Bouncing back

[CureFan69]

Hello everyone. I'm new to the forum and have spent the morning reading several pages of very interesting posts from this forum and look forward to using this as a resource going forward.

First, a little background... I was laid off from my job (IT Consultant) in 2004 and upon advice filed bankruptcy (maybe not best option looking back, but its water under the bridge). I went back to school and got another degree so I could change careers (now in healthcare earning around 60k/yr). I'm trying to rebuild my credit so I've opened both a secured Visa with BofA ($1000 limit) 5 months ago, and just now also opened an Orchard bank visa (non secured, $500 limit). I've been purposely charging about 50% available credit each month, then paying off entire balance each month. I've never let any balance spill over into the next month thus never paid any interest charges.

Is this a sound strategy? (I just checked FICO score... it was 743).

Secondly, the only real debt I have is student loan debt that I incurred when I went back to school. I just refinanced this into a Federal Direct consolidation loan. My question is, I would like to think about purchasing a house in 3 or 4 years, but should I try to get the SL debt paid off first ($20,000 @ 5.2% fixed) or make the regular payments which would allow me to put quite a bit back monthly for my future home?

Thanks very much for any advice.

[GREENBACK]

Originally Posted by CureFan69

Is this a sound strategy? (I just checked FICO score... it was 743).

I'll let the more expert folks answer the home purchase question but that's an excellent score to have 5 yrs. after bancruptcy. Good job.

[Ima saver]

Try not to charge more than 30% of available credit to your cards each month. That will affect your credit score. Good job at paying it off each month.

[CureFan69]

Thanks to you both for your comments... so 30% is best? Great to know... I will definitely change to using 30 vs 50% available credit each month. I look forward to more input.

[arthurb999]

Your score is good.
Get an emergency fund in place, pay the student loan off then start saving for a 20% down payment.

good job on the bounce back...

[parafly]

After you fund a 3-6 month emergency fund, you should start saving for a down payment on the house.

Don't worry about the student loan too much. Your balance is relatively low, and the interest paid on it is tax deductible.

[CureFan69]

Originally Posted by parafly

After you fund a 3-6 month emergency fund, you should start saving for a down payment on the house.

Don't worry about the student loan too much. Your balance is relatively low, and the interest paid on it is tax deductible.

Thats kind of what I was thinking since, as you mentioned, the interest is deductible... also I forgot to mention that I do have somewhat of an EF in place (5k).

arthur: thanks! I'm curious... why 20% Did you mean that as a minimum? I was hoping to save at least 25-30%.

[parafly]

Originally Posted by CureFan69

I'm curious... why 20% Did you mean that as a minimum? I was hoping to save at least 25-30%.

20% is the typical amount recommended and will allow you to avoid paying PMI fees.

[kork13]

Originally Posted by parafly

20% is the typical amount recommended and will allow you to avoid paying PMI fees.

....however, paying a larger downpayment is by no means a terrible thing.

Before you do, just make sure that the larger downpayment is the best way to use your money. Upon buying a home, your EF will need to be bigger, you could use it towards your SL's, put the money toward retirement, and so on... There are plenty of options, so just know which is best for you.

On another note, a 743 just 5 years after BK is remarkable! Keep doing what you're doing, and hopefully you can keep pushing your score slowly upwards. It'll definitely help for buying a home.

[arthurb999]

20% is the amount you won't have to pay pmi...

[CureFan69]

Originally Posted by kork13

On another note, a 743 just 5 years after BK is remarkable! Keep doing what you're doing, and hopefully you can keep pushing your score slowly upwards. It'll definitely help for buying a home.

To be honest I was shocked when I checked it. I haven't known it (and didn't want to) since 2004 and last week I decided to get the free annual reports from all 3 agencies, and as an afterthought I orderd my score from Experian for 5 bucks. I'm assuming its legit . Since the bankruptcy I've just never been late on ANY payments and other than that, I have no idea why its that good. I almost want to get one from myFICO or somewhere else just to make sure it isn't a fluke.

[Ima saver]

Experian is the best place to get your score. That is who I use.

[swanson719]

You should read a couple books - I like Dave Ramsey personally, but there are a lot on here who also follow Suze Orman. Even with those two, the best book out there in my opinion is Personal Finance For Dummies. Yes, the big yellow and blue book. It goes through everything, literally written for a 7 year old. You can gloss over somethings, and get very in depth in others.

