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Try for USDA or go for FHA?

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Try for USDA or go for FHA?

My SO and I are looking to purchase a home in July or sooner if we can. We've been slowly working on getting everything ready and have determined that since the area we want to live in is within a USDA eligible area we'd like to attempt getting a USDA loan for the obvious benefits.

 

Our current situation:

My SO would be applying alone with a middle score of 625 (FICO 2 - 687 ; FICO 4 - 625 ; FICO 5 - 577) as of today and I know it would need to be at least a 640 since we have very low reveserves. Currently she has 2 credit cards with a $0 balance (a Victoria Secret Card she got 14 months ago and a Secured Capital One Card she got 1 or 2 months ago) and a single installment loan of around $1300 (student loans) and I believe a $300 account in collections (we can pay this off if need be). These are the only 'debt' she has in her name other than monthly Car Insurance. The only blemishes she has on her history are two 90/120 day missed payments from 2014 on the school loan and one missed payment two months ago from another account.

 

Im curious as to whether paying all of the accounts on time (2 Cards, 1 Installment Loan, and her Car Insurance) for the next few months would raise her FICO 4 enough to qualify for a USDA or whether we should be focusing on an FHA loan and FHA area (as that opened up a lot more options even if our preferred area is still in the USDA area)?

 

Thanks everyone, and sorry if this is a silly question or lacking any information we've been trying our best to do our own research whenever possible but are pretty hung up on what seems to be these 15 points holding us back from getting an awesome deal for possibly the next 30 years haha.

6 REPLIES 6
Established Contributor

Re: Try for USDA or go for FHA?

the carrying of a zero balance helps add zero points to your score....carry a balance < 10% if you can.

 

Why are you holding on to a collection account?  Is it a valid account?  Why wouldn't you pay it?   

 

You also mention a "missed payment" a couple months ago.  Does that creditor report to the bureaus?  If so and you are not careful, you might "think" you've gotten caught up but that creditor might be reporting that account or a portion of it as "past due" which acts like an anchor to drag your score down.

 

Good luck, you'll do it!

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 2 of 7
New Member

Re: Try for USDA or go for FHA?

Thank you NC_Mtg_Loaner for replying so quickly! The 3B report is a bit confusing as under the 'Accounts' section it shows the account as 'Collections Account' reported on 2/2018 but under the 'Collections' section it shows zero accounts in collections and also mentions it being one of the positives on my overall dashboard. I'm a bit confused since CreditKarma also shows it as a 'Closed' account. I was worried trying to close out the valid collections account since it seems to 'not exist' would in turn pull the credit score down when we are so close to trying to apply.

 

We will definitely start carrying a small balance on the card as well, we were planning to AZEO with both of them using the Capital One secured as the Except One however I read that only really works when you have at least three.

 

As for the 'missed payment' I mentioned the only place I see it is in the 3B Report under Equifax as the lastest missed payment being 2 months ago, when I look at CreditKarma and anything else it doesn't show at all.... Since it wasn't reported to TransUnion would disputing it even help raise my middle currently?

Message 3 of 7
Established Contributor

Re: Try for USDA or go for FHA?

Please take a look at the lenders handbook for USDA guaranteed loans (or direct if yoh qualify for that) so that you can be as knowledgable as possible before applying rd.usda.gov > personal > guaranteed loans. Pay special attention to credit requirements as both a willingness and ability to repay the loan is required. Usda pulls trimerge credit report so all reports. No lates in the last 12 months.
Message 4 of 7
New Member

Re: Try for USDA or go for FHA?

Thank you Firemediii I’ll definitely give it a good read.

That’s honestly where my confusion lies as the 3B report shows a late payment two months ago reported by Equifax but does not show to whom or where as the only two open accounts show on time payments on CreditKarma for the last year. I’m having trouble locating to make sure that the 3B report is correct and if so how do I got about finding why it’s reporting that one payment?
Message 5 of 7
Member

Re: Try for USDA or go for FHA?

You should ask to do a pay to delete on that collection account. That will raise your score.

Message 6 of 7
Established Contributor

Re: Try for USDA or go for FHA?

Equifax is very difficult to work with. See if you can pull your free annual credit report from equifax and the others. It will go further back than the 12 months credit karma does.
Message 7 of 7
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