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Trying To Buy A Home. What do I need to focus on?

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Trying To Buy A Home. What do I need to focus on?

My goal is to buy my first home(townhouse or condo) next year. Credit wise what do I need to focus on aside from getting my score up. I know I need at least 640 to qualify for FHA but I want to try and get to 700 by January. Here’s what I’m dealing with:
FICO 8 scores
TU: 629 EX: 621 EQ: 623
No Bankruptcies
A few accounts in collections. Mostly medical bills. One falls off in October.
7 Hard Inquires all from this year
18 Accounts
Credit History about 4 years old
99% on time payments(missed 1 student loan payment 5 years ago and it’s been haunting me ever since!)
Auto Loan which will be paid off October 2020.
Credit UTI currently at 41% but I just applied for 3 more cards which should bring me down to around 35% lower once I pay off a few.
I make about 30K
Let me know if I’m forgetting anything and what I need to focus and work on. I want to start applying for mortgages probably Feb/March if possible.
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Super Contributor

Re: Trying To Buy A Home. What do I need to focus on?


@1stCarBuyer wrote:
My goal is to buy my first home(townhouse or condo) next year. Credit wise what do I need to focus on aside from getting my score up. I know I need at least 640 to qualify for FHA but I want to try and get to 700 by January. Here’s what I’m dealing with:
FICO 8 scores
TU: 629 EX: 621 EQ: 623
No Bankruptcies
A few accounts in collections. Mostly medical bills. One falls off in October.
7 Hard Inquires all from this year
18 Accounts
Credit History about 4 years old
99% on time payments(missed 1 student loan payment 5 years ago and it’s been haunting me ever since!)
Auto Loan which will be paid off October 2020.
Credit UTI currently at 41% but I just applied for 3 more cards which should bring me down to around 35% lower once I pay off a few.
I make about 30K
Let me know if I’m forgetting anything and what I need to focus and work on. I want to start applying for mortgages probably Feb/March if possible.

Hi and welcome to MyFICO

 

The first thing I want to say is STOP applying for CCs. In addition--and I'm not trying to be mean here but practical and realistic--paying your debt down/off is the best way to lower your UT, not getting additional CCs to pad utilization. Lenders will see through this.

 

Second, your AoYA should be a minimum of 12 months before applying for a mortgage. So in essence, you need to wait until July 2020 before applying for a mortgage since you just applied/opened 3 new accounts.

 

What is your monthly minimum payments on all of your accounts? Since you have 18 accounts, hopefully 17 are reporting $0 balances and only 1 is reporting a balance <8.9%. If not, work on getting as many cards as you can to a $0 balance and SD them is a good idea.

 

Are the medical collections <$2K? If yes, this may work in your favor where you don't have to pay them off depending on the Lender.

 

What price range are you looking at? $30K is kind of on the lean side and if you are carrying a lot of debt, that's going to decrease your buying power even further.

 

Do you have any student loans, judgments, or liens? If no, perfect!

 

So to recap: Don't apply for anymore CCs, stop using your CCs unless you're PIF, and pay down existing debt.

 

GL2U


DEC 2019: EX 816, TU 820, EQ 810
DEC 2018: EX 777, TU 783, EQ 799

|| AmX Cash Magnet $40.5K || NFCU CashRewards $30K || Discover IT $24.7K || Macy's $20K || NFCU CLOC $15K || CitiCostco $12.7K || NFCU Platinum $12.5K || Apple Card $6.5K ||
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Valued Contributor

Re: Trying To Buy A Home. What do I need to focus on?

Stop ALL inquires and for gods sake no more new Accts. That is called “Credit Seeking Behavior” and it will reduce your Fico Score.

Next be aware that Fico 8 scores have nothing to do with mortgage lending. You need to watch your actual Fico Mortgage Scores which are generally significantly different (lower than 8 or 9)
Every time you get a Hard Pull checking your credit that a 4 point reduction (X 18 inquiries!).

Stop stop stop!
Message 3 of 7
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Valued Contributor

Re: Trying To Buy A Home. What do I need to focus on?

Something that I don't hear come up much is down payment.

 

Make no mistake; you certainly want the higher scores to help push down the interest rate you'll get, but I also believe one of the easiest ways to get the bank feeling good about your application is to come with a solid down payment. You're going to get much more favorable terms from a lender if you show up willing to do a 20% down payment than if you come with something small like 3%, or worse, not even enough for closing costs. Those larger down payments push the risk down for them because the home will be worth more than the mortgage note right out of the gate and if the worst should happen their chances of recovering their money is much higher.

