Will I qualify for a mortgage?

[KaleighMaeA]

I think I am just really confused, when I tried to look up the FHA requirements online it keeps saying the minimum is a 580, which we are at a 680 well above that criteria. Am I looking at bad information? Also, my current mortgage is FHA and my credit score was only a 620 then, I've raised it quite a bit since then and that was 2 years ago.

[KaleighMaeA]

Not anymore, they are afraid of all the defaulters, all I was saying is that because of your lower credit scores they will be more willing to loan you money if you come up with more capital to put down. Think of it from their perspective, they've had a lot of people short sale or forclose even if they could pay for their mortgage and they don't want to get burned again.

I totally agreed, I was just wondering what I should have in cash. I have 20-35k equity in my house I will be able to put down on the next one, and we are wanting to buy a house in the 150-200k price range. Probably more about the 150k.

Thanks

[littleroc02us]

I think I am just really confused, when I tried to look up the FHA requirements online it keeps saying the minimum is a 580, which we are at a 680 well above that criteria. Am I looking at bad information? Also, my current mortgage is FHA and my credit score was only a 620 then, I've raised it quite a bit since then and that was 2 years ago.

I was say more important for someone looking at buying a house with a mortgage, isn't the credit score and the FHA stuff, is whether you can put a decent amount down, not 3% like FHA and you don't have hardly any debt. If you no to that, IMO you aren't in a good financial position to buy another house.

[littleroc02us]

I totally agreed, I was just wondering what I should have in cash. I have 20-35k equity in my house I will be able to put down on the next one, and we are wanting to buy a house in the 150-200k price range. Probably more about the 150k.

Thanks

If you could put 45k down that would be 30% they would loan you in heartbeat a good interest rate even with a 630 credit score, as long as your debt is quite low.

[KaleighMaeA]

Update: I spoke to a financial advisor through the military, and this is what I was told. I would like to get some opinions on this.


Since I am wanting to buy a house in the next year she said:
Do not pay off anything. Neither cars or the student loan.

Put all of my money into a separate account and just let it sit there.

Using the 28-36 rule I qualify for a mortgage payment of up to $2,440 a month. The price range I'm looking at where I have found multiple houses I really like would only cost me between 900-1200 a month.

Her suggestion to secure approval is to show the bank I have significant extra cash just sitting there, then apply even more toward the downpayment. Pay off the car after I move into the new house. She is right though, the bills we have now even with the two car payments are still significantly easy to pay each month with a surplus left over.

Does this sound wise?

[bjl584]

Update: I spoke to a financial advisor through the military, and this is what I was told. I would like to get some opinions on this.


Since I am wanting to buy a house in the next year she said:
Do not pay off anything. Neither cars or the student loan.

Put all of my money into a separate account and just let it sit there.

Using the 28-36 rule I qualify for a mortgage payment of up to $2,440 a month. The price range I'm looking at where I have found multiple houses I really like would only cost me between 900-1200 a month.

Her suggestion to secure approval is to show the bank I have significant extra cash just sitting there, then apply even more toward the downpayment. Pay off the car after I move into the new house. She is right though, the bills we have now even with the two car payments are still significantly easy to pay each month with a surplus left over.

Does this sound wise?

I'm assuming that she told you not to pay off anything because she wants you to build up your liquid savings before you apply for a loan. You will need 20%. Anything beyond that is a bonus to you, but it probably won't affect your ability to get financed.

You said that you are easily able to make your payments, so paying the minimum and saving the extra cash shouldn't present a problem for you.

Do you project that once you buy a house that you will have enough cash on hand to be able to have a 20% down payment, have a 6 month EF, and still have enough left over to pay the car off? If the answer is yes, then go for it.

However, if having those debts on your credit report will negatively impact on your ability to qualify for a mortgage, then you will want to clear the debts before you start to think about buying a house. A phone call to your bank's loan origination debt will tell you where you stand with pre approval and how much they will be willing to lend to you.

[catatonico]

Paying off current accounts (like car notes and student loans) can actually have a NEGATIVE effect on someone's credit scores... at least temporarily. Especially if that person does not have much active credit to begin with.

Another reason for hoarding the cash in a licquid account is because lenders like to see reserves... typically 3 months or more. The financial advisor wasn't just talking about saving for a down payment (though that would help, also). Cash reserves often have to be sourced and seasoned, meaning the underwriter has to be able to tell where the funds came from and that they didn't just appear overnight (people used to go out and get short term loans to be able to meet the reserve qualifications.... lenders didn't like this, understandably).

FHA minimum credit score is typically 580 (sometimes lower, if there were extenuating circumstances that are well documented)... and you are better off going conventional, if you are able to (better loan options available on conventional loans).

I know this because I was a mortgage processor and underwriter for a few years (up until a couple of years ago, just after the market crash)... and I processed FHA and conventional loans.

