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I just graduated from college about 7 months ago. I have wife and son; we are 1st time buyers. My credit score is 590 and I want to buy a home for about 175K in Texas.
1. How much will my interest be, roughly? Will it be 7%?
2. Can I afford the house even if I make about 68k a year?
3. Should I wait until my credit score improves to about 700 to start shopping for home?
I need these answers before I start searching for home. I do not want to pay more for mortage then I have to.
With that low of a score, you may not find many lenders willing to offer you a mortgage.....and at the price you are looking at, you most likely will need a good down payment.
I would suggest improving the score first before trying for a mortgage....because of the current mortgage crisis, many lenders are really tightening the belt on the requirements, especially on the credit end. What you can do is have a lender pull your credit and find out ways of improving it. Generally most people recommend a 680 or above to have a really good chance.
I am trying really hard to improve my credit. I have 3 item I am paying promptly every month: car payment, student loan, and 1 credit card. I never use the credit card, but make the min payment to show I can pay bills on time.
The major problem with my credit report is past due hospital bills. I could not afford health insurance while in college and I got sick one day and now I owe about $7500 to collectors.
1. Will my credit improve if I continue to make payments with the past due hospital bills?
2. Should I start paying those hospital bills?
I want to be in a house in about 12 months.
Thanks for the help
I'd say, your best bet is to see why your credit score is where it is (upper 500s) and take active steps to improve your credit score. You have not posted why your current score is where it is, and whether you currently carry a lot of debt or not.
For instance, if you have a bunch of outstanding debt in collections, it's not just going to go away overnight. You should try to settle those, work on improve your debt/credit-limit ratios on your revolving credit accounts and to have good payment history on your installment loans. You should dispute all inaccurate information on your credit report. The process of watching your credit will take time and require work. The good news is that a couple hours a month (looking at your credit report, disputing inaccuracies, requesting information from original creditors, collection agencies and credit reporting agencies) will help you get good interest rate on your home mortgage as well as better rates/rewards on your credit cards.
It may be better to living in a small apartment home and save money toward paying off debt and a down payment on your house. The more money you have in a down payment, the lower your interest rate and payments will be, which will let you buy more house.
I didn't see your post before I clicked commit, so consider this an addendum relating to the medical. You should look at strategies to negotiate/settle on the payments.
If they pertain to a specific medical condition on your credit report, the CA may be in violation of HIPAA privacy laws, which may be a strategy to have the tradeline removed from your credit report. (i am not a lawyer, this is not legal advice, your mileage may vary).
NEGOTIATE. I would not make any payments without first negotiating with the collectors. They may say yes or no, but it really doesn't hurt to ask. You can ask them to accept a lesser amount as payment in full, you can ask that they remove the tradeline from your credit report, you can ask that the debt show up on your credit report as closed/paid. The internet has tons of negotiation strategies and sample letters. I would advise that you make sure you have a paper trail of all the negotiation. There are many unscrupulous CAs, so make sure that you've negotiated and received written communication of any deal you have with them before you send them a check. A creditor must prove that you owe them the debt--and since it's gone into collections--the collection agency must prove that they have the legal right to collect on that debt.
You wrote, "I never use the credit card, but make the min payment to show I can pay bills on time." Personally I hate paying interest to a bank, and this is especially true of credit cards. If you are carrying a balance on your credit card month-to-month (not paying it off in full every month), I would recommend start paying it off every month. The credit reports only shows what you owe each month, not whether you pay it off in full, so there's no advantage of only making minimum payments. Also keep your utilization ratio (that is, the amount you spend or borrow versus the credit limit) to 50% or below. That is, if you have $5,000 credit limit, try not to ever go over $2,500.
In applying for a mortgage, the credit score is only a part of the picture. You need to also consider how much your debt payments are per month as it compares to how much you make per month. Housing can be only a certain percent of your monthly income and your total debt can only be a certain percent of your monthly income. These ratios are what mortgage people look at (in conjunction with your credit score, which will help determine interest rate) to determine how much house you can afford.
My credit was sort of where yours is when I started paying attention to my credit. I was able to improve my credit score significantly over a 12-18 month period. The thing is, you should start now--don't wait. A bunch of strategies involve sending certified mail-return-receipt-requested and giving them (OC, CA, CRA) a certain length of time to respond (your rights are protected by the FDCPA and FCRA), and you have to pay close attention to the number of days that pass (you're hoping that they don't respond in the required amount of time, which would put them in violation of the law). Make sure you pay all your installment and revolving loans on-time/as agreed during the time period before you hope to buy your house.
