What would YOU do?

[Anonymous]

Hello! I'm not sure if I'm posting this in the right place -- feel free to move it if needed. Anywho, I could use some advice... I'll try to be quick: my SO and I have been planning on starting the home buying process beginning-mid 2019. My credit is gross (around 550 across the board), his is a wee bit better (650-680). I'm assuming his scores would be much higher if we brought down his util - he has 4 CC's with limits around $1k, all 4 are maxed out, but he pays on time. He also has a car he still owes $9k on (unsure about interest rates for CC's or car). I have $4,500 in charged off CC's from the beginning of 2016. I have a repo/voluntary surrender from last Dec that i owe $9k for... I also have $30k in student loans, which are currently in deferment. We have $25k in cash to work with over the next couple of months, and we're not sure how to allocate our funds: should we pay off all of his CC's? And/or his car? Should we pay/try to settle any of my old debts to get my score up? Should we try to make a dent in my student loans? Should we hang onto our cash for a down payment/closing costs/etc? Kind of in a pickle... We're 1st time home buyers, not married. We gross 100-120k, we're looking for something in the 250-300k range. Should my SO attempt to get this mortgage on his own, since my credit is so terrible right now? I hope I covered all of my bases here - let me know if you need anymore info. Any advice would be greatly appreciated

[dragontears]

The big question is can your SO afford the mortgage on just his income?

If your income is needed, you need to work on your scores (and his)

If his income/DTI can handle the mortgage than focus only on his scores.

As an fyi
-paying off/down the deferred student loan will not help your scores but could affect your DTI
-paying off/down his auto loan will not increase his scores (mortgage) significantly but could affect your DTI
-paying off his credit cards will be a huge boost to his scores, especially the mortgage scores (which are different than FICO 8)

[homeloanexpert]

When I receive a inquiry like yours,  I ask myself, which is the path of least resistance? If I were your Loan Officer, I would start with him alone and work out the numbers and see how high I could push his DTI then give you his perimeters. Meaning how much home he qualifies for, how much cash he'll need to close, and what's the payment.

If that doesn't work for you folks, then I would bring you in and structure a strategy as to what it will take to make you a qualified co-borrower. If you are getting married and your concern is wanting to be on title to this purchase, you can always be deeded on at close or anytime down the road. There is no doubt you will have most likely force the LO to place you into an FHA loan due to your credit. Which isn't the end of the world, you can always refi into a Conventional once your credit has improved.

My best recommendation is start the process with an experienced LO with a track record of solving credit issues. It's NEVER too early to start the process. It's always better to be out front than behind the 8-ball.  I hope this helps!

Best wishes to you and Happy New Year!

[NC_Mtg_Loaner]

IF you are able to qualify on SO's income alone for an FHA loan which only requires 3.5% down payment I'd keep $15k in the bank --nicely seasoned so your LO doesn't get to prying, prodding or asking any other questions about the source of said funds.   

If  you needed to tweak his DTI a little, once could pay off all four credit cards so that the Minimum payment on the cards is nominal.  Heck, if maxed out the $4000 annual balance being carried costs $67 per month in interest alone which allows you to purchase/finance an extra $15k in your FHA mortgage loan--assuming rates stay steady here at these relaxed but still record low levels.   

One could even look at refinancing the auto loan or possibly paying it off early in order to salvage/enhance the DTI---of course this dips into your savings/down payment funds so that would need to be replenished, but with that household cash flow you ought to be ok.

Looking at your credit issues is a bit more complicated---the repo if it has a 'contingent liability' payment (a portion of the loan that was unsettled with the relinquishing of the original asset) reporting in your credit report it will require "more work" on your part which may or may not be time or money consuming which requires a different level of "personal assesment" we'll not discuss at this time.

Your student loans are another issue that I don't have enough knowledge about "what to expect" based upon the info you've provided.   I've seen hundreds of home buyers' with loans and balances in different stages of satisfaction but the "immediate" or "quick" result of additional payments to current and prior balances is always something I consider an unknown variable and extremely unpredictable.     (Curious as to the opinions and experiences from other credit gurus and LOs on this board)  Naturally though, over the longer period of time it's certainly best to have student loans paid or at least at a balance lower than the original amount, but they are tough to gauge.

Good Luck.

[JVille]

This!!!! You are pretty much a “No can do” and SO needs to qualify on his own. Move funds into his name to season fund in a clean acct in his name with no deposits showing from you.