am i ready for homeownership?

Anonymous · ‎03-12-2016

i live in Washington state and want to buy a house this year but i need some advice before i attempt to apply for a mortgage. I just started repairing my credit since October 2015 but here is what i have. I plan to apply on my own because my wife's credit is not that great but she has a auto loan $412 and credit card expenses $175 each month. My annual income ranges from $40,000 -$45,000. My Fico 8 Scores are EQ 593, TU 609 and EX 589. The following is what i have on my credit

Charge Off

Resposession 2010- falls off October 2017

Collection

Medical (my wife) Paid but falls off 2019

Revolving Credit

Opened October 2015

Cap 1 QS $0/$300

Cap 1 Plat $0/$300

Opened November 2015

Navy Federal Cc $1000/$1400

Am i ready? what would i need to do to attemp to purchase this year? any advice is appreciated. thanks.

iheartwings · ‎03-12-2016

@Anonymous wrote:
i live in Washington state and want to buy a house this year but i need some advice before i attempt to apply for a mortgage. I just started repairing my credit since October 2015 but here is what i have. I plan to apply on my own because my wife's credit is not that great but she has a auto loan $412 and credit card expenses $175 each month. My annual income ranges from $40,000 -$45,000. My Fico 8 Scores are EQ 593, TU 609 and EX 589. The following is what i have on my credit

Charge Off
Resposession 2010- falls off October 2017

Collection
Medical (my wife) Paid but falls off 2019

Revolving Credit
Opened October 2015
Cap 1 QS $300/$300
Cap 1 Plat $300/$300

Opened November 2015
Navy Federal Cc $400/$1400

Am i ready? what would i need to do to attemp to purchase this year? any advice is appreciated. thanks.

Congratulations on working on your credit. There are far more knowledgeable folks here, but just looking at what you've posted, I think you still have some work to do. Getting a mortgage is much more than just your CR and FICO score (though those things are major players).

First, you might want to check the FICO mortgage scores to see the scores lenders will use (Refer to http://ficoforums.myfico.com/t5/Mortgage-Loans/FICO-scores-used-for-mortgage-and-where-to-obtain-them/m-p/3842431#U3842431), as your FICO 8 scores may be higher or lower.

Others can tell you what to do with that repo - but I'd not touch it (i.e., dispute) given that it falls off next year.

I would advise seeing if you can get your wife's medical collection off your CR. (Check the Rebuilding Your Credit forum...I am not completely familiar if it's possible but it has to do with HIPAA, also you can google this).

It's good that you've also gotten some credit cards, but I would advise that you reduce your utilization. As it's often stated, you should have 3 tradelines to get the benefit with FICO. Utilization also counts, and to maximize points, it's recommended that you only let 1 card report utilization between 1-9%. It appears that you have 2 Cap1 cards that are maxed out at 100%, and your NFCU at 28%, leading to overal utilization of 50%. In addition to your derogs, this hurting you. Getting to 1 card with low utilization will give you more points on your FICO score. Also, take advantage of getting CLIs via SP when you can (you can also search on the forums about this).

You don't mention if you have other debt or what reserves you have to make a down payment, but in addition to rebuilding your credit profile is trying to keep your debt to income (DTI) ratio as low as possible, as I think this can be a major hurdle in getting your mortgage.

Hope this is somewhat helpful for you as you work on your ultimate goal.

Anonymous · ‎03-12-2016

thank you but i made a mistake on my credit cc utilization. i meant to say that $300 is available on each capital one cc and $1000 is available on my nfcu cc. i'll go back and edit my original post. sorry for the confusion.

Imperfectfuture · ‎03-12-2016

Only conventional loans allow you to leave wife off app in community property state. Those scores will not do.. Even conventional will pull her report, because DTI must be computed for both.

If you get scores up for both of you, then can go FHA or other. You really want 680 or better middle score to go conventional (I would even push to 720). Until then, IMHO, you are not ready with the plan you have.

