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Need advice on getting a mortgage

My husband and I just signed a new 12 month lease and we hate renting. We have set the goal to be able to buy a house in a years time when this lease is up, and now we need to know what we need to do over the next year to put us in position to be approved for a mortgage and get a good interest rate.

A few details:  We had a foreclosure and bankruptcy that discharged 15 months ago. By the time we are wanting to buy next year, it will have been more than 2 years but not yet 3.  The only debts we have now are his truck (about 13K) and my student loans (about 13K). I pulled our credit scores today and I have a 540, he has a 630. Our annual income is 125K and we are only looking to buy in the 150K range. By the time we are wanting to buy next year, he will have been at his job for a little more than 2 years, I will have been at mine for 7 years.

My husband seems to think the best thing to improve our situation is to raise our credit scores, particularly mine, by buying something on credit and making payments on it. I hate the idea of accumulating more debt and really don't want to borrow money for anything again except a house.  Instead, I'm hoping that if we save money for a big down payment, hopefully at least 20%, that will have a major positive effect for us. So, any opinions on which is more important, or are both necessary? Also, will this still be too close to the bankruptcy discharge? Any other advice appreciated as well.
  • September 27 2011 - Queen Creek
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Answers (2)

Your credit scores are too low, but it is possible to raise them within a years time. Try getting a secured credit card and keep your balance less than 30% of the high limit. Also, try paying your current debts down by making additional payments. This will boost your score and help you save a little on the interest.

If you are going to go FHA, the BK will be a problem. You can try a seller carry-back, but these are tricky transactions and it will limit the number of homes you can buy. I would suggest waiting until you are able to qualify for a FHA loan so you can get a better rate and not have to deal with as many headaches.
 
   All of that being said, here are some things you can do to make the process of financing a home go more smoothly:

Do not make any late payments (30+ days) on your current accounts.
Do not save cash at home. (Cash cannot be sourced so it cannot be used to pay closing costs or downpayment).
Limit the number of inquiries into your credit.
Keep your credit card balances at less than 30% of your limit.
Do not co-sign on loans for friends/relatives.
Have your paychecks directly deposited into your account
Consolidate the funds you will use to close into 1 account, 2-3 months prior to submitting a loan application.
Have the necessary documentation ready in advance.
DO NOT CHANGE EMPLOYMENT (You'd be surprised at how many people change jobs right before they want to buy!).

Hope this helps, feel free to call me if you have any questions.

Kyle Pursley
Loan Officer
CNN Mortgage

  • March 13 2012
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Dear Desert:

Yes, your credit scores are too low and too close to your BK to qualify for a conventional mortgage.

However, there are other options if you want to buy next year.

Save up for the down payment of 20 to 25% for a seller carry mortgage. Sellers have different requirements than a conventional lender. Your Realtor will be able to show you all homes for sale with a seller may carry the mortgage financing.

Keep working on your credit scores and paying off the debt. Your jobs are good. This will help with a conventional loan in the future.

Also consider a under $100K home that needs work. Your sweat equity will help bring up the value and may enable you to get into a home faster.

May I wish you the best.

Jeff Masich
HomeSmart Realty
Scottsdale
  • September 27 2011
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