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Hello. Need (gentle) advice on credit repair before mortgage. We’re considering a 6-month timeline but things may change if we find the right place in the meantime. Apologies if I have this posted in the wrong subforum and also sorry for the ton of info!
My partner, good friend and I are looking to buy a home as a trio by the end of the year. A is myself, B is partner, C is friend. We may only put A&B on the mortgage; we would like to have all 3 though, depending on the outcome of plans below. We are first-time homebuyers and would likely need down payment assistance to get to 20% DP. We were looking at procuring our mortgage conventionally through Alliant (where some of us are already members) however their closing costs are pricey. Also looking at PHFA’s options for first-time and disabled home buyers (I have disabilities for which I receive public medical assistance), but they require a 680 credit score [ https://www.phfa.org/homebuyers/ ] that I am not confident I can reach in a reasonable window. We have not yet identified a property to go for. Still in the looking/repairing phase.
For A (myself):
1. Mortgage Credit Scores: 648 (EX 630 - EQ 631 - TU 631)
2. Credit Negatives:
a. BK7, filed 06/17, discharged 10/17.
b. High util on current CC’s despite excellent payment history
I. CC1; Status: Pays as agreed; $769.02/$1,000.00; min pmt $32.16
II. CC2; Status: Pays as agreed; $4,968.05/$4,800.00; min pmt $155.00
III. CC3; Status: Pays as agreed; $999.49/$1,000.00; min pmt $20.00. Comment on account “Account previously in dispute - now resolved - reported by subscriber” (transaction dispute resolved in my favor in 2020)
IV. CC4; Status: Pays as agreed; $2,443.02/$2,400.00; min pmt $72.00
V. CC5; Status: Pays as agreed; $3.433.92/$3,400.00; min pmt $172.00
3. Gross Income & sources: $46,377 2022 AGI (f/t W-2 wage employed since 2009)
4. Monthly debt payments: $450 minimum payments on CC’s, no other debt
5. Assets/Reserves: Paycheck to paycheck; I have a pension but it has no cash value until resignation/retirement
6. Other info: Current rent payment: $625 + utilities (management company)
For B (partner):
1. Mortgage Credit Scores: 781 (EX 736 - EQ 776 - TU 747)
2. Credit Negatives:
a. Thin credit file (no CC’s)
I. Soon to be opened (next several weeks) auto loan for $350-400 minimum payment; amount expected to be around $16,500
II. SL’s, Status: pays as agreed; remaining $18,017, min pmt $0 (Biden SL pause)
3. Gross Income & sources: $25,333 2021 AGI (1099-NEC and 1099-MISC self-employed since 2015)
a. Higher income in 2022, by between $5-10k, but waiting on some forms to arrive to be able to file for that year.
4. Monthly debt payments: $150 minimum payment on consolidated SL’s which currently have $0 due per credit reports, $350-400 new car loan in a few weeks, no other debt
5. Assets/Reserves: maybe $6k in savings.
6. Other Info: Current Rent Payment: $625 + utilities (management company)
For C (friend)
1. Mortgage Credit Scores: Unknown, likely in 500’s or low 600’s. (EX 555)
2. Credit Negatives: This is best I can tell by reading CR’s.
a. CC6 (used to pay off a medical bill); Status: Charge-off; DOFD: 01/23; Most recent: 06/22; amount $1,355
b. Auto Loan; Status: does not say but appears to have delinquency; DOFD: 12/2022 (30d); Most recent: 12/2022 (30d); min pmt: $465; remaining: $15,077
c. SLs; Status: Pays as agreed; remaining $9,534; min pmt: $0 (Biden SL pause)
3. Gross Income & sources: $38,600 2022 AGI (f/t W-2 wage employed since 2021)
4. Monthly debt payments: $465 minimum payments on auto loan
5. Assets/Reserves: Paycheck to paycheck
6. Other Info: Current Rent Payment: $700 + utilities (sublet/private landlord)
For all of us:
7. Location: currently renting in Washington County, PA, USA, looking in the SWPA region (mainly northern/western Washington County, PA, to split our commutes reasonably fairly; small chance of southern/western Allegheny Co, or the borders of Fayette/Westmoreland)
8. Property Description: Single family home
9. Property Value: between $150-250k
10. Occupancy: Primary residence for all 3.
11. Transaction Type: Purchase
Current plans:
A. Pay off per following table over next 8 months (including this month, and this takes into account a rough estimate of interest), bringing everything to under 30% total util and under 50% individually on the remaining 3 cards. I know that having 3 cards (vs. 2) paid-off would be ideal, but I can’t seem to configure the amount of cash I have to getting that done in this span of time. I should be able to get down to only one card with a balance & under 30% total & individual util, by end of 2023. Thoughts?
Balance Now | Balance by | Balance by | Balance by | |
CC1 | $769.02 / $1,000.00 | $0.00 | $0.00 | $0.00 |
CC2 | $4,968.05 / $4,800.00 | $2,368.05 | $2,008.05 | $1,298.05 |
CC3 | $999.49 / $1,000.00 | $0.00 | $0.00 | $0.00 |
CC4 | $2,443.02 / $2,400.00 | $1,103.02 | $403.02 | $0.00 |
CC5 | $3,433.92 / $3,400.00 | $1,673.92 | $1,253.92 | $0.00 |
TOTALS | $12,613.50 / $12,600.00 | $5,144.99 | $3,664.99 | $1,298.05 |
B. File 2022 taxes ASAP. The auto loan can’t be avoided. Would it help to open a CC now to help pad the credit file (obviously using it for one bill and autopay in full before due date) or would that not matter since mortgages go by lowest score? Thoughts?
C. PFD or GW the charge-off and GW the auto loan late payment. Are PFDs still used successfully? Not sure of strategy here, Thoughts?
All. Continue savings. Maybe $10k total by end of year? Hopefully more, but it depends on B’s variable income situation.
I couldn't tell if you were aware or not, but you don't need 20% down to qualify for a mortgage. USDA financing doesn't require any down payment, same with VA mortgages, and FHA just requires a 3.5% down payment as well as conventional can be done with just a 3% down payment too.
Also, most government down payment assistance options require you to be within certain income limits. PHFA's most popular one is called HOMEstead Downpayment and Closing Cost Assistance Loan and the income limits can be looked up at https://www.phfa.org/forms/homesteadguide/appendices/01.pdf, note that some areas are ineligible including Washington County and most areas of Allegheny County.
Since your plan is at least 8 months out I'd recommend person B establish some credit card history, by being added as an authorized user on any of your cards that would have $0/low balances and/or obtaining their own. Their scores are fine but it'll still help their credit depth out in the long run. To use their self-employed income in 2022 they'll need to have filed their 2022 tax return.
For person A to maximize scores I'd recommend you follow the AZEO method. If it's not possible to zero out all credit cards except one then I'd zero out as many as possible (concentrate on the higher interest rate ones first). Not sure if not having any savings is a result of you using those funds to recently pay off debt or if your debt is preventing from you accumulating, but owning a home can have unexpected expenses that won't be as big of an issue if you're already in a habit of putting aside savings from each paycheck.
Your friend, person C, will need the most help in order to bring their credit up. The recent late payments/charge-off will probably prevent them from going on a mortgage until they've had at least 12 months of clean credit history. I'd suggest they try both GW & PFD methods. With their credit, it seems like they would first be able to qualify for an FHA loan and then with further credit improvement conventional may be an option. If person C's credit is preventing person A & B from getting qualified then you might want to see what exactly person A & B can qualify for by themselves.