Prospective First-Time Home-Buyer Could Use Some FHA Advice (loan, payment schedule, real estate)

[SteelCityRising]

Hello!

My partner and I have fallen in love with this home, priced at $24,900:

Hazelwood Real Estate - 418 Pauley Ave, Hazelwood, PA, 15207

As a first-time home-buyer I'd be very interested in the FHA program that permits you to buy a home with as little as 3.5% down with closing cost assistance offered.

Some issues:

1.) My credit score is weak, to say the least, at approximately 600. I've identified that the primary reasons for this include:

(i) Having had a revolving monthly balance on my Discover card that was near to my $1,500 limit. I've brought that down to $1,000 over the past few weeks and should have that whittled down to nearly fully paid off by early next year.

(ii) Late payments on student loans and utility bills. I've since scheduled automatic deductions from my checking account on specified dates to prevent this from occurring in the future.

(iii) I'm young and haven't yet established a very long credit history.

I believe you have to have a minimum credit score of 620 to qualify for an FHA loan. If I work to rectify those above issues, approximately how long do you think it would take me to raise my credit score by 20-30 points? A few months?

2.) As an independent contractor I suppose I'm technically "self-employed". I also have a monthy net income that varies anywhere between $1,700-$2,200 or so (so let's just assume $2,000/month net for purposes of this scenario). Will this prove to be detrimental in qualifying for a mortgage?

3.) 3.5% of $24,900 is $871.50. I would likely be looking to contribute more towards a down payment, if possible, in order to reduce my principal.


All in all I'm admittedly a mortgage virgin! I currently pay $550/month in rent on a 700-square-foot 1-BR apartment, and I'm assuming I can probably pay far less than that monthly if I wanted to purchase this 2-BR home.

Please help! How could I buy this home with a less-than-stellar credit history and my fluctuating monthly net income?

[Enkiktd]

From that link it looks like that home is already under contract so I wouldn't get too attached. There are a lot of houses out there and as a first time buyer it can be easy to fall in love with one and be crushed when you don't get it.

That being said it's probably best to contact a lender and find out what you'd qualify for if your credit were up to par. Set goals for yourself to pay off your current debts and to save monthly on top of that. It can take time for your credit to repair itself so keep your debts low/pay off debts in full and keep saving.

By the time your credit goes up some you should be able to put a sizable down payment (aim for 20%) and have a reasonable mortgage.

I wish I had your problems though...if any decent home were available in southern California for $25k I would just buy with cash!

[SmartMoney]

It doesn't matter if you want to borrow 10K or 100K, with delinquent student loan (ie government loan) outstanding, you own't be able to incur additional (government) debt. You don't say how late you are.......and how late they have been, but if it's been a while since you have paid them, there's a CAIVRS out on you.

What is CAIVRS?
CAIVRS is a Federal government database of delinquent Federal debtors that allows federal agencies to reduce the risk to federal loan and loan guarantee programs. CAIVRS alerts participating Federal lending agencies when an applicant for credit benefits, or for a position of trust in support of the administration of a Federal credit program, has a Federal lien, judgment or a Federal loan that is currently in default or foreclosure, or has had a claim paid by a reporting agency.

We use to run CAIVRS (credit alert interactive voice response system) by telephone, but now by computer. Even if you have a clear CAIVRS, your lender is going to want to see your debts (student loans and credit cards - not the utilitiy bill) paid on time longer than from when you rolled into their door. This next question is not intended to be sarcastic (and you really do not need to answer it to the forum), but have any of your financial obligations been paid on time for for the preceding 12 months? Could you find 3 obligations you have paid on time over the past 12 months? If not, 620 or 660 won't make a difference. Now if it a matter of one, two, or possibly 3 payments that were late, with a good reason, it's possible, but still difficult. But late payments with a 600 score and only 1 account? That's an uphill battle. Recommend you find a couple of secured accounts (put $200 in savings and that's your limit). If you can be added to someone's account with a 12 month track record (and very small payment), that could expedite your cause.

As for your income, need 2 years tax returns. Go pull your last tax return and go straight to schedule C. Look at the number at the bottom right hand corner - that's your income, minus expenses. Take that number and go to 2009, and again, get that same number, add it to 2010 and divide by 24 for your monthly income. If you have depletion or depreciation, that gets added back into the average you just calculated. You need to make one final check for anything entered into line 21 on schedule A ("unreimbursed employment expenses") and that figure is divided by 12 (or 24 if on both returns) and subtracted from your income. If you have less than 2 years, your plight is going to be tough until you have 2 years returns filed.

It sounds like you may be trying just a bit too soon. One of the biggest mistakes is going from lender to lender, hoping for a different answer, but having your credit pulled each time. Contact the last lender you talked to and request a copy of your credit report. When talking to new lenders, to see what they can do, show them that report, This will minimize the pulls on your credit.

[SteelCityRising]

I'm not currently late/delinquent on my student loans.

[SmartMoney]

How long have you had Discover? How long have you paid them on time? Get the balance below $750 and your points should shoot up, possibly 30 points.

When was your last late payment on your student loans?

There's something holding your score down. Do you have other credit?

While you are trying to get your score up, do not close any accounts, don't let anyone pull your credit and don't take any of your credit cards over 50% of their limit.

[SteelCityRising]

Thank you! As of tomorrow my Discover balance will only be approximately $500 out of my $1,500 credit line, or roughly 33%. I thought I heard that you should try to keep your card balances below 25% of their total limit, though, so ideally I'm going to whittle that down further to $375 over the next week.

It's been about two months since I was last late on my student loans, and I have my next payment scheduled a day early.

I'm beginning to become a bit more realistic in that it's better to have my credit score improved AND 20% saved for a down payment prior to jumping into purchasing my first home. My lease is up at the end of April. I'm going to then live with my partner and his roommates for three months, which will drop my monthly rent by $200/month and will greatly reduce my utility obligations. I'm going to apply that differential towards making slightly higher payments on my student loans each month.

If all goes well I hope to purchase my first home in July 2012.

[FalconheadWest]

You were late on your student loan just 2 months ago? And you're trying for another government loan? You have to show on-time payments for at least 12 months before you could qualify. You're not going to make that July 2012 deadline when 12 months doesn't even roll until September.

You have a lot of homework to do and money to save if it takes you weeks to drop your credit card balance just a couple of hundred dollars.

[SteelCityRising]

Originally Posted by FalconheadWest

You have a lot of homework to do and money to save if it takes you weeks to drop your credit card balance just a couple of hundred dollars.

I'm sorry I'm poor.

[FalconheadWest]

Originally Posted by SteelCityRising

I'm sorry I'm poor.

You can't take that sentence out of context with the rest. Nothing wrong with being "poor", but being late on bills is called irresponsible. If you want another government loan, you first have to show the government that you're responsible enough to pay the debt you already have, and pay it on time.

[Bulldogdad]

Pay your credit card balances off every month.

Pay all your bills on time.

Do this for twelve months and I bet your score will rise to the mid 600's

Also %10 is the maximum balance to credit limit ratio you should carry if you are looking to jump your score.

Save, Save, Save

Even if you go the FHA route you should have 6-12months living expenses, including a new mortgage payment, saved up in case you or your partner loses your job. No emergency fund, no house.

It tough but its better than losing your house and screwing up your credit for ten years.