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I've been renting for the past 5 years and want to buy my first home, but I am wondering if I even should even waste time and effort looking at homes to buy with my credit situation. I have enough to put a 50% downpayment on a luxury home, but not enough to buy it outright. I make six figures a year, but my credit is poor. When I first got out of college, I struggled for about a year finding employment in my field so as a result, I have 10 things in collections from about 5 years ago. My credit score is 570-640 depending on which credit bureau I ask. I can't even qualify a credit card to start building my credit back up so I'm just wondering if I have a chance at getting a mortgage at all? I am willing to pay high interest rates, if need to.
Take some of that down payment money and pay off those collections. They will continue to report and hurt your credit score. Once you have them squared away, you'll be able to start building your credit again.
What is your current debt to income ratio without the collections? Clean up all the collections and as much of your current debt as you can to improve that.
Maybe a "luxury home" isn't what you should be trying to buy. Find something more modest you can easily afford, get a great payment history and then move up. Not only will your score improve but you'll also build equity along the way.
Take some of that down payment money and pay off those collections. They will continue to report and hurt your credit score. Once you have them squared away, you'll be able to start building your credit again.
Since those debts are so old, I was told by multiple people that paying them off now will hurt my credit or at the very least they will still remain on my credit reports after I pay them off. Is that not true?
What is your current debt to income ratio without the collections? Clean up all the collections and as much of your current debt as you can to improve that.
Maybe a "luxury home" isn't what you should be trying to buy. Find something more modest you can easily afford, get a great payment history and then move up. Not only will your score improve but you'll also build equity along the way.
Thank you for your opinion.
My current DTI ratio is 22%. Other than student loans and rent, I don't have much current debt at all.
I have already been renting a luxury home for a while now so it wouldn't be moving up. I don't want spend all my savings to buy a home that I'm not happy with. Do you know what I mean? I'd rather not buy at all if that was the only option other than renting. When I buy a home, I want it to be a place that I will live in for a very long time. I don't want to buy and sell and have to keep moving around.
Do you think that I have a chance qualifying for a mortgage as things currently stand?
How do I clean up the collections? I was told not to pay off the old collections because it won't remove the debt from my credit report and would refresh the activity on the debt and possibly hurt my credit further. Is that not correct?
Buy a modest home for half the price and pay cash in full.
Then you'll have the advantage of owning a home free and clear and your ensuing income can pay all your debts as well as build up your savings.
By the time your score reaches 800 you'll have enough saved up so you can buy that luxury home.
Thank you for your advice. If I don't have a chance at getting a mortgage, I'd rather keep renting then. I won't want to waste all my savings on a home that isn't my "dream" home. I've had to move around a lot in my life so I don't want to buy a home that I'm not happy with only to move again in less than five years. When I buy, I want to be the home where I'm going to live for a very long time, if not the rest of my life.
How do I clean up the collections? I was told not to pay off the old collections because it won't remove the debt from my credit report and would refresh the activity on the debt and possibly hurt my credit further. Is that not correct?
How old are the collections? It is true the older they are the less impact they have on your score but if you make a payment, it's going to refresh the derogatory credit and that is most likely going to further reduce your credit score. If you want to improve your score, pay down any revolving debt to below 10%. Do NOT close out any credit accounts. If you can't get a credit card, open a secured one from your bank. Start using it and paying it off monthly and don't let the balance get very high.
It's going to take you some time for your scores to improve. Find a local loan officer who is willing to work with you in developing a plan and timeline to improve your scores and get you to a point where you will qualify for a mortgage. Right now I don't think you stand a chance.
How old are the collections? It is true the older they are the less impact they have on your score but if you make a payment, it's going to refresh the derogatory credit and that is most likely going to further reduce your credit score. If you want to improve your score, pay down any revolving debt to below 10%. Do NOT close out any credit accounts. If you can't get a credit card, open a secured one from your bank. Start using it and paying it off monthly and don't let the balance get very high.
It's going to take you some time for your scores to improve. Find a local loan officer who is willing to work with you in developing a plan and timeline to improve your scores and get you to a point where you will qualify for a mortgage. Right now I don't think you stand a chance.
Ok, Thank you for the advice. I guess I will just continue to keep renting.
Those items in collections are five years old. I have secured card that I've had for years trying to rebuild my credit, but it hasn't helped one bit I only put a few small subscriptions on them and paid them off in full every month. I've been trying for years to improve my credit but so far nothing has worked so I'm not sure how my credit will ever improve lol
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I have already been renting a luxury home for a while now so it wouldn't be moving up. I don't want spend all my savings to buy a home that I'm not happy with. Do you know what I mean? I'd rather not buy at all if that was the only option other than renting. When I buy a home, I want it to be a place that I will live in for a very long time. I don't want to buy and sell and have to keep moving around.
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I think this is a misconception that may hurt you for a long time.
When you rent, you are losing that rent forever. You are paying your landlord's mortgage instead of your own.
If you buy a house, that money will be repaid back to you when you sell.
I would "settle" for a house that I own, and then trade up as my financial situation improves.
The quicker you get off the rental game, the quicker you can start saving your own money into your house.
It seems you do not want to settle, and that sentiment for "comfort now" rather than later, is going to continually hurt you long term.
Learn to buy a smaller house that you are fine with, even if it means "settling" now, so you can own that luxury home sooner rather than later.
If you keep renting, you are going to own a luxury home much later, if at all.
Quote:
Originally Posted by adjusterjack
Buy a modest home for half the price and pay cash in full.
Then you'll have the advantage of owning a home free and clear and your ensuing income can pay all your debts as well as build up your savings.
By the time your score reaches 800 you'll have enough saved up so you can buy that luxury home.
Couldn't agree with this more. When I bought my first house, it was because my landlord jacked up my rent significantly. Fortunately I learned after that it was much better to pay my own mortgage than my landlord's. Thanks to my landlord pushing me to buy, I am in a far better financial situation today than if I had continued to rent.
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I only put a few small subscriptions on them and paid them off in full every month. I've been trying for years to improve my credit but so far nothing has worked so I'm not sure how my credit will ever improve lol
