Is it possble to qualify for FHA mortgage?

TXempress · ‎02-13-2010

I would like to build a home with a builder in a master planned community. I would like to start the process in June or July and the builder has said that they need preapproval at least a month after signing contract.

I have had credit for 6 years and I have 2 installment loans that I applied for in April and May last year. My average age of accounts is ~ 3 years.

My Fico scores are TU-617 EQ-576

I have one 30 day late from October 2009- my bank changed the way check by phones must go through and I was unaware. CC company reps were insisting that return was NSF. Situation was rectified and paid but Company refused to make any changes.

My credit utilization is currently 88% on ~ $14,000

I plan to pay down $7000 by July to bring down utilization to ~35%

By July I will have $14K for down payment/ closing costs. I plan to continue to save and will pay off CC completely while home is being built.

Income is $140K year, have been at job 1 year, was in grad school previously. I would like to borrow up to $260K

Will my scores receive enough of an increase by June/July to qualify for preapproval? I have spoken with LOs from Chase who say I need 620 Fico scores. Is there anything else that I should be concerned with?

Message Edited by TXempress on 02-13-2010 09:49 PM

Anonymous · ‎02-13-2010

Your middle score needs to be 620 or better to qualify with most FHA lenders. FHA does allow mortgages to be underwritten for lower scores, but banks prefer to play it safe.

You're not that far away from 620 though.

Don't app for ANYTHING... you don't want any more INQs on your reports. Get those balances on the cards paid down to 10% of their credit limits to win some more points.

Then don't start apping for mortgages until you have about 10% of your planned purchase price set aside for D/P, closing costs and moving expenses. For a $260,000 house, plan on bankrolling $26,000 into savings or some other liquid account. Even though D/P on FHA is 3.5%, that doesn't include the closing costs... like PMI, real estate transfer taxes, lender's charges, points and a bazillion other fees.

You also got plenty of time to try to goodwill off your recent lates. That will help bump you above the 620 mark.

TXempress · ‎02-13-2010

Thanks!

How do I goodwill off the recent late?

I have no plans for applying for any other credit this year.

I was planning to apply for the pre-approval in June when I will have $14K saved- not counting the $2K earnest money which will be applied to closing costs , and $22K in my 401K (I won't be using any money from that but will show it as an asset).

My plan was to save for closing costs during the building period which would be an additional $15K in my bank account at least.

Also my Experian Plus score is 676 but I believe that is useless and has no relationship to what the lenders see.

Anonymous · ‎02-13-2010

There's some examples of goodwill letters you can find on the Internet. I think there's some here on the forums somewhere, search is your friend. Basically you're appealing to the creditor to remove the bad mark off your credit report in good faith. Some people report mixed results doing this, others have had great success in removing bad marks... it depends on the creditor and how much the creditor treasures their relationship with you.

Waiting for June to app for an FHA loan seems like the good bet--your warpile of cash should be good enough I think. I'm on the same track as you are but for a bigger loan amount.

Make sure you budget a few thousand extra for unforseen stuff that can happen, like 2nd-inspections and your out-of-pockets you will have after you get the keys... like all those trips you're going to be making to Home Depot.

Maybe someone else can answer this one, but I don't know how effective showing the $22K in your 401(k) account will be. That money you have in there is an ERISA-protected account. The ERISA law is unattachable in a bankruptcy or lein if you ever file for bankruptcy---nobody can get access to that money... only you.

It doesn't hurt to show it to the bank, but I don't think the underwriters will care one way or the other that you have money in there, no matter how much money you got in that account---legally they cannot touch it no matter what happens to the house. Same goes for any other ERISA-protected account like an IRA plan.

In your case you won't be withdrawing any of the 401(k) to use as D/P money, which for certain taxpayers they qualify for an exemption to the early withdrawal penalty for first-time homebuyers. If that is your case and you do need to increase your D/P, that might be a place to look for the funds. Talk with your accountant to make SURE you can get the money back after you file your taxes if you need to go there. If you do need to do this, then you need to check with your benefits administrator to see if they take out the penalty for early withdrawl out of your 401(k).

If they do, you need to adjust your withdrawl amount to cover for the penalty, then file your taxes so you offset the withdraw---so you'd want to buy the house late in the year so you can file your taxes early in the next year.

