Should we even try to prequalify??

[Jdaisy0805]

Hi there! We are long term renters, 10 yrs at the current place, 6 yrs at the last. Dh and I are 46 and 44 now, but we really want to buy a house! We have a large sum of money from a large job my husband recently completed, and will have about 50k for a down payment. Now, onto the fun stuff. His current my FICO score is 585 (I don't know what the two paid scores are on medico yet). All of the other scores are  higher-637, 616, 624. But of course those don't matter. Currently he has the following accounts in good standing, all paid on time in full:

-auto loan: $6343 current/highest 24572, opened March 21

-CC1: opened June 24, $300 limit/$0 bal

-CC2: opened Aug 24, $500 limit/$0 bal

He also has two closed auto loan accounts from 2019 and 2022 with all payments being made on time. He has a closed personal loan with all payments made on time from 2021.

Now onto the bad!

-One collections account from February 23 that I paid last week, $104. I didn't even know it was a bill owed. I disputed for them to update as being paid and balance of $0.

-One credit Card that was "closed by creditor". Opened 7/22; balance is $0. there are late payments; a total of 5, oct nov of 22 and Feb mar apr 23. Closed aug 24.

-One credit card listed as a "charge off" now, and showing late payments, most recent is dec 23. We didn't realize it was owed! They used our deposit to pay the balance, and I didn't realize there was an outstanding until too late. I paid that in apr 24, but it's showing as charge off with the balance owed ($175).

i filed a dispute, and they didn't change the balance or the "charge off"!! I did include the actual statement from the cc company showing my payment and the $0 balance. They did remove the missed payments from apr until now. I don't understand as it was never charged off, and it was paid. What else can I do here??

my husband is self employed, and we have 4 years worth of good, verifiable income. Last 2 years are 100k average. What can I do to improve his odds of approval for an FHA? I know conventional is off the table. Also, purchase price would be around 250-300k, again with a large down pmt. We live in Lancaster county, Pa. Thanks in advance for your help.

[ShanetheMortgageMan]

I'd recommend considering obtaining your husband's mortgage FICO scores.  Not sure if the 585 score you have is a mortgage score, as there are various versions of someone's FICO scores depending on the type of credit they are applying for.  If the middle credit score is below a 580 then FHA requires 10% down, so you seem to have that covered either way, but this will help determine which lenders you can/can't work with as not all FHA lenders go down to lower credit scores.

If those are the only two credit cards your husband has then to maximize his credit score I'd recommend putting a small balance ($20 should suffice) on one of them and let it report to the credit bureaus before credit is checked.  It's called the AZEO method.

His payment history seems to meet FHA guidelines, even if the loan has to be manually underwritten.  A summary of FHA's payment history guidelines when a loan is manually underwritten is:

Acceptable Payment History:

• All housing and installment debt payments must be made on time for the past 12 months.
• No more than two 30-day late payments on mortgages or installment debts in the past 24 months.
• No major derogatory credit on revolving accounts in the past 12 months:
  • Major derogatory credit is defined as:
    • Payments over 90 days late.
    • Three or more payments over 60 days late.

So if your husband's credit history meets that, then the credit history will be fine for FHA and you should feel comfortable applying.  I'd still do the AZEO method, because higher credit scores equal better interest rates for you.

Let us know if you have any follow up questions.

[Jdaisy0805]

Thanks so much for taking the time to reply and to include such helpful info! It's very much appreciated! You talked me into spending the money to see his mortgage scores, and they're 603, 603 and 641. I'm hopeful this new year will bring new home ownership!

[ShanetheMortgageMan]

You're welcome!   Scores are looking just fine for FHA too but you'll see a rate improvement if he can get 2 of them up to a 620.  Happy holidays!

[Jdaisy0805]

Thanks so much for all of your help! After "cleaning" things up on his report by paying a collections (deleted) as well as the charge off, his scores have come up quite a bit. It probably helped that I paid down the small balances on CCs to 9%. His FICO mortgage scores are now 644, 680 and 665. We are now considering going the conventional loan route since we're interested in a new build of a "custom home" on a plot. I feel like FHA may be a bit too restrictive, but I'm really not sure.

