trail of some kind they can follow. Receipts for cash payments or copies of Money Orders might be enough, but be prepared for them to ask your landlord for a statement or even copies of his bank statements to show your rent deposits. Hopefully it won't come to that, but it might.

sports1965 · ‎05-24-2015

i didnt have to provide any proof of ontime rent payments

But i was approved by the AU for an FHA mortgage

So if u can get approved by the AU u should be ok

StartingOver10 · ‎05-24-2015

@sports1965 wrote:
i didnt have to provide any proof of ontime rent payments
But i was approved by the AU for an FHA mortgage
So if u can get approved by the AU u should be ok

Yes, but this is going to be difficult with the OPs stated score in her original post. If she pulls the current mortgage scores we would have a better idea

Anonymous · ‎05-24-2015

What scores are needed for FHA AU approval and why is it better?

Anonymous · ‎05-24-2015

@sports1965 wrote:
i didnt have to provide any proof of ontime rent payments
But i was approved by the AU for an FHA mortgage
So if u can get approved by the AU u should be ok

I was AU as well, so I didn't have to go through rent verification either. From the info provided in the original post however, AU is probably not going to be an option so it'll likely to be a manual underwrite which will trigger rent verification (among other things). I think the original poster is wise to be thinking ahead and getting prepared for a manual underwrite; if it doesn't happen, then that's awesome. But if it does, she'll be ready.