Rebuilding for a Mortgage

[eclipse6704]

Apologies in advance for a long post. Seeking advice on improving my score in order to qualify for a mortgage. My wife has the score to get approved for a mortgage, but we need our combined income to be approved for a large enough amount of money to buy a home in our area. We are first time home buyers and looked at an FHA loan, but were declined due to my student loan debt (DTI when they use the 1% of outstanding balance) and do not qualify for any conventional loans because my score is below 640.

I have lots of student loan debt from undergraduate and graduate school. I have a good job now and can afford to make the payments on my debt, but have a poor credit history from years of underemployment. Any advice on what I can do to pull my score up and combat a score that is being hurt by one very large charge off (I don't have the cash on hand to PFD it) and a sketchy long term payment history?

Credit Score:

Experian - 582

FICO (pulled by mortgage lender) - 590

Combined salary information:

2017 W2 reported income = $67,895

2018 Salary income = $93,327 (not inclusive of any inconsistent bonuses at our jobs)

Student Loans:

Private Loan 1 - $38,333 balance / $378 monthly

Private Loan 2 - $18,746 balance / $186 monthly

Private Loan 3 - $24,378 balance / $242 monthly

Loans have been 120 days late twice in the past. Consistently 30-90 late from 2/15-4/17, however NEVER late since

Federal Loan 1 $76,713 balance

Federal Loan 2 $24,080 balance

Federal Loan 3 $22,654 balance

All federal loans are currently in a deferrment with $0 payment. When deferrment ends will be income based with public service forgiveness program

Satisfactory Accounts:

Car Loan 1

• Initial Balance = $11,243
• Current Balance = $8,259
• $197 monthly
• Opened 11/16 and never late

Car Loan 2

• Initial Balance = $23,790
• Current Balance = $17,998
• $494 monthly
• Opened 1/17 and never late

Cap 1 credit card

• Limit $2500
• Current Balance $2496
• Minimum payment $77
• Opened 7/16 and never late

Credit card (joint account)

• Limit $7800
• Opened 5/16 and never late
• Rewards card used for every day purchases. Always paid in full each month. Never carries a balance.

Credit card (joint account)

• Limit $5500
• Balance $2792
• Minimum Payment $87
• Opened 8/17 and never late

Credit card

• Limit $700
• Balance $636
• Minimum Payment $27
• Opened 1/17 and never late

Negative Accounts:

Private Student Loan

• $7379 charge off
• Last pymt 7/17
• Estimated removal date 6/24

Medical Bill

• $212 charge off
• Estimated removal 10/18

[SomewhereIn505]

You might want to post this in the mortgage forum for more visability and assitance.

Which mortgage lender pulled your scores? Do you have a LO yet? Hopefully the LO is a broker and can have access to differnet lenders/programs to help you out.

I did my home buying process different - In February, I interviewed lenders to see whom would be a good match to our situation (conventional and non-qm lenders). When I found one that I was confident in, I asked them for a LO recommendation. Pre-approved in April, contract 10 days later, and closed in June.

Surround yourself with the right people whom believe in you. That is how it worked out for me!

[dragontears]

Your credit card balances/utilization is KILLING your score.
In my experience mortgage scores are much more sensitive to #of accounts with a balance and high utilization than FICO 8

[eclipse6704]

Thanks for the replies!

The credit pull was done by a mortgage broker that we were working with. We have considered going straight to our bank and talking to an LO there.

I put the question here because overall I am trying to figure out the best path to rebuild my score.

All payments have been made on time for the last year on my student loans and the card/credit cards for even longer. Do you think that it is the utilization on specific cards that is causing the low score? Overall utilization is around 50%, which is higher than it should be but two cards are nearly 100%. Would I see a significant score bump if I paid off those two cards (approximately $3k)?

The credit estimator (not reliable I know) on my capital one card says if I pay 3k of revolving debt off I would see a 12 point increase.

[Anonymous]

For an FHA loan, your goal should be to have your credit score at least at a 620 and ideally at 640. Of course the mortgage is officer will look at both of your middle scores and take your score into account. The 620-640 area will give you much more favorable conditions. Look to see if there is an affordable housing agency in your neck of the woods as they often have great educational opportunites and fair/affordable mortgages. The good news is that I think that it is an attainable goal for you provided that you take down the utilization of your credit cards. 

Be wary of a loan officer that tells you to pay for a credit repair service. They are not worth the $100+ when you are equipped to do it on your own. So kudos to you for coming here to get free advice! Utilization is the most important component of your credit score as it is 35 percent of your score. Fortunately, you have complete control as to what your utilization numbers can be based off of how much you are willing to pay down your debt.

For the joint accounts, I am assuming that you are authorized user, right? I know that sometimes they'll count authorized user accounts towards your credit score but sometimes they do not. 

In looking at your individual accounts, the 2 nearly maxed out credit cards are a big problem and are dragging down your score. Once when you are using 48 percent of your balance on one card, that is when utilization starts to make a negative impact on your score. Ideally, you want each card to have under 30 percent utilization (i.e. your cap 1 should have no more than $750/$2500 reporting).