TXempress · ‎02-13-2010

Great. I'll search for the goodwill letters, I appreciate that tip

If the 401K won't make a difference its no biggie. I can definitely have all the cash needed on hand at closing and the realtor I will use gives 1% cash back which can be used towards closing costs but I am not counting on that money.

Thanks for your help!

Jazzzy · ‎02-14-2010

@TXempress wrote:
I would like to build a home with a builder in a master planned community. I would like to start the process in June or July and the builder has said that they need preapproval at least a month after signing contract.

I have had credit for 6 years and I have 2 installment loans that I applied for in April and May last year. My average age of accounts is ~ 3 years.

My Fico scores are TU-617 EQ-576

I have one 30 day late from October 2009- my bank changed the way check by phones must go through and I was unaware. CC company reps were insisting that return was NSF. Situation was rectified and paid but Company refused to make any changes.

My credit utilization is currently 88% on ~ $14,000
I plan to pay down $7000 by July to bring down utilization to ~35%

By July I will have $14K for down payment/ closing costs. I plan to continue to save and will pay off CC completely while home is being built.

Income is $140K year, have been at job 1 year, was in grad school previously. I would like to borrow up to $260K

Will my scores receive enough of an increase by June/July to qualify for preapproval? I have spoken with LOs from Chase who say I need 620 Fico scores. Is there anything else that I should be concerned with?

You may not be that far from your needed 620, but you don't know your EX. Also, the TU pulled by your lender will be different than the TU you can get here at myFICO, so you will basically have 2 of the 3 scores unknown until you apply. It is TU98 that is available to the public, and it is likely that your trimerge report will include the TU04, which we can't buy anywhere.

One of the fastest way to raise those scores is by getting your utilization down. I would definitely be aiming for lower than your planned 35% if there is any way to do so. Also...remember...it is important for you to manage the reporting when you try to maximize your scores. That means that you want to go online and pay those cards before the statements even cut. It is the statement balance that will be reported to the CBs, so you have to manage what reports. Pay them before you get the statements for the largest impact.

Have you checked with a potential lender to see what kind of impact that recent late payment may have? It would be great if you can get that late payment removed. Some want to see a clear history for a certain number of months. I would call and ask what their requirements are. That could end up being your biggest issue.

Anonymous · ‎02-14-2010

That's a good idea.

Even if you don't pay your cards in full because you can't right now---you should still change up your payment to a much earlier date. Instead of waiting for the credit card bill, shift your budget so the card is paid the business day before the statement is cut.

Manage your credit card online to make sure you don't fall into the trap where the credt card payment is applied to the wrong billing period. If your statement cuts on the 14th and payment is usually due on the 27th, then submit one payment now like you normally do, and then start paying the card off on the 13th of every the month instead of waiting around near the 27th to pay it.

That way on your credit reports it looks like you're paying the debt down faster and you'll get some FICO bumps a month earlier than normal.

You also have to do your income taxes. Figure out how much of your tax refund you absolutely need right now and put ALL of the rest towards your debt. Don't even hesitate--just do it. That will accellerate and moviate you to get that utilization down before your deadline.

TXempress · ‎02-14-2010

Thanks for the tips.

How much lower than 35% do I need to go? Do I need to get 20%? 10%? Zero? I could probably go lower but it may impact when I will have my downpayment. However I would prefer to pay off everything even if it takes another month or two, if that will help my score. IfI need to shift my timeline back till August it can be done.

I will also change the payments, I have been doing this with one of my cards but that was just by chance I will shift things around and do it for the others.

StarraeAday1 · ‎02-14-2010

For maximum FICO scores, I've always heard that you want your utilization between 1% and 9%.

Foreclosure - June 2017
Ch. 7 BK - Discharged January 2018
6/2020 - EQ 680 | EX 691 | TU 707

Jazzzy · ‎02-14-2010

@StarraeAday1 wrote:
For maximum FICO scores, I've always heard that you want your utilization between 1% and 9%.

That's what I've heard as well....and, if you want to get into expert tweaking....

Apparently EQ likes to see some revolving credit use....so....some users, in order to maximize scores, go online and pay monthly balances BEFORE the statements even cut, but leave a small charge of $10-20 on one card. They then go online and pay that off as soon as it reports.

Do some reading here in all the forums while you're getting ready to do this. You are giving yourself a lot of time, and that's good. The ones who are the most frustrated are those who rush in with lots and lots of issues to deal with.on their credit reports and want to close in time for the credit. It takes us time to get into our credit messes, and it takes time to get out of them. You're in good shape.