Possibility of mortgage approval? How to increase ficos?

[Blazeeofglory]

Hi there!

My boyfriend and I have rented the same house for years, and unfortunately have to move out by May 2nd. We much rather buy, because rent here in south florida is even higher than a mortgage. We also have a baby due the end of July, so this is terrible timing, and we werent prepared to be buying a house so soon. We are looking at a new construction around 300k.

Here are our stats:

boyfriend:

720 middle mortgage fico score

no derogatorys

has ATV loan, pays $250 a month. 
Motorcycle loan, pays $230 a month

Credit card (maxed out) $150 a month

Credir card (maxed out) $40 a month.

Makes 55k a year

I currently have:

520 middle mortgage fico score 

4 late payments (credit cards) in the past year

1 collection (with midland, paid to delete just waiting on them to delete)

1 capital one charge off, they charged it off march of this year for $1400 (took forever for them to charge off even though last payment was over a year ago) - i can pay this off but not sure if i should?

Ch7 bankruptcy (COVID) discharged 3/21.

i have 4 cards:

Cap 1: $0/$200 

Cap 1: $74/$200

Navy Fed: $161/$200

Fingerhut: $0/$900

i can pay a these two down, just not sure how much of a difference this will make?

i did open the capital one credit card a month ago, not knowing that ill be needing a mortgage so im hoping this doesnt kill me too.

any advice?? What can i do quickly so we can qualify together before my maternity leave? Will the charge off or late payments prevent us from getting a loan?

[Cowboys4Life]

Based on what you provided it looks like your biggest issue is debt to income.  When it comes to the credit cards AZEO is the best practice prior to apping for a mortgage.  Get those balances down to zero on all the cards except one reporting at less than 10%.  

"has ATV loan, pays $250 a month. 
Motorcycle loan, pays $230 a month"

He won't like this suggestion but with a baby coming, a forced move, and desire to buy a house I would get rid of these two.  First that is a large amount of money that could be put towards getting rid of the maxed out cards and second:  the ATV is fun but not necessary and the motorcycle is not practical for transporting a family.

"What can i do quickly so we can qualify together before my maternity leave? Will the charge off or late payments prevent us from getting a loan?"

Get those credit card balances paid down.  As I said above AZEO is best.  Find out what down payment assistance programs exist.  Pay off that charge off.  Cap1 is aggressive in suing and the instant they see you have applied for a mortgage they will hit the court to file if they haven't already. Underwriters will want anything that is suit worthy like that charge off dealt with before approval.  DO NOT app until you have done these things as it will bring creditors out ot the woodwork looking to get paid.

[Blazeeofglory]

Thanks for your response!!

the charge off is actually with discover, i may have posted that wrong. I know they enjoy suing so i will get that paid ASAP.

as far as the ATV & Motorcycle - the ATV was not operable after a month of owning, and even under warranty they refused to do anything for us. So we are unable to sell it as there is nothing to sell. My boyfriend continued paying obviously to avoid tanking his credit. We only owe about 3k on it, if we paid it off would that make a huge difference?

 i am not sure if he would be willing to part with the motorcycle (it is a dirtbike, he competitively races)

we could pay off the ATV and some of the credit card balance off now.

if we get his DTI down. I get my charge off paid and collection removed, do you still think we would qualify if i could get to the bare minimum of 580 credit score?  I am concerned about the late payments. I sent goodwill letters but nothing yet.

[VAMortgageGuy]

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@Blazeeofglory wrote:

Hi there!

My boyfriend and I have rented the same house for years, and unfortunately have to move out by May 2nd. We much rather buy, because rent here in south florida is even higher than a mortgage. We also have a baby due the end of July, so this is terrible timing, and we werent prepared to be buying a house so soon. We are looking at a new construction around 300k.

Here are our stats:

boyfriend:

720 middle mortgage fico score

no derogatorys

has ATV loan, pays $250 a month. 
Motorcycle loan, pays $230 a month

Credit card (maxed out) $150 a month

Credir card (maxed out) $40 a month.

Makes 55k a year

I currently have:

520 middle mortgage fico score 

4 late payments (credit cards) in the past year

1 collection (with midland, paid to delete just waiting on them to delete)

1 capital one charge off, they charged it off march of this year for $1400 (took forever for them to charge off even though last payment was over a year ago) - i can pay this off but not sure if i should?

Ch7 bankruptcy (COVID) discharged 3/21.

i have 4 cards:

Cap 1: $0/$200 

Cap 1: $74/$200

Navy Fed: $161/$200

Fingerhut: $0/$900

i can pay a these two down, just not sure how much of a difference this will make?

i did open the capital one credit card a month ago, not knowing that ill be needing a mortgage so im hoping this doesnt kill me too.

any advice?? What can i do quickly so we can qualify together before my maternity leave? Will the charge off or late payments prevent us from getting a loan?

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Your biggest issue is going to be the derogatory hits after the BK. Do you have extenuating circumstances regarding the late payments after the BK? 

As far your scores go, you'll need to get them up to at least 580 unless you have 10% to put down. Paying off Cap1, Navy Fed and the charge off should help your scores but it's difficult to say by how much without running a what if simulator. Deleting the collection should also help.

[ShanetheMortgageMan]

Are you getting paid while on maternity leave?  I didn't see where you indicated how much your income currently is or what it'll be once you are on maternity leave.

May 2nd is less than 30 days from now, which even if you are able to qualify today, would be tough although not impossible to close on a home by.  Do you have a place to live after May 2nd?

