You really didn't pay off your debt, you consolidated your debt and got (hopefully) a low or no interest loan. It may not show on your CR, but it does in your checkbook! You have not really substantially changed your situation, you have simply made it look that way to lenders who pull your CR.
I suggest you repay the loan to your folks, have some reserves and a good downpayment, then buy the house.
<EDIT: Pre-apologizing if below sounds like some guy telling you how to run your life, but that's kind of what it is... $0.02>
Couple of things to add.
1) Is there something in your situation where you need a mortgage asap?
2) What were the "tons of credit cards and loans with high balances?" Which ones are still open? Which ones are you still using? <and this one is important> Which ones have balance increases since being paid off? Why?
#1 is important because preparing your credit/down payment/other debts can be a huge money saver in the long run. Not just a few hundred bucks either.
#2 is important because the spending habits that got you in debt hell (been there!) will get you back there in no time, especially with a mortgage payment... Landlords are much more forgiving of a late payment
Side note on the loan from the parents - this will probably come up, and likely be considered gift funds (otherwise, it's a loan and will count towards your back-end ratio). In that case, you'll need your folks to sign a paper saying it was a gift and you don't owe them anything.
Okay, sorry I should've made my situation more clear. My parents did give me money as a loan but asked me to pay it back slowly with no interest. They wanted to give it to me as a gift but I felt responsible for my screwup that I should pay them back. The Debt was from some bad investments a couple years ago. However I make enough and never had trouble paying my bills. My parents felt like I need to buy a house now instead of wasting money paying $1500 a month renting especially since the houses i'm looking at would essentially be the same. plus they said the housing market is at the low point. Paying off the debt and buying a house and paying my parents back in the term that we agreed on would actually save me 2k worth of payments every month. Also I know some of you guys may wonder if I have so many debts why not rent a cheaper $800 apt instead of a $1500 house. Well my answer for that is, I'm married and not single, it was my screwup that caused the debt and I did not want my wife to have to suffer her lifestyle because of my screwup. I promised both my wife and parents no more business ventures, we make enough in our jobs to live a good life. To me this is the best way to go.
Fair enough. This is an attractive market to buy in because rates are soooo low and prices are cheap (where I live at least).
Again, you'll need a letter from your parents explaining that the funds were a gift and they don't expect any repayment, otherwise the lender will need the details of the payment agreement, and it will count against your DTI ratio (just like any car payments, etc.) You don't have to do this now, but be ready to when the lender asks.
Otherwise, make sure to do the research on what you need to have ready to qualify for a mortgage. I suggest finding a couple of lender's websites and absorbing tons of info before actually talking to any of them. Hey, you have at least a month until your accounts post, right?
Just curious though, what if I waited two months and have the downpayment money sitting in my bank for the past two months. Then they wouldnt really dig that deep into where the money is coming from right? assuming I the bank only wants 2 month worth of statements.
MB asked for two months of bankstatements; I would wait until there are no large unexplained cash deposits on your statements.
Are you using a regular bank for financing? I'm just curious, because I thought that FHA required 12 months of bank statements. Am I wrong? Anyone?
From what I can understand USDA follows pretty much the same guidelines as FHA, I am going through a Mortgage Broker and every thing depends on what the Lender require. I would ask your lender what is needed so dont worry unecessarily. Their minimum score was 640 so my Loan could pass automatic UW without having to jump through so many hoops. MB only ask for the last two months of bank statements and pay stubs. I had to redo my loan application once the 1st house fell through then resubmit recent recent pay stubs and bank statements. I have to go through two Undewriting, One with the Lender then the 2nd with USDA. The 1st So far I have only had to write letters of explanations for any inquires and accounts in the past 90 days and the only baddie left on my CRAS is a Charge Off in which I have settled. I would send copies over to my Lending Agent and see if their are anything you need to take care of prior to your credit being pulled. 1st UW was submitted on 04/06/2012 friday MB said their turnaround should take 48 hours so that is where I am now.
Did you submit tax returns for USDA to calculate your income, or did they just use 2 months' paystubs?
I also submitted 2009.2010,2011 W2s and returns becuase I was preapproved in February 23,2012. They usually ask for 2 years w2s and returns but becuase I had to make sure that 2011 had a chance to report, I had to send all three to be current. MB said sometimes they do audit and check to see if the information is accurate that you submit.
I am not sure how she calculated my DTI, but I read on my credit application that my front end was 22%/ back end was 28%. I thought that it was at little lower but I dont have alot of bills, she even calculated debt that I am due to pay off in less than 10 months in which I thought was kinda unfair but I didnt argue just long as I complete my underwriting. When I calculated I thought that for instance I make 4000 gross per month and my total paymens are 349 monthly it came to 8.8% so I was way off just imagine if I had a car note.