Just starting out

[Anonymous]

So a little bit of background on me and my situation: I am 19 years old and a college student. I had no credit until Oct 2013. I opened up an unsecured credit card. I have never been late on a payment. In Nov 2013 I got a car loan (it was $13,000. My dad cosigned). I have since got that loan down to $11,000. My credit score right now is 687 (mid). I am married, and my husband was a victim of identity theft and we are currently sorting all of that out. Everything should be off credit report as of middle of next month. His score is 550. He has an unsecured card and has never been late, so we are hoping his credit score will go up soon. We are just now started to look into buying a house, we want to have a closing date when all said and done by summer 2015. I contacted a realtor already to get the process started (he is also my car insurance agent). He got me a "counseling" with a loan officer at a bank, so he could help me out and steer me in the right direction (did this because the loan officer is his brother). I just have some questions about the whole process, since we are just starting out. And by starting out I mean we are in the process of REALLY trying to get our credit and savings where they need to be.

1. I know we at least need to wait until my credit card and auto loan have been open for 6 months, which will be April and May, respectively. My first question is: Will we need to wait longer than 6 months? The realtor says he doesn't know, and the loan officer just answered some questions at this point. Some of the things I have read say that you need to wait for 24 months until you can get approved for a mortgage. Is this true?

2. I don't know if anyone here can answer this, but if I pay off my car loan too fast will that hurt me? I know I don't have any penalties for paying off early, but I have heard that paying off before half of the loan period will really hurt you in the long run. Is this true? I want to get it paid off ASAP so I don't have to worry about the payments anymore.

3. I am looking into getting either a VA loan or a USDA loan. I have read that both of those have zero down, only paying closing costs, and the interest rates are comparable. Also, the requirements are practically the same.  Does anyone know which one is better? 

[Anonymous]

Forgot to mention: In May I will be taking my dad off of the car loan. Will this make a difference? I want to add my husband to it at that time to help his score improve more, but am hesitant to because that will add more debt to his report. Not sure about this.

[ShanetheMortgageMan]

You could be OK at the 6-month mark.  Some lenders require a minimum amount of time you need to have credit for (commonly is 12 months), most are fine with less history if you are able to get an automated underwriting approval (only can be determined after credit is checked).

The longer you have the car loan for, the stronger your credit scores will become.  Part of your credit score is made up by the average age of accounts (AAoA), so having accounts around longer will increase the AAoA and thus improve your credit score.  You can't really compare how much you'd save in interest on the car loan vs. how many more points you'd get by having a longer payment history on it.  However your chances to get approved for a mortgage increase with a longer credit history, so you may just want to consider paying it off right after closing on your new home.

If you have both VA & USDA as options, the VA loan is almost always better as it won't have an annual guarantee fee like USDA does (.4% of the loan amount, divided by 12 months = monthly amount) plus your file doesn't need to be sent to USDA for their review (which can take 1-3 weeks) before you can close.  Plus if you are exempt from the VA funding fee (which is 2.15% with 0% down & if it's your first time using VA financing) then you save quite a bit on that over USDA's guarantee fee (which is 2%).

You mentioned you were 19 years old - so are you a veteran or is your husband a veteran?

You also mentioned you are a college student, so will you be working full time by the time you apply for the mortgage?  Or will the financing just be in your husband's name (I assume he works full time)?

[Anonymous]

As far as the college goes, I graduate at the end of the summer and already have a management job lined up. I will still be working in the same place, just changing positions. I will almost be making $40k more than I do now. My husband is a veteran with a service connected. He is 24. We have already been told we can get a VA loan, now we just have to qualify for it.

[ShanetheMortgageMan]

Using your new job shouldn't be a problem as long as you've been there for 1 month & can supply your college degree/transcripts to prove you were in school prior to then. 

If you are able to put your husband on the car loan then that would help his scores, I am not sure how open your car loan creditor would be to add someone though, they may require he has as good of credit as you do.  Since you already have the car payment included in what your income could qualify for, then adding him to the account wouldn't hurt reduce what he could qualify for (unless for some reason you wouldn't be on the loan).

[Anonymous]

Okay, so a little confused here. So you are saying that I can add him to the car loan without hurting his scores, right? It will just improve them. The only thing that stopped him from being on it in the beginning was that he had some medical bills and things that weren't his on his report (identity theft), so they will add him at the 6 month mark, when I was told I can take my dad off. Also: I will be working for the same employer, just changing positions. Will this really count as a job change?  I wasn't aware that would affect anything. I thought because it was the same employer it wouldn't matter. With that being said: we won't be applying for loans probably until November of this year anyways, just to give our lines of credit a little while longer to accumulate scores. Oh, and another question: My mid score right now is 687- does this seem normal to you? I thought it would take MUCH longer to get this high.

[ShanetheMortgageMan]

Positive on time credit can only help his scores (550) over time.  That is nice they agreed to add him at the 6 month mark.

If you will work for the same employer then it is not considered a job change, you can go to part time to working full time without a problem.

As long as you don't abuse your credit, then your credit scores should start out pretty good - as in the 700's.  When young people have lower scores, it's usually a combination of a short credit history + balances on credit cards near their limits (since usually it's just $500 - $1,000 limits that people are approved for at first).

[Anonymous]

So it should actually be higher? That doesn't make sense. Of course, it has been going up 40 points a month since Dec, so if it keeps going at that rate it should be good in a few more months. I'm being very careful- have everything autopayed out of my account so there is no possibility of being late, and not maxing out my card and paying off in full each month. I've been doing the recommended- using 30% of the credit or less a month. This whole thing is so foreign to me; I'm worried sick about everything. Getting done with college and buying a house and all of that. Did I mention student loans? Yeah. Anyways, thanks so much for your help! You answered a lot of my questions.

[ShanetheMortgageMan]

You are welcome.  Let us know if you have any more.