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Scores are 650/660 wanting to get a home loan in the next 1to 2 years and I have cleaned my reports up. I have a few balances that will be paid off be the end of the year and the only negatives left are huge. 2 repo 's. One is over 4 years old (past sol) and the other (joint) over a year old.
the one that is 4 years old, I think I can settle for less on since its past the SOL. The other is a horrible loan that I cosigned on and it has over 16k owed on a car thats value was 5k. Will I be able to secure a home loan with this on my report or will it have to be settled?
Any suggestions on how to handle these two repo's in prep for a home loan?
Anyway to qualify with these two things on my report. Score should be at about 680, 690 when balances update.
Hello,
Many people are scared to apply for a home with past credit issues. Let's start with FHA. In my humble opinion, FHA can be an easier loan to get approved for. The reason is simple. You have some skin in the game with your 3.5% down in comparison to VA's $0 down. FHA guidelines do NOT require that you to pay off any charge-offs. In fact, I don't even look at them.
As far as collections are concerned, you will have a better chance of getting an approval if you have no new collections in the past 12 months particularly if you have past credit issues. For unpaid collections, FHA requires that we lenders hit you with a 1% imaginary payment with is applied against your DTI. But we are not required to make you pay them off. Now different lenders may, but FHA itself doesn't.
As far as VA, it's the best loan in the world if you lack a down payment. Same applies for charge-offs. Collections depending on their age can be overlooked, and as long as they are no new collections in the most 12 months, you should be okay. For the most recent repo, I would recommend getting into an installment agreement (in writing) and start making payments or do settlement if you can.
If I received a loan application from someone with a credit report like yours, and the borrower was really worried about being denied, I would turn in the loan as a TBD file. Meaning address “To Be Determined”. This way an actual Underwriter would issue a decision with conditions. If the UW could not approve it as a VA, they would issue a counter offer with a different loan program option. But this done prior to making an offer.
I hope this helps. Best wishes to you!
Hi Aladdin22,
If you have VA eligibility, that is hands down the best way to go so the rest of my response is going to geared towards going VA.
VA is really pretty lenient on credit issues & it will give you the lowest monthly payment possible. There are a couple of ways to address the 2 derogatory accounts. The older one isn't going to matter as much as the recent one but here are a couple of options.
1) Dispute both of them. This will "remove" the accounts from the "decision" making of an Automated Underwriting System (AUS) & from your credit score. You cannot do this if you go FHA.
2) Do nothing & see what happens with the AUS. If we get an approval we don't worry about. If the AUS comes back with a Refer/Eligible decision we have to do a manual underwrite so we would just need a letter of explanation for that account.
If you go FHA, you'll have mortgage insurance for the life of the loan. The amount you pay is based on your loan amount so let's say your loan amount is $250,000, the mortgage insurance will add $177.08 to your monthly payment. So going VA saves you at least $177 per month.
I am still not sure why you would choose FHA over VA taking into account FHA has MMI (monthly mortgage insurance) and VA does not. But hey it's America. I would recomend no earler than 90 days or 3 statement cycles.
I just closed on a 282000 fha loan with a repo from Jan 2017 for 37000. I had to write a letter of explanation. I also, have a VA loan from 2011.