Your neighborhood sounds terrible, by the way.... I would want to get out of there, as well. Do NOT count on the sell of your house to provide you with the down payment you need. What you are finding as comparables and what the lender's appraiser will use as comparables will probably NOT be the same thing. Appraisers are being held to more strict standards now than they have ever been (which is NOT a bad thing, by the way) and unless you are a seasoned appraiser, you will not be able to adequately pick good comparables to compare your home to in order to determine value. Save the money for the down payment yourself. Then, if you ARE able to get the money you need out of your sell, then you will be that much better off and would've lost nothing

Good luck to you!!

[catatonico]

My husband works as a contractor in power plants. If he is removing lead he makes a certain dollar amount an hour, if he is doing scaffolding it's a different rate, and so on and so forth. He never clears less than $2,800 a month but sometimes clears as much as $5,500 a month during "outage months".

Oh... I also meant to add to make sure that, as a contractor, your husband's income is well documented, if he's not a W2 employee (I'm not sure how contractors in power plants are paid, honestly). Lenders also usually want to see two years steady employment in the same field, so make sure that he can document it.

[littleroc02us]

Paying off current accounts (like car notes and student loans) can actually have a NEGATIVE effect on someone's credit scores... at least temporarily. Especially if that person does not have much active credit to begin with.

Isn't that almost comical, the almighty FICO is damaged for a short time if you pay your bills off, they would rather have you carry debt and pay it off slowly. Shows you how stupid the whole system is. Funny stuff! You could have millions in the bank, no credit score and they wouldn't loan you any money because you have a 0 credit score on a traditional loan.

[KaleighMaeA]

Yes, God bless America. It seems insane to me that it's GOOD to owe money. It's crazy how paying off things early makes your score actually go down for a while. Cash reserves it is!

I wish we could move sooner, but unfortunately my husband joined my family business shortly after we got married. So while he's only been here 5 months, he won't be going anywhere. Of course lenders don't look at it that way, so his 5 months here even though he doesn't have a gap in employment doesn't look great.

[catatonico]

It goes beyond comical and hits on the ridiculous, at times, honestly. I've had people apply for loans that tried to do things the correct way... take on no debt, pay everything in cash, have adequate retirement and savings and generally live well below their means.... people that show true responsibility with handling their money... These people were turned down for loans because they did not have enough credit. They would look at me like I was crazy when I would tell them to go apply for a credit card and use it for monthly groceries and gas, and pay it off every month, then come re-apply in a year.

Then again, I also had one couple that I told that to who went a nuts and got several cards and maxed them all out... when they re-applied for a mortgage a year later, I had to tell them that they had completely trashed their credit... talk about a nightmare conversation....

[KaleighMaeA]

Yes, the whole credit score thing is kind of a nightmare at times. We actually (even with the debt we do have) live below our means.

I tried to apply for a credit card at sams club about 6 months ago, and got turned down because I haven't had enough open loans/credit accounts in the past.

Up until about 2 years ago I paid everything in cash. EVERYTHING. This is the first car loan I've ever had. When I was 15 I started working in a warehouse cutting and rolling sheet metal, and worked there for 2 years (usually 50-70 hours a week in the summer), and paid for my car in cash.

Looking back on it I should have taken out loans earlier in life. That's the kind of stuff that I hate. I wish I could just take paycheck stubs and W2's in and show that I've been working for the same place for around 5 years, and my income is well above what I would need to pay for a house and presto! all done.

Instead, I'm paying interest on car loans I don't really need, and charging about 20% of my total limit on credit cards and paying them every month just to "look good" when really to me it should look better if I never had/used/or needed them.

It all just tends to get very frustrating for me. When I look at my credit score one thing I really need to do to get it higher is have more accounts to look at. However, getting more accounts initially hits your score negatively.

[Hector]

I am not sure about not paying off debts is a good thing to have so called higher credit score. I never had car loan and we rent. I have been using credit cards, but paying in full every month. As far as types of debts are concerned, credit cards are the only type that I have and it shows on my credit report. I checked my score 3-4 years ago and it was excellent. Since then I keep checking my credit report but not the score, so I dont know what is it right now. But my credit cards are in active status and I am sure that it is excellent right now.

To have good credit score, I understand using credit cards regularly because they are the easiest way to build credit history (I think apart from mortgage, not paying interest on anything is much more important than having a good credit background).
For sure I prefer not to take a debt on which I have to pay any interest just because people say that it helps in getting better credit score.

[littleroc02us]

Makes you start to wonder if FICO and lenders have some type of an agreement...

[AREACODE832]

My husband is applying for a mortgage loan; he served in the military for 15yrs but now has worked for the post office for the past 13yrs. He has a foreclosure and a bankruptcy on his credits which both are over 5 yrs old. We are separated and have been for the past 5 yrs, I pay him $600 bi-weekly in child support for my two boys which are 14 and 12. He has put down $6667 with the home builder and has an additional $6000 in the bank. He needs $4200 in reserves. I guess he can get a gift loan for a few thousand if need be. His credit score was 633 6 months ago, hopefully it’s over 640 now. His realtor contacted the credit bureau and has gotten a few things to fall off. Does anyone know if he will be able to qualify for a loan? I would love for my boys to have a place to call home.