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USDA Guaranteed Loan Plan of attack

New Member

USDA Guaranteed Loan Plan of attack

Hi all, long time listener first time caller...

We wife and I are getting ready to finally pull the trigger on buying a home and are planning on using a USDA loan or an FHA if needed. Our lowest mortgage FICO (mine) is 637 and I’m hoping to bump it past 640 prior to pulling the trigger on pre approval but I’m not sure which accounts to pay first.

My credit breakdown is as follows:

My CC’s

All paid on time every time
CC 1 9000/12000, payment 240
CC 2 7000/11000, payment 260
Cc3 3500/5000, payment 140
Cc 4 3500/4000 payment 40

Installment Loans
Auto loan with 2900 left, 160 min payment, 1 x 30days late 9/18

Student loan (Fedloan) with 777 left, 1 x 60 days late

My wife has no outstanding debts other then 1 cc with less then 9% on the card, 2 others at 0%.

Our gross for 2018 was 90k, our gross for 2019 will be 102k, and our gross for 2020 will be 112k. I’m not sure how this years or next years raise will impact our loan, if at all. We pay 15,000 annually for childcare which currently puts our adjusted income below the 95k threshold for a USDA loan. We have 25k in reserves for either down payment/closing.

I have 8k this month to pay down accounts but I’m not sure which accounts to pay. My original plan was to pay off one credit card, my student loans, and my automobile loan but I heard that paying off installment loans may lower my scores. My thought is to pay off my two lowest balance cards and then chip away at the others until we think we can reasonably get an approval. I’m not sure if my recent 30 days late will cause our application to be denied, but if it won’t then we would like to apply for preapproval in the next 2-3 months. Does anyone think that is possible?

I also had a collections account that was a result of improper medical billing back in 2014 that has shown as paid but has just been removed from my account. Will I see any appreciable increase in score from that removal alone?

Any comments or ideas on what to do or how to approach this debt would be great. My hopes are that paying off two of the cards + having the collections account removed will bring my score up past the 640 threshold but I’m also not sure if there’s something I’m missing that will cause issues.

Thanks all in advanced. I’ve learned a lot since coming to this forum.
9 REPLIES
Valued Contributor

Re: USDA Guaranteed Loan Plan of attack

Hi Booboobus,

 

I would either apply 2k to each of the cards or pay off the 7k balance card first since the payment is $260 per month.

Then you can add the $260 to the $140 payment on CC#3 and have that paid off in 9 months.

 

I think you'll see a bigger increase in your scores right away by paying down each of the cards by 2K.

Do not pay off the installment accounts because that could hurt your scores.

 

I would ask for a one time courtesy delete for the late payment on your auto loan. This will help your scores & improve your chances of getting an approval through the USDA Automated Underwriting System.

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 2 of 10
New Member

Re: USDA Guaranteed Loan Plan of attack

Sounds good. Unfortunately my credit union will not remove the late payment. Would it make more sense to wait until that payment is past 12 months old before applying for the loan? Unfortunately im due for a pay increase in 2020 that will take me over the maximum income amount so i dont want to wait too long.

Message 3 of 10
Valued Contributor

Re: USDA Guaranteed Loan Plan of attack


@Booboobus wrote:

Sounds good. Unfortunately my credit union will not remove the late payment. Would it make more sense to wait until that payment is past 12 months old before applying for the loan? Unfortunately im due for a pay increase in 2020 that will take me over the maximum income amount so i dont want to wait too long.


Not necessarily. Once the credit cards are paid down & your scores come up, it's possible that the late payment won't matter.

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 4 of 10
New Member

Re: USDA Guaranteed Loan Plan of attack

Good to know. One last question: If I received a raise at the start of the year and it’s reflected in my pay stubs, will that be the income used for DTI or will it be the previous years income?

 

Thank you for your help!

Message 5 of 10
Valued Contributor

Re: USDA Guaranteed Loan Plan of attack


@Booboobus wrote:

Good to know. One last question: If I received a raise at the start of the year and it’s reflected in my pay stubs, will that be the income used for DTI or will it be the previous years income?

 

Thank you for your help!


We will use the income reflected on your pay stubs for qualifying.

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 6 of 10
New Member

Re: USDA Guaranteed Loan Plan of attack

Great! Thanks so much for all your help

Message 7 of 10
Established Contributor

Re: USDA Guaranteed Loan Plan of attack

Get that student loan paid off and you might very well see that score boost well over 640 quickly.

 

That raise might also make your income too high for USDA as well, but you should be in good shape if  you plan to use FHA as your safety net----meaning you have 3.5% saved for down payment plus some money for closing costs.--this way your offer to purchase will look a bit stronger too--as the USDA takes a bit longer to process which won't be easy IF the govt. shutdown occurs again...

 

If you can focus on paying down/and eventually off those credit cards then you'll also be in a position where you'll see your scores rise as well, but the previous advice regarding that was good.

__________________________________________________

Licensed NC Mortgage Loan Originator
Message 8 of 10
Valued Member

Re: USDA Guaranteed Loan Plan of attack

Some lenders have a credit simulator that shows precisely how much to pay toward these cards for maximum score increase. I do this quite often and it's usually not by paying down all multiple cards a little. It would usually be - by attacking the two $3,500 balances you mentioned. Especially the $3,500 balance with $4k limit. Paying that one down to a balance of $1k alone can give you an impressive score increase. You might get away with spending 4k to instead of 8k to achieve your goal if you care about keeping some of those funds. Theres no worry in hitting the 640 score because you'll do that easily... The goal is getting your score so high that It helps offset those late payments so the lenders automated approval works in your favor.
My bigger concern is whether or not your income is too high to qualify for USDA. I hope you have a lot of children since USDA income restrictions allows you to make more $. Have you gone to the USDA site to see if you income qualify?
Message 9 of 10
New Member

Re: USDA Guaranteed Loan Plan of attack

Good to know, thank you! Yes I’ve gone through the website and thanks to our 15k/year childcare costs we are still eligible.
Message 10 of 10