Your boyfriend's income alone doesn't seem to qualify for a $300k sales price with a minimal down payment amount (3% for conventional, 3.5% for FHA) even if he didn't have any debt.  There are two debt-to-income ratios that need to fit:  housing & total.  The housing ratio only considers the new housing payment and the total ratio includes any consumer debt payments.  His housing ratio is above 50% which wouldn't qualify for conventional or FHA financing.

Both conventional and FHA financing can use income received while on temporary leave (what maternity leave can be considered as), as long as you intend to return to work, you have the right to return to work and the income while on leave is used to qualify.  If you'll return to work prior to the mortgage's 1st payment due date then your pre-leave income can qualify instead.

Homeowner's insurance in Florida (especially south Florida) has become very expensive, so not sure what you are estimating but a $300k sales price could easily have a total payment of $2,500/mo+.  How much is renting a place that could accommodate your growing family?  I bring this up because with credit card debt & a kid on the way homeownership isn't something I'd recommend taking on unless you are in a solid financial and credit position.

If you'll be on the loan, the derogatory marks after your bankruptcy will be concerning to underwriting, particularly the late payments in the last 12 months and the charge off that happened last month.  What was the reason for the late payments & charge-off?

If you are trying to qualify for FHA financing then you'll need to get your score up to a 580+ to be eligible for the 3.5% down payment option, otherwise it'd require 10% down.  However, even with a 580 score you still need to pass underwriting guidelines.  With FHA there is an automated underwriting approval and manual underwriting approval.  Manual underwriting is much tougher on credit history, requiring no "major derogatory" on revolving accounts in the past 12 months.  Major derogatory is defined as a single 90 day late or 3 or more payments of 60 days late.  A charge-off would fall under a 90 day late, meaning to qualify for manual underwriting you'll need the charge off to be removed from your credit at this point or wait until it's at least 12 months old.  Otherwise, you'd need to qualify via automated underwriting, which the late payments & charge-off still might present too much risk in order to get approved that way.  Just want you to have a realistic outlook on your chances so you can formulate a backup plan in case qualifying for a mortgage doesn't pan out at this point.

[Blazeeofglory]

Thank you so much for the response!!

I make 33k a year, roughly. i will be getting 66% of my pay while on maternity leave, and will be returning (can get a letter from employer) with the same wage i went on leave with.

i do not have a super valid reason for the late payments/charge off. I have not made a payment on the charge off in over a year, yet they just charged it off last month. So i dont know if that technically counts as last year or this year for the late payments.

as far as the recent ones, they were around the holidays, childcare costs changed, my ex stopped paying child support. It was a mix of things. I got caught up and wont be in that position again.

we do have a place to stay until we close, so the date to be out of our rental isnt a huge issue. Rent in this area is $2500+, so if we are paying the same, we rather get a mortgage if we could.

[ShanetheMortgageMan]

The extra $1,800/mo of income from you would help the debt to income ratio, reduces it by about 15%.

If it's apparent that the charge-off occurred within the past 12 months then it'd make you ineligible for manual underwriting.  It doesn't go by when you last made a payment, it all depends on how it reports to credit.

One of the reasons you cited for the late payments was that your childcare costs changed (I assume increased), which with a kid on the way it's expected they'll increase further.  An underwriter will be concerned that you might not be able to handle the added child expenses.

Has your ex-spouse resumed paying you child support?  If so, then it could help an underwriter feel better about your situation.

Do you have a lot of money in savings?  If you can get the seller to pay for all of your closing costs then you're looking at $10,500 for the down payment assuming FHA and 3.5% down.  Down payment assistance could be an option to help you cover that, but those programs typically require a 620 or 640 minimum credit score.

[Blazeeofglory]

Im not sure what is considered apparent the charge off occured this year, i feel like it should have been charged off awhile ago but they did not? Would it help if i screenshotted payment history to look at it? It was indeed changed to a charge off on my credit last month though.

we have about $11k in savings, and the seller (new build) is offering incentives to pay all closing costs. We could get gift money for a higher down payment, and even use some to pay off his credit card/atv so his DTI dramatically increases.

my ex has not resumed paying child support, though we are going to mediation in may and he is required to make payments at that point (court ordered) so i do expect he will continue paying again. With childcare, we actually have additional family here to help now so that is not an issue.

i am just concerned that even if we have low dti, 88k income, him having good credit, cash for down payment, etc is still not enough with my few derogatory accounts (granted i bring up my score to 580+.

[ShanetheMortgageMan]

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@Blazeeofglory wrote:

Im not sure what is considered apparent the charge off occured this year, i feel like it should have been charged off awhile ago but they did not? Would it help if i screenshotted payment history to look at it? It was indeed changed to a charge off on my credit last month though.

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It could, but the credit reports from myFICO won't be used, it'll instead be the credit report the mortgage lender pulls.  If it was charged off last month then I suspect that is how it'll report on the mortgage lender's credit report as well.  You could also call the creditor and ask when they charged it off, perhaps it was awhile back and they'd be willing to put that in writing.  Then something like that could show an underwriter it wasn't a recent charge off.

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i am just concerned that even if we have low dti, 88k income, him having good credit, cash for down payment, etc is still not enough with my few derogatory accounts (granted i bring up my score to 580+.

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That's a valid concern, you'll need to get your credit score up to the 580+ mark and go through underwriting to find out if you can get approved.  From the information you laid out the chances aren't looking great, but I wouldn't say it's impossible.

[Blazeeofglory]

Do they pull all 3 credit reports and only use the middle score? Or do they only look at the report with the middle score? My TU is my middle score and does not even have the charge off on there.