Sunny81

First Time Buyer - Spouse Has Bad Credit

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Hi everyone.

My fiancee and I are looking into purchasing a new home. This would be the first home for the both of us. Our concern at the moment is that her FICO is not that great with the lowest of the three at 580. She's currently in the process of rebuilding her credit and has been doing great so far. My credit, on the other hand, is good with the lowest of the three at 740.

I don't think I can qualify for a loan with my income alone. She makes more money than I do. What are our options? Should we apply for a loan together? Apply for a loan by myself? Wait another year for her credit score to improve and try then?

Any advice would be appreciated. Thanks.

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FHA is your best option. What is her 'middle score' and are you sure its a FICO score for her?

I ask because the FICO mortgage score only comes from the lenders. Did you and she already go to a correspondent lender or mortgage banker or direct lender to apply? That is really the only way to know the actual scores. Do you have any idea of what is holding her score down?

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Her middle score is a 593. I pulled her scores from MyFico.com so correct me if they are wrong. What other factors may the lender use to change her score?

She hasd some outstanding debt with collection agencies. All but one have been settled and paid. The other is currently in dispute. She recently got a credit card and has been making purchases and paying it off every month.

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Did she recently pay off the settled debt?

When she charges on her new credit card, is she using more than 10% of the credit line?

Does she let the statement hit and then pay off the balance?

On the one you are negotiating, how does the tradeline read on her report?

The mortgage score is different than the credit card score. The consumer FICO scores are not mortgage scores, they are credit card scores. Only the lender can pull the three FICO mortgage scores.

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The settled debt was paid off within the last 3 months.

She charges roughly 15% of her credit line when using her card and pays the balance immediately each statement.

The tradeline on the one being disputed reads as in dispute.

I'm thinking about possibly adding her to one of my credit cards as an authorized user. I've had it for 8 years and have made every payment on it. Currently it has no balance. Any input?

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Since you are her spouse, adding her to a good, long credit line of yours should help her tremendously. I have seen this work recently with clients of mine that did the exact same thing last June and it worked. As long as the tradeline is paid on time and has a long history she will get a boost in her score.

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I can tell you firsthand this works. My wife has an 800+ FICO and she added me as an AU to her 14 year old $10,000 Citibank Platinum card. I received an instant 40-50 points as per FICO. That 2007, but as far as I know the 2008 scoring algorithm that ignored AU tradelines was never rolled out.

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Hold the truck here....

Do not buy a house with your fiancee. Wait until you have been married for at least a little while first. The last thing you need is to buy a house with another person and then have to sell at a loss if the wedding never happens. That sort of thing gets very messy.

I know you have an emotional component here, but all big purchases must be handled as business. The lender certainly will.

As for qualifying on your income alone. It may not be so hard. Check out FHA. And if you find a house in the right area you may be able to get one under USDA Rural which has even better terms (at least until October). With USDA your income actually has to be below certain levels to qualify for the program - which has no down payment, no PMI, and the same rate as FHA. They even offer grants that you never have to pay back in certain circumstances.

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.......Hold the truck.....

Denita / Jq26 good advice about correcting items on spouses credit.

Very Good Advice Methuss!!

Agree wait until her credit problems are resolved.

That way your not paying for a higher interest rate over the life time of the loan. Compared to spending 4 to 6 months fixing her credit and spending less for the lifetime of the loan. Even better saving up for a conventional loan..

Over my tenner as a loan officer - wrote 100's of FHA loans, I used to believe that type of loans were the best type of loans for first time homeowners. Because of the low down payment requirement and concessions to allow lower credit scores.

My opinion as changed because if you ever experience a hardship, there is no forgiveness. Your are paying a mandatory payment towards mortgage insurance, that it only benefits the bank. It you default - conditions are so tight to receive a modification sightly lowering the payment. There is no remorse by the bank, if you default they get paid by the insurance company.

Point if your income drops and your go late more then a few months on the mortgage. The chances are strong the bank is going to foreclose on your home.

I'm not trying to scare you, just giving you facts... I work in the business.....

Here is three possible paths you can take -which number is better over the life of the loan.???..

Example of an FHA loan (rounded numbers); Purchase price $104,000 - 3.75% down payment = loan amount $100,000.00

FHA - lower credit score with 3.75% down / with PMI payment

$100k x 6.5% x 360mth = $632 monthly P/I multiplied over 30 yrs = $227,547.00

FHA - higher credit score with 3.75% down / with PMI payment

$100k x 5.5% x 360mth = $567 monthly P/I multiplied over 30yrs = $204,408.00

A conventional loan - higher credit score with 20% down. No PMI payment..:)

$80k x 4.75% x 360mth = $417 monthly P/I multiplied over 30yrs = $150,239.00

Ask your spouse where do you want to be a year from now, five years from now, 10yrs.... Together work on a plan (a budget, timeline plan), Also

I suggest in addition to working on her credit, to clear the derogatory information off her report. Start a budget - pretending you have a mortgage payment (which is probably more then what you are paying in rent right now). Make this into a savings account. So you can make a larger down payment and qualify for a conventional loan.

Good Luck....:):):)

Edited by 2ndTimeAround

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