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Question about obtaining a mortgage...


Longshot
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I have a quick question. Hopefully a few of you with more experience then me can give me some advice. The wife and I are tossing around the idea of buying a house in the next few months. House prices are good right now and our lease will be ending soon. We've always rented and have never owned a home. We're not looking for anything huge. Out here $175k to $225k will be about the range we'd be looking at. Our monthly rent is $1250 and we have no issues paying that comfortably.

The only thing hurting me is I have alot of credit card debt right now. Roughly about $15k. We just got married in July, so alot of stuff for the wedding went on the credit cards. My credit history has been great for the past 5 years. I have two bad marks from cap one that are right at 7 years old. Those should fall off next year. All the credit card debt is in my name. She has a car loan in her name, but nothing else. I have a few credit cards, a car loan, and a motorcycle loan in my name.

Betwen the wife and I we make around 80K a year. Both of us have been at our jobs for about 7 years. The original plan was to try and pay off all the credit cards in the next 2 years and then buy a house. We still may go that route.

Does anyone think we'd be able to qualify if we tried for a home loan at this point? I know the credit market is tough right now. However we're with a great credit union, which is a plus. I just don't want to get any hits on our credit scores unless we have a good shot. Thanks in advance.

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It sounds like you are in a fairly good position. I'd suggest the following:

1. Pull CR and scores for both you and your wife.

2. Dispute any negatives with the CRAs. For the Cap One, you could try disputing as "obsolete" since it's close to the 7 years.

3. Try to get the credit card debt down to under $10k to help with your DTI.

4. Take a first time homebuyers class to refresh your kowledge on the whole process. You can google free homebuying classes in your area.

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You sound like you are in a fairly easy situation. With a mortgage you get to deduct the interest off your tax return and you might be able to own for less than you are paying in rent.

The issue is going to be all credit score so you should research credit scoring. It seems you might know that 30% is weighted on revolving credit and if you have less than 15% you stand a very strong chance of maximizing your score in that category.

Think about converting your revolving debt to a new fixed installment loan but first make sure you will qualify for the loan. You should know your credit report and your credit scores before you apply for loans. Myfico.com and TrueCredit are good tools to monitor your credit reports with. While True Credit fake fico scores can vary widely from real fico scores, you get to pull unlimited credit reports.

A simple payment never late with Capital one might work on a dispute especially if it's old. I disputed a recent 30 day late with Capitol one and it was like hell and high water to get it off, but eventually it came off. In my experience a recent 30 day late is worth 50 points and I think a collection agency is worth 100. In time the point reduction reduces.

If you want a super low rate you really need to be in the 750's. My FICO will give you specific tips in the Score Power report on improving it and if you follow those recommendations it should improve. You can always find coupon codes on google to save and I'm paying $7.50 a month right now. If you cancel your membership every three months and start a new one you get another score power report. Walmart online has the best deal for true credit.

It sounds like for $150 bucks and some time and research on credit scoring in these forums and you save thousands on your mortgage interest. As a note I think rates are going to come down slightly and March - June will be great times to finance and now would be a very smart time to prepare.

Kevin

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  • 2 weeks later...

I would estimate that your DTI (Debt To Income ratio) would be in the range you should be at, if you went by the rule books (and there is some flexibility I have found) you can be as high as 31% for the housing portion and 43% for your total Debt. Depending on what your taxes are I would guess that your total DTI would be less than 35%.

As long as the lowest middle score of both of you is over 620 you are in good shape for an FHA loan.

Rates don't improve after that level, unless you are considering going with a conventional loan. Unless you have 20% to put down, I would not even consider anything other than an FHA loan.

Charles

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