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It has been a long seven years

Member

It has been a long seven years

Hey guys,

 

While this is my first post on the forum I frequent the board on an almost daily basis.  The people who post here are very helpful and informative and I wanted to ask you guys for your thoughts on further increasing my score and trying to secure my first mortgage.

 

Seven years ago (this past September / October) I went through a bad breakup and during all the chaos a lot of my bills fell behind.  Initially, I tried calling my creditors to let them know I was going to be late hoping that they'd work out a plan with me.  I found out, the hard way, they "can't" do anything until the accounts were actually late. 

 

And that’s exactly what happened.  My accounts fell behind, were charged late fees, over draft fees and in what felt like an instant I was buried.  At this point I called back into my creditors and they were willing to wave some fee(s) but what really messed me up was the minimum payment increases. 

 

Instead of 50-75 dollars the penalties got worked into the minimum payment.  So even in the instance where I was fortunate enough to get a fee(s) waved there was no wiggle room with the minimum required payment.

 

When this all started I was 25 years old having acquired my first credit card at 18 (capital one) I never missed a payment.  This whole experience really kicked me in the pants.  I worked hard for everything that I had but I couldn't help but feel defeated in that moment.  Still, I only had myself to blame.

 

I didn't go bankrupt.  I saved whatever account(s) I could.  I didn't touch them at all I just continued to pay them down over the years.  At the time I didn't know that not using an account caused them to close after a period of time.  So, when I finally caught up with my active (non charged off accounts) they were already closed and my available credit was in the toilet.

 

Fast forward 7 years later and almost every baddie is off my credit report.  There's currently only two of them (one falls off any day now) and the other I need to double check it might be another 1-2 years.  

 

Around August / September of this year my Transunion and Experian credit scores were in the 540 - 560 range.  

 

I was at work the other day and it was slow, so I decided to try my hand at a CL increase on one of my Synchrony cards and to my surprise I was approved!  I guess I get a weird rush out of getting 'approved' for credit.  Especially because it has been SO many years.  So, I went through the gauntlet.  I ended up getting approved for 8/8 CL increases.  Six of those eight were through Synchrony.  

 

My overall credit limits were increased by $7,400.

 

I was curious, so I checked my scores (Fico) and they’re…Transunion 670 and Experian 684.  I couldn't be happier!  But now what do I do to grow my scores the rest of the way?!

 

So far...  

 

I have two cards that have annual fees (eh).  I canceled my Legacy first because the $75 annual fee was coming up in a few days.  My other account with an annual fee is Merrick Bank ($4.00 a month).  I’ll probably end up closing that account today or tomorrow. 

 

My cards are…

Capital One: 1,100

Capital One: 600

Gap: 2,000

American Eagle: 2,000

Amazon: 1,000

Belk: 1,000

Walmart: 1,000

Chevron: 1,000

Target: 1,000

Merrick Bank: 1,400

 

All my credit cards are paid off.  I charge $113 a month to my Capital One for a storage unit and then pay it off in full.  Most of these cards haven't been used in nearly a year so I went out yesterday and spent about $160 across a few to make sure they stay open.  I'm going to wait until next month when the balances report and then pay them off in full.

 

My plan was (after reading through the forum) to use one card every month and make sure to pay in full while keeping everything else at zero.

 

I think I'm a little lost with regards to the payment cut off.  I was hoping to get some clarification.

 

My Capital One for example says my billing cycle's Dec 6 - Jan 5 with the payment due on the 2nd.

 

So, by paying the account off on the 2nd I'd need to make sure there's a charge on there (in this case the storage unit) by the 5th so a balance's reported?

 

My total debt's...

Credit cards - 0 (Use them / pay in full every month)

Personal loan - 5,600

Deferred student loans - 32,000

 

All in all, I've paid off about $16,000 in debt throughout 2017.  I had to move back in with my parents and pickup whatever od jobs that I could, but it has worked out quite well so far.

 

I recently went to apply for my first mortgage and my debt to income was "too high."  I live in the sticks and barely broke 20k this year.  I spoke with my broker and said I'll pay off that personal loan and she said even then I'd be in trouble because my student loans count against me even though they're in deferment. 

 

My plan was to go into a house with zero credit debt.  Credit cards at zero, personal loan paid off and student loans deferred.  My hope was to secure a home, work on it for the next few years and with any luck build up enough equity down the road to sell and pay OFF those student loans.

 

I didn’t know that the student loans counted against you while in deferment. What I had read at the time was if you were enrolled in school and the deferment was far enough out they wouldn’t be counted against you.  I guess that has changed somewhat recently.

 

If I understood correctly they take 1% of your loan and count it as a 'would be' payment down the road in my case $320 a month.  So, If I make 1800 a month after you subtract the $320 I’m left with $1480 of which my mortgage payment can’t exceed 45% of my left over income.

 

So now i'm looking at jobs in the city which would drastically increase my income but would start a new job / new 'career path' and I fear that’d mess up my ability to secure a loan?  Starting at a new employer and a new field all together…

 

I was hoping to get a home with my current income and employment and then look at changing my job to keep things simple I just don’t know if It’s doable. 