Signature needs updating

Anonymous · ‎03-12-2016

to go FHA what score should we reach for? my wife doesnt have any income now. she took a few years off to raise our kids. we are looking into a down payment assistance program and have $5000 saved. I just paid down my Cap 1 ccs and will be paying off my nfcu cc before the next billing cycle so im hoping to see a big jump in my credit score. i read on one of the boards that for FHA they will pull your spouse's CR but you dont need to have them on the loan. is that correct? or did i misunderstand?

Anonymous · ‎03-12-2016

according to the fha site your scores right now will qualify you for the fha route, however if you have anything else to work on in your record you should probably address as much of that as you can before trying. A lot of people say that it is good to have 620 for fha although they claim to start in the late 500's.

StartingOver10 · ‎03-12-2016

@Anonymous wrote:
according to the fha site your scores right now will qualify you for the fha route, however if you have anything else to work on in your record you should probably address as much of that as you can before trying. A lot of people say that it is good to have 620 for fha although they claim to start in the late 500's.

We don't really know that yet because the OP listed his FICO 8 scores and not the FICO mortgage scores.

It would be a good idea if both you and your wife pulled your 3 B reports so you can see your mortgage scores.

The lender will use the lowest mid score between you and your wife. This will give you an idea of where you are now. Post the scores so we can see where you are - you may need to spend time, along with your wife, in the Rebuilding forum here to get your scores up enough. 620 mortgage mid score is usually what lenders need for FHA loans, but some need 640 and some others need a min 660 mid score.

EDIT: One of the concerns I see is your wife's debt. Since you are in a community property state, her debt will be included, even if you are the only one on the loan, you will need to do something to get her debt down. From your post she has a monthly car payment of $412 and credit card expenses of $175/month. Is the $175 the total amount she spends each month or is it the minimum due on her credit cards? The lender will use the minimum payment due, not the whole balance. Assuming you have put the min amounts due monthly, then her debt is eating up 17.6% (412+175/3333) of your income. The maximum back end ratio allowed by FHA is 56.99% of your gross monthly income and some mortgage lenders have overlays that reduce that max to 50%. Just using the car payment and the $175 debt payments reduces the max allowable mortgage payment to $945 including principal, interest, real estate taxes, homeowners insurance, mortgage insurance and HOA (if applicable). I used your $40k income because the lender will use your actual W-2 income and it wasn't clear from your post if you are W-2 type or 1099 type employment.

Solution: Reduce the debt you both carry. Consider refinancing the car payment to a lower payment. Boost your savings, Increase your scores (both of you) if they are less than 620.

You can do this...it just may take a little bit longer.

ashjt2011 · ‎03-12-2016

FHA will go down to 580 with the 3.5% down and down to 500 with 10+% down.

That being said, most lenders have overlays. From my experience most lenders want to see at least a 640 before they will underwrite an FHA loan.

Keep in mind, have a 640 + a couple years of revolving credit history will take the "handcuffs" off for most lenders. Meaning that you will pass automatic underwriting and not have to go through manual underwriting. If you have your ducks in a row - manual underwriting, while a long process, isn't bad. But you want to shoot for automatic approval via desktop underwriter. The process is much more smooth and they have to verify a lot less stuff.

I would wait about another year. Work on gardening your credit cards, getting any collections paid off and removed (if possible), save up even more money and then I feel you might be at an optimal time to app for a new mortgage.

You have a good amount of money saved, but from first hand experience it doesnt just stop at closing costs and down payment. I bought a new construction and am already many several of thousands of dollars in to buying furniture, window treatments, etc etc.

Anonymous · ‎03-14-2016

Just pulled our 3b report and my Fico score 2 are EQ 616, TU 633 and EX 651. My wife’s scores are EQ 605, TU 597 and EX 607. Her’s are pretty low and it’s probably from her Cc utilization. We’ll work on lowering her utilization and hopefully see a jump before this fall. I’ll also try to get that paid medical taken off by sending GW letters. Thanks for the advice everyone.

StartingOver10 · ‎03-15-2016

Also for the medical google "why chat hipaa" and follow the directions exactly.

We can't discuss it here, but it is worth your time and effort.