5K is not enough for an EF as a homeowner, but more than sufficient in your situation. That being said, if I woke up in your shoes, I would first put all your deductibles (car ins., rental ins., health ins.) all at $1,000 deductibles. Then leave 3K in your EF, and take the other 2K and put it on your student loans. Save like a madman and pay down your student loans as fast as you can, so you're debt free. Then save up around $10,000 (3 to 6 months expenses) in a money market mutual fund with a good track record. After that, start investing 15% of your net income. Then you start saving up the 20%+ for a down payment on a house. I say invest the 15% first because there are thousands of retirees with a paid off house, but no money to live on. You see commercials for reverse mortgages? That's people selling their house back to the bank so they can survive after they worked 30 years to pay it off. Don't buy a house and put it on a 30 year mortgage. If you can't get it on a 15 year mortgage with it costing no more than 25% of your net, then it's too much house. Start small and work up, don't start big and then get in a situation you can't handle.

[CureFan69]

Thanks for the book tips (and financial as well)... I was going to ask what books you guys would recommend. So you would pay off all SL debt first huh? I admit it would feel great to be 100% debt free before entering into a mortgage. I wish so badly that all this info would have been at my fingertips back in 1992 when I got out of college the first time and entered the workforce.

[wincrasher]

Well more than enough time has passed by for you to request and recieve a greater credit limit on your card. With your score, it should be no problem.

That will also help build your score and keep your utilization ratio low.

You've done very well so far. If you had the money, you could probably qualify for a mortgage right now.

[CureFan69]

Thanks Win... thats a great idea, I'm going to call my bank tomorrow to ask for an increase.

Thanks to everyone for your advice!

[jimmyengland]

if you have a fico score 743 i dont see why you wouldnt qualify for a mortgage now... i wouldnt pay off the sl either and as far as everyone rambling on about saving the 20% to avoid pmi thats stupid. IF you are disciplined enough and are not over aggressive i would think that you could buy the house now make payments on that and the student loan and be far better off and use both as deductables. Eg if you are renting now you are paying 700 bucks a month. if you were buying a 100000 house you will also be paying 700 month (at least where i live taxes, insurance, pmi etc) and at least 150 of that would be going to the principal. Do u all realize that pmi is 35 bucks a month on 100k??? It is going to cost him/her way more than this with rent currently. This is also providing that you would qualify for a mortgage (im not sure how it is exactly right now with the creidt crunch etc)

Also i agree that you should have a min of 6 month emergency fund and you should be investing 15/20 % towards retirement.

[momof1in150]

If you have a stable job, a score of over 720 and at least 3% down you can qualify for an FHA home mortgage. Talk to a mortgage broker and they will sit down and talk to you about your options.

[swanson719]

The problem with buying a house before you are ready financially - i.e debt free at minimum, 20% down better - is that you end up delaying the payments on whatever debt you have. For instance, you keep the student loans. $20,000 at 5.2 fixed over the next 5 years, though they are more likely longer than that. At 5 years the interest, would be $2,750. At 10 years, the interest $5,700. Not only that, but this is a few hundred a month out of your pocket that could be going towards home repairs, or more importantly, extra principle on the house. A 15 year mortgage always pays off in 15 years. That extra principle you put on the mortgage has over a 50% return during the first 3 years. If you pay off the $20,000 over the next 2 years, which is reasonable if you really apply yourself at it and get on a strict budget, and you could even keep investing 15%, then save the last year for a fully funded emergency fund, you would be able to walk into a house with a 3% down payment, but have the full emergency fund and no other debt. Or wait a little while longer, maybe 6 or 8 years, and buy a house in cash. Think of that - how far ahead of the curve would you be then, and how much in interest would you save? Literally tens of thousands by waiting a few years. That's years of your life you get to work and enjoy your money instead of sending it to the bank every month. 8 years of renting, or 15 to 30 years paying the bank? I think it's an easy choice.

[CureFan69]

I've come up with a plan that will allow me to pay off my SL debt in just over 2 years... I think this is definitely the way I'm going to go.

Quick question... of the Dave Ramsey books, which one would you guys reccommend first? Thanks!