 

In this area you can get a nice house in a good neighborhood for 100-115k.  Staying around here and commuting to work wouldn’t be the end of the world if I could find a way to make this work.

 

What do you think I should do?  When the broker looks at my credit she sees...

 

$240 loan payment and an 'eventual' $320 student loan payment down the road.  After I pay off my loan next month and that $240 is off my report all I'd be left with is that student loan payment...  Could I swing it?  A mortgage is 800-900 for my price range.  An apartment's 1,200 ++!!!

 

Quicken for example wanted $9,000 out of pocket and I think they offered to help with a 2% down payment.  That’s quite bad compared to a local lender who said I’d get $10,000 down payment / closing cost assistance and my out of pocket would only be $5,600!  This was an FHA loan (Florida).

 

Thank you for your time and I look forward to your thoughts!!

6 REPLIES
Established Contributor

Re: It has been a long seven years

A mortgage usually cost more in the big picture because of property taxes and insurance plus maintenance. Been there done that. I lease because it's much cheaper.

 

Also be careful with your utilization as it can wreak havoc on your credit score.

 

Good luck to you!

 

Message 2 of 7
Established Contributor

Re: It has been a long seven years

Imapirate...

 

I have rented for the past 17 years.  I regreat it.  I'm now 45, and have no equity in anything other than my retirement account!  I've thrown away roughtly $132000 on rent payments.  What a shame.  Imagine what that $132000 could have been in my retirement account.  If I had purchased a home 17 years ago, can you imagine how much that home could be worth?  Not to mention how much total potential equity I could have in that home?

 

I wish I would have bouth a home way back then.  But, I didn't.  Now, I'm going to have to expedite paying off a mortgage in the next 15 years if I want to retire at normal age.  Otherwise, when I pass away, my home will go back to the bank instead of my children getting it!

 

Just my 2 cents!

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Message 3 of 7
Senior Contributor

Re: It has been a long seven years

I'm in my early 40s.  I bought my first condo at 17 for cash ($17,000!) and still own it today as a rental.

 

Over the past 25 years, I've owned property the entire time, but out of those 25 years, I've rented from someone else for the home I live in for about 16 of those years because my napkin math told me that renting (for me) was cheaper than owning (for me).  Since I am a landlord, I knew the laws and knew how to twist my own landlords to making sure they took care of my property properly.  It worked in my favor, renting literally saved me hundreds of thousands of dollars in my life -- but I did the math.  I also know what an emergency home repair can cost me.

 

For OP, I would suggest a better budget, and a time-budget.  If you have free time to entertain, try putting that into a productive second job for a year; maybe Uber or Instacart?  Getting more down payment will help with a loan.  Getting your personal loan paid off will naturally help.  Those student loans might count for less once you're out of deferment, too because the payments on them might be LESS than the 1% they're calculating.

 

Student loans in deferment might also be hurting your FICO scores if the balances due on them are higher than the original balance, if interest accrues in deferment.

 

If rent is too expensive now, try finding someone else looking to buy a home and share a room together (bunk beds -- I lived that way for a year in my 30s when I needed to save up $40,000 in a year).  You both have a goal, you can both keep each other on track.  I cut my rent from $950/month (in 2001) to $275/month by finding 3 other roommates and we split a 2 bedroom between the 4 of us.  Wasn't pleasant, but for me it was only 16 months and I ended up socking away an extra $10,000 doing it that way.

 

Getting a better paying job also makes sense but you have to do the math on how much driving you'll do, how much stress you'll put on a car, etc, etc, etc.  Higher income cities can mean way higher rent, too.

Message 4 of 7
Established Contributor

Re: It has been a long seven years

OP,  I'm slightly confused by your loan deferments.  Are they deferred because you are currently in school, because you recently finished school, or because your income is too low?

 

Depending upon when you did, or will, graduate you might be eligible for a PAYE student loan repayment plan. (also depends upon the type of loan).  With your income this could cut your monthly payments down to $0. Freeing a large chunk of your income.

 

Also I would definitely run your loan calculator again. Because at 20,000 a year. Even if you had 0 monthly obligations elsewhere, you would need 20,000 down to afford a 100k house. (assuming standard interest 30 years, average insurance, property tax for 100k and a 40/m HOA fee)

 

 

Message 5 of 7
Member

Re: It has been a long seven years

I’m still enrolled in college I have roughly two years to go.

This is what I got from my broker...

https://ibb.co/jSxne6
Message 6 of 7
Established Contributor

Re: It has been a long seven years

Many thanks for sharing that.

 

FHA loans will allow for a higher DTI because the loan is federally insured, so it is less risky to lenders. This allows for a larger loan, with less money down, but also allows you, the borrower, to get into more trouble.  With just this loan, (assuming 21k since you said "just over 20k") you are over a safe DTI.  Adding in potential school loans would be a large risk for a lender.

 

 

Message 7 of 7