 

I'd say focus on wiping our your existing debt and saving up for a down payment; your scores will go up naturally as you do it.

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Re: Trying To Buy A Home. What do I need to focus on?


@iced wrote:

Something that I don't hear come up much is down payment.

 

Make no mistake; you certainly want the higher scores to help push down the interest rate you'll get, but I also believe one of the easiest ways to get the bank feeling good about your application is to come with a solid down payment. You're going to get much more favorable terms from a lender if you show up willing to do a 20% down payment than if you come with something small like 3%, or worse, not even enough for closing costs. Those larger down payments push the risk down for them because the home will be worth more than the mortgage note right out of the gate and if the worst should happen their chances of recovering their money is much higher.

 

I'd say focus on wiping our your existing debt and saving up for a down payment; your scores will go up naturally as you do it.


Iced, I definitely understand what you're saying, but there are CUs where if your scores are high, you can get an awesome mortgage package. My NFCU mortgage last year consisted of a 4.25% conventional loan, $0 down, no orgination fee, no points, and no PMI. Yep, I couldn't believe it myself! And NFCU didn't look at me with the side-eye because bottom line, I had the money for a downpayment, but refused to use my money. My motto--use OPM (other people's money).

 

Now granted, NFCU keeps all their morgages in-house so that could have a lot to do with it too. And of course, this benefits me because they will service my loan for the life of the loan.


DEC 2019: EX 816, TU 820, EQ 810
DEC 2018: EX 777, TU 783, EQ 799

|| AmX Cash Magnet $40.5K || NFCU CashRewards $30K || Discover IT $24.7K || Macy's $20K || NFCU CLOC $15K || CitiCostco $12.7K || NFCU Platinum $12.5K || Apple Card $6.5K ||
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Valued Contributor

Re: Trying To Buy A Home. What do I need to focus on?


@CreditInspired wrote:


Iced, I definitely understand what you're saying, but there are CUs where if your scores are high, you can get an awesome mortgage package. My NFCU mortgage last year consisted of a 4.25% conventional loan, $0 down, no orgination fee, no points, and no PMI. Yep, I couldn't believe it myself! And NFCU didn't look at me with the side-eye because bottom line, I had the money for a downpayment, but refused to use my money. My motto--use OPM (other people's money).

 

Now granted, NFCU keeps all their morgages in-house so that could have a lot to do with it too. And of course, this benefits me because they will service my loan for the life of the loan.


Except that it's not their money, it's yours. Borrowing that much more is that much more principal you're paying interest on. For every person who's disciplined enough to invest that down payment and beat the interest rate, there's 90 who either won't beat the rate or won't even invest that money and use it on something else. If the risk were low for me as a bank, I'd want people doing that too because then I'm collecting more interest.

 

A scenario that's come up in our decision toward our next home purchase is whether to pay a larger down payment (around $1 million) or to park that money in some dividend stocks and use the dividend income to pay the mortgage. We've been approved at 3.75%, so breaking down the amortization means that we have to get right around a 4.4% return on dividends to break even. For the math-heads, that's $37,400 in dividends ($44,000 - $6,600 for cap gains taxes) versus ~$37,200 in interest year 1, ~$36,600 year 2, and so on. Doable to be sure, but it's a marginal gain.

 

Were we to have a 4.25% rate on the mortgage, year 1's interest would be north of $42,000, requiring a consistent dividend return of around 5%. The number of lower-risk stocks that offer that rate is quite small, and we'd then have to choose to risk being overweight in a few stocks or take a loss the first few years while we paid down the principal.

 

Either way, that down payment is "invested" - it's just whether it's tied up in home equity or in the stock market.

 

Don't get me wrong, I'm not saying one should or shouldn't consider these angles. I'm just pointing out it's not using OPM to finance a house and that a low/no down payment or closing costs don't mean it was cheap or free.

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Re: Trying To Buy A Home. What do I need to focus on?

First, FHA does not require a 640, many of us lenders go down 550 on this product for a 96.5% LTV. Conventional also doesn't require a 700 credit score. You didn't meantion your available cash to close which is a major factor in qualifying for a mortgage. Hopefully you have that accept covered either by savings or using your 401K. Other than that, you appear to be a good candidate for a home loan.

 

Best wishes to you!

Mortgage Banker - Since 1988 offering FHA, VA, USDA, Conventional, Jumbo, Portfolio and NonQM Loan Products. Licensed in AL, AR, AZ, CA, FL, GA, IL, IA, IN, LA, MI, MO, NC, NE, NV, OH, OK, OR, SC, TN, TX, VA and WI.
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