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MamaLlama

Advice desired on what steps to take to get us in a home as soon as possible

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I posted this over in mortgage and they suggested that I ask over here too.

 

*sigh*

 

So, we had a VERY bad couple of years a while back. We didn't do anything to help our credit, just survived. We are beyond ready to become homeowners again. Here is where we stand at the moment... All vehicles paid for. The only other debt is a 401K loan at $166 every month.

 

FICO 2-4-5 mid score is 610

 

GOOD, or ok

AU - Rooms to Go, $4500 limit, $0 balance, pays as agreed no lates, opened 11/09

AU - Home Depot, $5001 limit, $632 balance, pays as agreed no lates, opened 2/09

Wise Credit - Auto Loan, paid in full, closed 7/2014, sprinkled with lates unfortunately

Regions - Line of Credit, opened 5/2015, six 30 days sprinkled in there. $300 limit, $28 balance

Valero - $1100 limit, $0 balance, no lates, not used since 9/16, but still open

 

BAD

chargeoff - $300 DOFD 9/2015 **

collection - $1161 DOFD 12/2013 **

collection - $580 DOFD 9/2013 **

collection - $1352 DOFD 10/2013 **

 

Medical Collections (because I understand they aren't held against you... or as much?) these are under Whychat's HIPAA program currently.

$54 DOFD 9/2013

$142 DOFD 9/2012

 

Bleh. Now the UGLY

2 judgements. 1 satisfied, 1 will be satisfied in August. It's for $650. :cry2:

 

Income is on track to bring in 70k this year. Grossing just over $5900 a month, but we want to stick in the price range not to exceed $215,000.

 

OH, the ** above... We will have the ability to pay those off in full in August if it won't hurt our scores. That's another thing I need advice on.

 

Is it POSSIBLE for us to be able to buy by the year's end? If so, what steps do we need to take to make it happen? We have $10,000 to put down.

 

I have been working so hard on getting the reports cleaned up as much as I can by working in the credit forum... I didn't even realize that mortgage credit was a whole other animal. I guess it is still the same elephant, and you still eat it one bite at a time, but I don't want to take any more steps backwards.

 

Please tell me it's possible and we won't have to sign another lease in March. :dntknw:

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Paying off the ** collections probably won't help your score, and the updated activity could actually hurt.

 

I would start carefully analyzing your COs and look for ways to dispute them. Ask for help here on CB on the one(s) you want to start with.

 

Credit aside, you are looking at putting < 5% down, which is a very expensive way to finance a house. I did some analysis on this when I was helping a friend look into financing options.

 

In my example I looked at FHA, but for low-down options you are looking at a hefty cost premium in the form of higher interest rates, PMI/MIP, or both.

 

In my analysis the financing costs for the low-down option were about 50% higher than with conventional financing.

 

https://creditboards.com/forums/index.php?showtopic=578254&p=5561452

 

If you signed another lease that might give you the opportunity to save more money to put down, and you could also use that time to continue to improve your credit.

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Our lease here, and in this area, increased 5.75% last year.

 

We're just so ready to get out of the leasing game. The plan is to get in a home and refinance in a few years. I know it's not ideal, but neither is being at the mercy of the rental market. It's crazy here in DFW.

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Paying off the ** collections probably won't help your score, and the updated activity could actually hurt.

 

I would start carefully analyzing your COs and look for ways to dispute them. Ask for help here on CB on the one(s) you want to start with.

 

Credit aside, you are looking at putting < 5% down, which is a very expensive way to finance a house. I did some analysis on this when I was helping a friend look into financing options.

 

In my example I looked at FHA, but for low-down options you are looking at a hefty cost premium in the form of higher interest rates, PMI/MIP, or both.

 

In my analysis the financing costs for the low-down option were about 50% higher than with conventional financing.

 

https://creditboards.com/forums/index.php?showtopic=578254&p=5561452

 

If you signed another lease that might give you the opportunity to save more money to put down, and you could also use that time to continue to improve your credit.

I'll go in to detail on the charge offs in a day or so. We're celebrating Father's Day today.

 

Thank you so much for your advice. Like I said, I know it's not ideal, but it is what it is. We'll never be able to save a 50% down payment. We've been renting for 13 years and are beyond ready to own again. Rent is just too high.

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Be aware that a paid collection or CO has the same FICO impact as an unpaid one. There are other reasons to pay a CO or collection account (and when applying for a mortgage, it's quite possible that the lender will require that they be paid, before approving your loan). But from strictly a FICO score viewpoint, it doesn't help, and it can possibly hurt (in the scenario where a collection or CO is not being updated on your CRA's, it loses FICO impact as it becomes "stale" - when updated to reflect payment, the new activity causes it to be scored as if it had just happened)

 

On the judgements - same FICO issue - a public record is a public record, paid or not. There is a form that a judgement holder can submit to the court, to have the judgement "erased". I wouldn't hold my breath, but it doesn't hurt to ask.

 

The whychat method has a very high success rate on getting medical collections removed. There are strict rules on how a medical collection can be reported, and collection agencies commonly fail to follow those rules, so you can feel pretty confident about those items getting deleted.