We will likely seek prequal in April/may, but I'm curious if you have any input in the meantime. Specifically, would it be possible, theoretically, to pass automatic underwriting with the lates on his report for a conventional mortgage? They are as follows:

2/23, 3/23 & 4/23 (30, 60, 90) CC-now paid in full, closed in August 24 by creditor for reasons unrelated (and unknown to me lol).

6/23-1/24 (30, 60, 90, 120, 150+)-CC Charged off and paid in full with original creditor.

FWIW, all three installment loans, the personal loan and three other CC s have all on time history, going back to 2015. I have zero knowledge in this area, and would like to be as prepared as possible when seeing a lender. Thanks in advance!

[ShanetheMortgageMan]

You're welcome, nice score improvement.  However, with those scores, and if you are putting down less than 10%, the monthly payment with conventional financing will be quite a bit higher than FHA financing will be.  Most builders are fine accepting FHA financing as well, so talk with the one you're interested in to see if they are open to you buying with FHA financing.  

It's not impossible to get an automated underwriting approval for conventional with your late payments, but there is less of a chance vs. FHA.  A loan officer can run your application through both conventional and FHA automated underwriting, using the same application and credit check, so it doesn't take much time or effort at all to see if either are an option.

[DebbsSeattle]

Using my own experience, albeit several years ago, I began consulting with a mortgage broker for several months before the shopping began. I had credit challenges in my way after a destructive divorce really messed things up on my reports. I did my first sit down in April and closed in December of that same year. He gave me the road map to work through my uglies and I began just chopping them down one by one...doing exactly what I was told to do. He was never further than a phone call away. I strongly recommend this. You might be closer than you think. He also had the knowledge and the experience to be able to get newly changed items to report quicker as he needed it to qualify a mortgage borrower. He was able to give me the word tracks that needed to be spoken exactly for desired outcomes. Having a trusted advisor in your corner is a nice thing. He had motivation...skin in the game...a dog in the fight...he would not get paid on the loan unless I got qualified and ended up a buyer. It was a win win symbiotic relationship. In the end he also had great gut feelings on the interest rates fluctuating. He only missed the best rate day by one day and got me a fabulous rate locked in with a prime lender. Good luck and enjoy the journey. It was long and hard for me but I would do it all over again for the pride of accomplishment. It is but a rung on my ladder to building wealth and obtaining safety and security in my life.

[Jdaisy0805]

Thanks again! I'm back to ask again, more specifically, as we're getting closer to "game time". We've had two credit line increases, albeit still minute, haha, so revolving limits are now $2250. Balance is $20. The above mentioned charge off and lates still applicable, and there is literally nothing left I can do to improve scores other than time. Scores will update again in 4 days, but I'm expecting very similar numbers to those previously mentioned (middle mortgage around 665, maybe a touch more). 

self employment income-average of 2 yrs-$110k

potential down payment-$40k (we're aiming for 10%)

purchase price-somewhere around 350

0 debts otherwise since we only have 8 auto payments left

The reason I'm reaching out again is we're finding very little inventory within an hour of our current location, and even then only about half of properties will even accept FHA financing. Most want conventional approval before we can even tour. It's becoming a bit depressing honestly. Well likely see a lender in April and go from there, but I guess I'm looking for guidance on what to anticipate. Also, any recommendations as for institutions?

[Jdaisy0805]

Thanks for taking the time to reply! I appreciate it. We found a real estate agent we really love, and he's super understanding and patient. We haven't found a broker/lender yet, though. I've been working through credit since November of last year, and there truly is t anything else we can do to make improvements on that front. The charge off refuses to delete, and my goodwill letters for the CC lates resulted only in "disputes" that were then resolved. The only thing that will help at this point is time. We do have a lot of good history there, too 🤷‍♀️.

[ShanetheMortgageMan]

You're welcome.

I used the figures you provided and it should be possible to get approved up to around a $450,000 sales price, using estimated property taxes of about $9k/year (those can vary quite a bit in PA, depending on if you are within an incorporated city or not). 

For those properties that say they'll only accept conventional financing it's probably because there is something about the home that won't meet FHA minimum property requirements.  In that situation FHA has a renovation loan that will finance any needed repairs in order for it to meet FHA minimum property requirements, it's called the FHA 203(k) loan.  Most sellers aren't aware that type of financing exists, so they just say they're only accepting conventional financing.