House Loans and Down Payments

Forum|Forum|7 years ago
August 16, 2018
20 replies
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How do I get approved for a house loan if I have a very low credit score and quite a bit of debt?

Carl11_2

Basically, so long as your debt to income ratio is 70:100 or higher, nobody will loan you money. You need to do two things:

- Lower your debt. Stop using credit cards and get them paid off as fast as possible.

- You'll need to prove that you can make mortgage payments. You do that by putting money every month without fail, into savings. The amount you deposit each month needs to be 'at least' the amount of what you think your mortgage payment will be. You'll need a two year history of this that will need to be consistent.

This does two things. First, it gives you the minimum 15% down payment you will need. (down payment requirement can be as high as 30%, depending on your credit score at the time you apply for the loan.) Second, with a consistent history of putting say, $1000 a month in the bank, it indicates that you most likely can afford the $800 month mortgage payments, and that most likely, you will make those payments without default.

Robmunich

This sounds like personal technicque, but not a bank or mortgage company metric whatsoever.

DaveT315

Lenders don't care how much debt you already have. They are concerned about your ability to repay a loan. People with low credit ascores can still get a loan to purchase a house. There are FHA loans specifically designed to do this with a minimum down payment. Your ability to get one of these loans depends upon your ability to repay the loan and to service all your other recurring obligations at the same time.

Exlacop

Listen the banks care about 4 things, 1st how long have you been at your job or in the same career field, typically they need a 2 year minimum. 2nd they want to know how much money you make gross yearly. 3rd how much all your bills total monthly, thats all the minimums added up. The minimum due not what you may send in case you send extra on your bills which is a good thing. 4th of course your credit scores from Equifax, Experian and transunion. They will take the middle score of the 3 and use that as your basis. Which FHA or VA or Fani Mae or who ever programs have different score minimums. They will look at your history and any missed payments mostly in the last 2 years. More to follow out of space

babiesink

If I was trying to buy a farm/ranch how would I get the loan with my credit score at 637 and 599 in dept. I have never bought anything on time and I keep getting turned down for credit cards. Even the secured card what can I do. It just said based on your credit score at this time we can't give you one. I'm Disabled and get minimum of 800 a month but it's steady income. I work part time as a Manager and have been here since 2013 and have been trying to get a Farm/Ranch. Who will help me complete my dream.....

Cait11

You can do something called manual under writing. That will allow you to get a ranch/farm without the use of a credit score. However, what worries me is your income depending on what you are buying that may not be enough.

whm

There are so many factors to consider. Let me give my scenario. Three years ago my CS was 564 and I had a moderate amount of debt. First thing I did was make a plan. Where did I want to be financially one, two, five years from that point. I also factored in where I wanted to be physically and mentally. I was not happy with the job I had at that time and knew that I had to make that number one priority within my plan. I was making good money but not happy. I was commuting over 2 hours a day to and from work. So I said what the heck and changed my career path. Pick a career that will at the least have you wake up and not dread going to work. It now takes me 25 minutes each day to go to work and back ( about $50 a week in gas ). My new job pays less but their benefits are much better ( about $80 a month ). I get more exercise in my new job and I am happier.

Now let's touch on your CS. Once I got the first phase of my plan in motion the second was all about numbers. I started by getting a small personal loan. Just enough to pay my credit cards down to zero. I kept my balances at zero for about two months ( remember most creditors look at your revolving credit ). With that one loan my CS jumped to 648. Now I had credit card companies wanting to give me credit. You have to realize that at this point my CS had gone up almost a 100 points. At that point I realized that your utilization of credit and the percent was more important to the creditors than how many inquiries you have. So I took advantage of those offers knowing that my score would drop but at the same time my utilization would drop. The higher your credit limit, the more you can put on credit and be at an acceptable limit ( 15% of $3500 CL= $525 ). Guess what. It worked. I now make only $32000 a year with a CL of $30000. ON TIME PAYMENTS IS/ARE A MUST.

So here we are now. It took me three years to get to this point. I finally closed on a house.

To Crysi329,

Hang in there. I know you will own a house/home one day. Sooner than later.

Susie_Rath

@Crysi329 Have you downloaded the Turbo app to keep track of your Credit Score and Debt to Income ratio? These are very important metrics to track on your quest to getting approved for a home loan. You got this!

Eva51495

I have a very low score, but I can always afford my place of living. I have 3 kids so life gets the best of my income.

ALICEK1986

I interested in get a loan

DjRustik

I just did this same thing. I started with a 417 credit score. I now have a 706 and just bought a house in August. The whole process took about 18 months. I started with a secured card which I used less than 10% of the available credit monthly (ie. reloaded my starbucks card). I paid the bill before the statement arrived so that there was always on-time payments but never carried over a balance and never paid interest. I disputed every little thing on my credit history, and hey, a few things were removed. It doesn't hurt to try. I paid off a few pesky delinquent bills but I also racked up some student loans. Once my wife and I had enough reported gross income, we paid off our car loan and applied for an FHA 3.5% down loan. We were approved for a brand new 280k house. Credit doesn't have to be scary. There are many resources like nerd wallet that can help you get on track fast.

reendee621

home improvement

twinside

*credit score north of 800 waves hand* Here’s how I got there and what you need to do.

1. CUT UP YOUR CREDIT CARDS. This does not mean close the account - in fact, don’t do that. Just feed the card to a shredder, take them off your online stores, and pay those bad boys off. You might benefit from getting a debt consolidation loan to do so, as interest is usually less and it becomes installment debt rather than revolving debt. Don’t close the accounts, though - the average age of all your accounts plays into your credit score. The older the accounts you have, the better you look.
2. How do you stay out of the credit cards? Build yourself an emergency fund in addition to the down payment fund. This should be a liquid fund that is used only for things like your water heater exploding or losing your job. $1000 is a good place to start but it isn’t always enough.
3. Take a good look at your credit report. You can get one free per year from each of the three reporting agencies. Any black marks? Are they real and do you know what they are? If so, settle them. If not, dispute them.
4. Make a budget and figure out where the money goes and where you can cut back. The goal here is to spend less than you earn, or IOW live within your means.
5. Figure out how much house you need and how much down payment you need to get that house. FHA loans are typically just 3.5% of the purchase price, but the seller/complex has to be approved as an FHA housing provider (your real estate agent can tell you if they are). Then, adjust your budget so that you’re putting aside enough to meet the five-year goal.
6. What does your credit have to look like to land a decent mortgage? Try to get your credit score to 680 or better - preferably 700+ - and your debt-to-income ratio to no more than 35%, meaning that your monthly debt should be no more than 35% of your gross monthly income. You will pay more for a mortgage if you do not meet BOTH criteria.

Fadams1001

House loan