 

On the CO and CA's, ditto CV's comments -- the debt collection industry is notorious for slack record keeping and for failing to follow the laws. I suggest that you dig into to the details of those items, to look for errors that you can leverage to get them deleted.

Edited by JeffeVerde

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One other suggestion is to actually apply for the mortgage a few months before you are ready to move forward. Collectors are known to come out of the woodwork when they see people applying for mortgages, as many mortgages lenders will require collections be paid (as mentioned above). Good idea to try and draw them out well in advance to head off issues at the pass.

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Paying off the ** collections probably won't help your score, and the updated activity could actually hurt.

 

I would start carefully analyzing your COs and look for ways to dispute them. Ask for help here on CB on the one(s) you want to start with.

 

Credit aside, you are looking at putting < 5% down, which is a very expensive way to finance a house. I did some analysis on this when I was helping a friend look into financing options.

 

In my example I looked at FHA, but for low-down options you are looking at a hefty cost premium in the form of higher interest rates, PMI/MIP, or both.

 

In my analysis the financing costs for the low-down option were about 50% higher than with conventional financing.

 

https://creditboards.com/forums/index.php?showtopic=578254&p=5561452

 

If you signed another lease that might give you the opportunity to save more money to put down, and you could also use that time to continue to improve your credit.

I'll go in to detail on the charge offs in a day or so. We're celebrating Father's Day today.

 

Thank you so much for your advice. Like I said, I know it's not ideal, but it is what it is. We'll never be able to save a 50% down payment. We've been renting for 13 years and are beyond ready to own again. Rent is just too high.

 

 

20%, not 50%.

 

 

You definitely want to run the numbers and compare the total costs of renting vs. owning.
You mentioned a ~5% increase in rent. Let's say that you are paying $2,000 now and it goes up to $2,100. That $100 difference over the next 12 months would cover the $800 Band-Aid® repair we did to our 25-year-old AC unit last month and the $400 we spent replacing the garage door opener the month before, but zero other repairs or maintence over the past year.
Adding up the cost of renting is easy:
Rent + utilities + renter's insurance
Home ownership is more complicated:
Mortgage payment + PMI + HOA fees + property taxes + higher utilities + homeowners insurance (which will be much higher than renter's insurance) + allowance for repairs and maintenance (1% of the cost of the house per year) + the cost of refinancing, according to your plan.
There may be other costs that are included in your rent that would no longer be covered, like lawn maintenance (you would have to hire a service or buy a mower, trimmer, and fertilizer/weed treatment, etc.), trash pickup, pest control, pool maintenance, etc.
With static property values it will take you about 9 years of regular payments before you have 20% equity so you would be able to get more traditional financing and stop the bleeding from PMI and additional interest costs.
You can subtract some home appreciation over the term you plan to own the home, but be sure to net out the costs of getting the home ready for sale plus the real estate commissions (traditionally 5-6% of the sale price).
When you buy you will also end up replacing a bunch of furniture (and adding to your collection). You will also end up doing various home improvements that you will never get back dollar for dollar.
Also, unless you are already itemizing deductions on your income taxes, the mortgage interest and PMI costs may yield zero tax benefit. So make sure you do the math here also.
Edited by cv91915

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Medical collections most definitely have a a negative impact on the FICO scoring models used for mortgages. Fortunately, WhyChat's method is highly successful.

 

Don't rush into a house without savings. Things like new HVAC systems or whatever might come up are expensive.

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CV gives some good advice here.

 

I'm a renter and still saving for a down payment of at least 30%.

 

Sure you want to own someday, but renting is not an outright evil sin. I personally know a couple of people who went out and bought a home because they got tired of renting. Didn't take into account all the financial demands. A year or so later they are hurting financially bad. One expense after another.

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CV gives some good advice here.

 

I'm a renter and still saving for a down payment of at least 30%.

 

Sure you want to own someday, but renting is not an outright evil sin. I personally know a couple of people who went out and bought a home because they got tired of renting. Didn't take into account all the financial demands. A year or so later they are hurting financially bad. One expense after another.

 

Contrary to how some of my posts come across, I am a huge fan of home ownership under the right circumstances. Glad to read that you are getting prepared financially. :good:

 

I have a friend who bought her first home in 2005, financed as follows:

  • 5% borrowed from her 401(k) to use as a down payment;
  • An 80% LTV interest-only 5/1 ARM that couldn't be refinanced under HARP because it isn't owned by Fannie Mae or Freddie Mac;
  • A 10% LTV second mortgage at 7.5% with a 30 year amortization, but a balloon payment of ~90% of the loan balance, due at the end of 15 years.

She did this because she was tired of renting.

 

Now, 12 years later, the house is worth marginally less than she paid for it, the balloon payment is due in less than three years, and she still has no savings.

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CV gives some good advice here.

 

I'm a renter and still saving for a down payment of at least 30%.

