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Profile picture for adangerfield12

Interested in an FHA loan but have low credit, other factors satisfactory.

My question is with a low credit score (585), but for sure the ability, stability, and willingness to pay on a mortgage will a lender overlook the one negative approve due to the three positives?  We hope to buy by August'2014 as we will have no debt other than the credit card , rent , electricity , etc.  We have the 3.5% for down payment but will also be saving income tax return, and our extra that we already set aside each month for the fact that I have read they prefer a 10% downpayment with low credit score.
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December 22 2013 - US
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Profile picture for adangerfield12
Apologies for not a lot of detail due to the character count allowance.  Previously to January 2013 we did have issues with paying bills on time and the only credit account that we had went into collections (which we paid off in full after the fact - still damage done nonetheless).  We also have medical bill collections, which are pretty dated now.  Since January we have been paying our bills on time if not early and been saving as my husband switched jobs (was at company for 8 years) within the same field but better pay rate and guaranteed hours (which was the culprit for late paying bills feast or famine hours).  In April credit was 585 and in July we got the secured Capital One card and have been making a transaction & paying it off each month.  We have not ran credit again since.  Im curious what the next step would be, try for an unsecured card?  And perhaps put our goal on hold for another year to show 24months of consecutive timely bill paying?  Should we pay the old medical collections? Thank you in advance!
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December 25 2013
Your score is still acceptable! There are lenders like myself that are able to do loans with scores as low as 580. So since your score is above that, you will have a better chance at obtaining a loan. It is also important to understand that you ability to obtain a loan for a house relies on other factors as well. These factors include your income, debt, assets, expenses, employment, down payment, as well as credit. Either way, the best thing for you to do is to speak with a lender to see if you can get started on financing a new home. There are lenders like myself that would be glad to speak with you to help you get the loan that you need. Well I hope this helps! If you have any further questions or if you would like a loan, feel free to contact me!

Good Luck!
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December 23 2013
FHA has a list of valid compensating factors.  It's topic 3 of this PDF http://goo.gl/SmcSSb

As previously mentioned, any combination of the listed compensating factors that you can satisfy are still unlikely to get you past a 585 credit score.  I'd recommend you focus on improving your credit. 

Please don't take offense to this statement, but understand were your lender is coming from.  While you may say you have the ability, stability, and willingness to pay; your credit score says the complete opposite.  That is the mindset you'll be up against when you apply for a mortgage with a 585 score. 

Focus on improving your scores above 620, or even bettter 640 and you likely won't need to concern yourself with compensating factors. 
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December 23 2013
Hmmm... lenders these days rarely "overlook" anything because of the rampant fraud in the mortgage industry that partially was to blame for the mortgage meltdown in 2008.  Your core issue is your credit score, which you already know.  If all you have is a credit card and some other minor things then your score should not be that low.  Is your card current?  do you have any collections, judgements or liens against you regardless of wither your not you are disputing them?  If you have resolved any derogatory debt you had in the past and are moving forward then you can absolutely increase your FICO  score with minimal cost to you.

I would suggest talking to a credit counselor for more tips but a simple one would be to go to your local credit union and have them give you a secured line of credit against $500 - $1000 and then use the card on that account to pay for your gas and groceries every month and be sure to pay it off at the end of the month.  (I would suggest doing this at 2 or 3 credit unions) Make sure the bank you go to will report it to the credit agencies.  This will have a positive effect because it is your demonstration of managing your debt which is what your credit report is all about.

You won't need much from your score only about 60 points to be safe.  Also don't have more than 3 inquiries between now and the time you look to apply for your loan it will hurt the healing process of your credit score and you will want every help you can get.

Good Luck!
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December 22 2013
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December 22 2013
Profile picture for wetdawgs
If you are hoping to buy in Aug 2014, have you put together a plan to improve your credit scores?    You should be able to make substantial progress in 6 months.
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December 22 2013
Profile picture for My2cent$
Why is your credit at 585? It may only be on factor....but it's a big one.
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December 22 2013
 
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