And collection accounts are the worst type because they really hurt the score....trust me I have been down that road before. With those, you have to make sure that whomever agency you are paying to reports it properly to the bureaus, and that once paid off, to insure that its reported as "Paid in Full". And be sure to get whatever the say they will do in writing.
As for credit cards, they are the worst enemy in the credit score because in most cases if you are over 30% of your limit, then your score takes a dive. Paying the minimum is good, but it will take forever to pay off the balance because of the interest. I would try paying more than the minimum so that you can chip off the balance faster and lower the debts......the DTIR (Debt-to-Income-Ratio) is one of the major factors lenders look at when getting a mortgage so you want to make sure it's low as possible.
As for medical expenses, some lenders may not pay too much attention to those, but depends on the lender though. Many people everywhere have alot of medical debt because of either not having insurance or something unexpected that came up.
If the hospital bills that are in collections have been recent though (like this year) then it may be a good idea to work something out with the collection agency. Just be sure that whatever you work out with them you get in writing BEFORE you pay them anything, otherwise you will lose the negotiation advantage.
What about your wife? How is her credit situation? If you intend to want to be in a home with in a year's time, then now is the time to get to work on getting the scores improved. Start by contacting a mortgage lender and ask them to pull your report (most will do it for little to no charge) and they will tell you what can be done to improve it. Remember, the credit report and score you pull from FICO is not the same report that the lenders use, since they use their own system. Know what the lenders know.
And, keep an eye on your spending habits too and have a budget established if you have not already done so, this way you know where your money is going.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,754,704 times
Reputation: 3587
With a score like that, I don't think you should get a mortgage. You should rent and raise it to at least 675 before you even think about a house. Just my view.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,754,704 times
Reputation: 3587
Quote:
Originally Posted by darrell2525
Thanks for the help
I am trying really hard to improve my credit. I have 3 item I am paying promptly every month: car payment, student loan, and 1 credit card. I never use the credit card, but make the min payment to show I can pay bills on time.
The major problem with my credit report is past due hospital bills. I could not afford health insurance while in college and I got sick one day and now I owe about $7500 to collectors.
1. Will my credit improve if I continue to make payments with the past due hospital bills?
2. Should I start paying those hospital bills?
I want to be in a house in about 12 months.
Thanks for the help
The collection will stay on your report whether you pay it or not so the answer is no, that will really not help you. Have you considered doing a bankruptcy? It will not really ding your score anymore than it is now and it may raise it because you won't be showing debt anymore. Then you can go out and get a secured credit card and pay it ON TIME every month. In about 6 months you should qualify for some other unsecured store credit cards like Sears and such. Get no more than 2 of them and pay the ON TIME every month. In about a year, you should have a score of about 630 which will qualify you for an unsecured Visa or Matercard. Get only ONE and pay off the balances on your other cards and use the Visa but only to about 30% of your credit limit (so if your limit is $1000, use $300 in credit) and pay it ON TIME every month. In about 18 to 21 months, you should have a score around 680 which will qualify you for a mortgage. People often think that bankruptcy kills their credit but in reality bankruptcy can actually help your credit in some situations. I think yours might be one.
Location: Jonquil City (aka Smyrna) Georgia- by Atlanta
16,259 posts, read 24,754,704 times
Reputation: 3587
Quote:
Originally Posted by jinxor
I'd say, your best bet is to see why your credit score is where it is (upper 500s) and take active steps to improve your credit score. You have not posted why your current score is where it is, and whether you currently carry a lot of debt or not.
For instance, if you have a bunch of outstanding debt in collections, it's not just going to go away overnight. You should try to settle those, work on improve your debt/credit-limit ratios on your revolving credit accounts and to have good payment history on your installment loans. You should dispute all inaccurate information on your credit report. The process of watching your credit will take time and require work. The good news is that a couple hours a month (looking at your credit report, disputing inaccuracies, requesting information from original creditors, collection agencies and credit reporting agencies) will help you get good interest rate on your home mortgage as well as better rates/rewards on your credit cards.
It may be better to living in a small apartment home and save money toward paying off debt and a down payment on your house. The more money you have in a down payment, the lower your interest rate and payments will be, which will let you buy more house.
His score is bad for 2 reasons- he has a $7000 collection item showing and he debt to income ratios look like crap.
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