 

Sure you want to own someday, but renting is not an outright evil sin. I personally know a couple of people who went out and bought a home because they got tired of renting. Didn't take into account all the financial demands. A year or so later they are hurting financially bad. One expense after another.

Contrary to how some of my posts come across, I am a huge fan of home ownership under the right circumstances. Glad to read that you are getting prepared financially. :good:

 

I have a friend who bought her first home in 2005, financed as follows:

  • 5% borrowed from her 401(k) to use as a down payment;
  • An 80% LTV interest-only 5/1 ARM that couldn't be refinanced under HARP because it isn't owned by Fannie Mae or Freddie Mac;
  • A 10% LTV second mortgage at 7.5% with a 30 year amortization, but a balloon payment of ~90% of the loan balance, due at the end of 15 years.
She did this because she was tired of renting.

 

Now, 12 years later, the house is worth marginally less than she paid for it, the balloon payment is due in less than three years, and she still has no savings.

That's kind of a worst case.

 

What you (cv) are doing now is really the best case.

 

Even if you were to finance for more than the recommended 80% and we're to say instead assemble a savings / safety net to deal with upcoming expenses you could pay additional principal to get your overall costs over the life of the loan into a much better range.

 

The key would be in not having too much house so you had the ability to overpay on the note.

 

With credit scores above 700 you can get rates below 4% You can use a loan calculator to see how much money that is overall at different payment amounts. Just remembered to factor in the escrow payment which will vary by property to what you can afford. By my estimation if you can afford to Pay 150% or more of the loan repayment portion of the Mortgage in addition to the escrow. A no money down 30 year mortgage can work out quite well.

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CV gives some good advice here.

I'm a renter and still saving for a down payment of at least 30%.

Sure you want to own someday, but renting is not an outright evil sin. I personally know a couple of people who went out and bought a home because they got tired of renting. Didn't take into account all the financial demands. A year or so later they are hurting financially bad. One expense after another.

Contrary to how some of my posts come across, I am a huge fan of home ownership under the right circumstances. Glad to read that you are getting prepared financially. :good:

 

I have a friend who bought her first home in 2005, financed as follows:

  • 5% borrowed from her 401(k) to use as a down payment;
  • An 80% LTV interest-only 5/1 ARM that couldn't be refinanced under HARP because it isn't owned by Fannie Mae or Freddie Mac;
  • A 10% LTV second mortgage at 7.5% with a 30 year amortization, but a balloon payment of ~90% of the loan balance, due at the end of 15 years.
She did this because she was tired of renting.

 

Now, 12 years later, the house is worth marginally less than she paid for it, the balloon payment is due in less than three years, and she still has no savings.

That's kind of a worst case.

What you (cv) are doing now is really the best case.

Even if you were to finance for more than the recommended 80% and we're to say instead assemble a savings / safety net to deal with upcoming expenses you could pay additional principal to get your overall costs over the life of the loan into a much better range.

The key would be in not having too much house so you had the ability to overpay on the note.

With credit scores above 700 you can get rates below 4% You can use a loan calculator to see how much money that is overall at different payment amounts. Just remembered to factor in the escrow payment which will vary by property to what you can afford. By my estimation if you can afford to Pay 150% or more of the loan repayment portion of the Mortgage in addition to the escrow. A no money down 30 year mortgage can work out quite well.

A good safety net, buying less house and making regular, significant extra principal payments are all good mitigation strategies.

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Definitely going for less house. We'll have $10,000 for down and $10,000 in savings and not touching 401k. That will be for emergencies beyond our savings. We've been married 24 years and with 2 kids out of the house already, we have plenty of furnishings and such. We own our appliances, etc. I'm not too concerned with those expenses. As for rent, no perks are included except for maintenance and we are extremely handy people. We're the renters that don't call unless things get really out of hand (broken A/C, etc.).

 

We just can't stomach renting for another year or three. We're shopping well below our "price range" and have thought all of those things through. Thank you so much for the advice though.

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Medical collections most definitely have a a negative impact on the FICO scoring models used for mortgages. Fortunately, WhyChat's method is highly successful.

 

Don't rush into a house without savings. Things like new HVAC systems or whatever might come up are expensive.

 

When we bought our home 10 years ago, the furnace needed replaced to the tune of $7k... not something we expected right off the start.

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Definitely going for less house. We'll have $10,000 for down and $10,000 in savings and not touching 401k. That will be for emergencies beyond our savings. We've been married 24 years and with 2 kids out of the house already, we have plenty of furnishings and such. We own our appliances, etc. I'm not too concerned with those expenses. As for rent, no perks are included except for maintenance and we are extremely handy people. We're the renters that don't call unless things get really out of hand (broken A/C, etc.).

 

We just can't stomach renting for another year or three. We're shopping well below our "price range" and have thought all of those things through. Thank you so much for the advice though.

 

Good luck with whatever you decide to do. Sounds like you've given this some thought.

 

If you were 16 when you got married and you've been married for 24 years that would make you 40. A 30-year mortgage would have payments stretching past your 70th birthday.

 

I would strongly suggest factoring your age into the term you select for your mortgage so you can retire someday. :)

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