Profile picture for akeys35

How can you get a home loan mortgage with a median credit score of 550?

We are currently renters & desperately trying to purchase our first home. Our current rental situation is a nightmare, our landlord has stopped paying his mortgage completely for over a year & a half but he never paid the mortgage in full anyway since day one. He was still collecting money from us until we stopped paying him a few months back & he was OK with it because he knew he was foreclosing & he knew we were onto his scam.
We are trying to fix our credit ourselves but it's not an easy task. We have no open credit at all. We have never claimed Bankruptcy, never had a mortgage & never had a car loan. We pay for everything in cash & our utilities are always paid & current. Not having open credit is also hurting our scores.
From the research I have done, we don't qualify for an FHA loan so is there another way of qualifying for a home loan?
We have no family willing to or can help us in any way.
We won't be able to afford anymore than a 5% down payment for the home.
We have steady income.
I have some medical debt from getting sick 3 years ago & ended up in the hospital twice with no medical insurance at the time that is sitting on my credit report & we both have some retail credit cards & a few other basic credit cards sitting on our report. Some of the medical is considered collections on my report.  All of our cards are either closed or charged off now.
My husband had a judgment on his account that was paid off 6 years ago & finally Equifax took it off the other day after I disputed it again, now I have to get on Experian & Transunion to remove it. How much can a credit score go up once a judgment is removed?
This is the second time this has happened to us with a landlord foreclosing on us in 4 years!
We can't trust anyone anymore & we are sick of throwing our money away renting when we rather own.

  • June 01 2010 - Las Vegas
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Answers (10)

You will not get mortgage approval with those scores.  You must improve your credit as others have already stated.

Bank of America has a good secured card. No crazy fees.
  • June 02 2010
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Profile picture for akeys35
Hi, thank you to all that have helped.
We have been looking into getting secured credit cards. We were thinking Capital One? Are there any secured cards that you can recommend as being the best?
We of course want secured cards that report to all 3 credit bureaus and I know that Capital One does that.
Robert Benham, you suggest having at least TWO secured credit cards each but we don't want our credit scores to get even worse by applying for two each.
Do you suggest applying for 1 at a time?
What is the safest way to do this without completely killing our credit scores?
Also that judgment that my husband had that was showing paid in full for almost 6 years has now been removed by Equifax and Experian but Transunion is a headache!
They finally put in an investigation for me this morning after having to argue with the guy I was speaking to because he was nasty and absolutely no help at all.
So, we have to wait 30 days to see if that will come off because Transunion is the only credit bureau still reporting the public record.
The public record was on there since November 2004, since it was removed with 2 credit bureaus do you believe that has helped raise my husband's score at all?
  • June 01 2010
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Hmmm,...I wonder what an Underwriter would say if you had a letter stating the Landlord no longer wanted your rent? I've never had this situation. If your rental agreement goes from say $500/mo to $0 per month,...it seems you are technically paid on time. However UW's look at things differently.

Besides that you have no credit which is a deal killer. You will need at least 2 accounts open and active for 12 months reporting to the bureaus and paid on time. Your score WILL remain the same if you do not get some credit to prove yourselves.

First order of business is to get yourselves 2 secured credit cards each. It is THEE only way your scores will go up.

Hope this helps. Good luck.

If you need clarification on the secured credit cards feel free to e-mail me. Will be happy to explain.
  • June 01 2010
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Profile picture for Liberty Mortgage

You have 2 options-  1)  Get some help with your credit-  ((Your landlords are not your problem-  Your lack of tradelines are- ))  You indicate a 550 middle score which is caused by many late payments and other issues such as collections-))  We as lenders and brokers have contact with some reputable credit repair companies that do work-  It may make sense for you to contact a lender or credit repair company from zillow-

2) Only other option, which does not seem like an option would be to put 50% down and go hard money with very high rates-  You indicate you can only put 5% down.

Your best bet would be to clean up your credit now-  Potentially in 6 months it can improve to a 640 for you to get aggressive financing-

  • June 01 2010
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Profile picture for wetdawgs
"the rent is not an issue".   It sure is when the loan officer wishes to see the last 12 months of canceled rent checks!

There isn't an instant fix, but step by step one rebuilds credit.

  • June 01 2010
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In working with several other clients in similar situations, I don't think there is necessarily an overnight fix to your credit scores. I believe most lenders like to see 2-3 lines of credit open and at least one line of credit seasoned for a couple of years. Having collections removed can be tricky and lengthy, so it may be best to work with someone familiar with doing this (like a loan officer).

As unfortunate as it may be, I think your best bet is to find a better rental situation, pay off any current medical (or credit card) debt, open a few lines of credit (and make all payments on time), and start working with a lender in your area on your credit scores. Many mortgage brokers are willing to work with you on this. Typically, they have access to tools to help run your credit & let you know exactly what you'll need to do to raise your scores (sometimes it can happen more quickly than you expect).

Best of luck - put your head down, plow away at your debt & credit scores and you'll get there soon!
  • June 01 2010
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What you do with your rent payment is up to you, of course, BUT...it's a double-edged sword. Yes you save money by not paying, but if you were to apply for a loan today the lender is going to want to see canceled checks indicating that your rent has been paid consistently and on time, so you're hurting yourselves there.  I know it seems outrageous since your landlord isn't paying, but that's how it works.  Your score needs to improve by 80 points or so to qualify for most programs.  Building credit means using debt responsibly, not the lack of debt.  Use your credit cards but pay them on time keeping the balance at or near $0 each month if possible. Try to negotiate something with any collections agencies.  I live in NC and here the United Way offers credit counseling and assistance free of charge. They are willing to help make calls to creditors or collections and have a wealth of information to offer.  Check to see if your local United Way offers this.  It's great, and the price is right!
Good luck!!
Jay
  • June 01 2010
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Profile picture for akeys35
We don't have anything negative on our acounts for 2 years now, so 2 years being the newest.
  • June 01 2010
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Profile picture for akeys35
The rent is NOT an issue, my landlord agreed to stop accepting rent since he was NOT using it to pay the mortgage the man is in default for over a year and a half so we don't have any legal issues with rent. He actually told us to save up since he was foreclosing so this is not a problem my medical issues and charged off credit cards that we unfortunately had to neglect due to my illness are the problem.
  • June 01 2010
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Profile picture for wetdawgs
Let's see, if I understanding correctly, at this point you've not paid your rent for several months (that is not your decision to make), you've got medical collections and you have a number of credit cards that you've not paid.   

Items disappear from the credit report usually after seven years.  If you dispute something that is six years old, it only has a minimal impact on your credit score.   If it was two months old, it would have a bigger impact.

It is clear you understand the factors that are impacting your credit score.  It is clearly a big history of issues, not just one.   Pay off those medical debts, those credit cards, pay the rent etc.   Over the next year or two you can bring up your credit score to the current minimum by most lenders for FHA of 620 (although 640 is bandied about as a possibility).

Good luck.

  • June 01 2010
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