Buying A Home
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
DH and I both have terrible credit.
Its really bad, and I know it... not just assuming.
Is it still possible to qualify for a loan with a co-signer?
Re: DH and I both have terrible credit.
If I were you, I would rent. It really isn't a step backwards; it will give you time to up your credit score and save money for a down payment. Co-signing with someone on a purchase as big as a house is a dangerous proposition.
I do agree that looking into a FHA loan might be a good idea, but keep in mind that even these loans require a minimum credit score to qualify.
One of the biggest money mistakes you can make is buying a house before you are ready.
This is great advice.
You need to attempt to fix your credit (being a good renter might help that), shoot for a 20% downpayment and a 6 month emergency fund. Additional savings as a homeowner is ALWAYS a good idea.
Being a good renter won't help your credit. The only time rental history or utilities go on your credit report is when you don't pay. Otherwise, this is great advice.
Find somewhere to rent to get out of the IL's house. You don't need anything fancy but it will give you time to work on getting your credit back in line. I would not recommend having a cosigner. That could be a bad situation in the future, tying someone else's credit to your house and then what happens if someone loses a job or they need to get off the loan for a reason or you want to sell (but owe more than it's worth).
Clean up your credit to get a great rate. That will save you tens or hundreds of thousands of dollars by having excellent credit scores (the loans we looked at would take the lowest credit score of the person on the loan and that was what they used to determine the rate).
How bad is really bad?
Check this site out. Naca.com. They are legit. They are super slow. They counsel you and help you repair your credit. Once you are in shape to buy a house, they will grant you a mortgage backed by one of the large lenders (with whom they worked out a settlement).
This isn't your magic ticket to a mortgage but they can help prepare you for homeownership.
My credit used to be abysmal (low 500s). Not from credit cards - I didn't have any - but from old medical collections. In 2007 I started paying attention and doing some credit repair, in spring of 2008 I got serious about repairing my credit. All of the creditors were paid off. The collection accounts fell off my credit report. By spring of 2009 my score had raised to 625 and we were approved for a mortgage. By the time we closed in late October 2009 my credit score was over 700.
It can be done. It takes time, patience and effort. And a lot of your success or not will depend on if you've changed your habits/solved the problems that caused your bad credit score in the first place and what type of credit problems you have.
FHA loans are NOT for first time buyers. Anyone can get approved for an FHA loan (the home may not meet FHA guidelines, however).
That said, if your truly have abysmal credit, I would suggest renting and rebuilding your credit. The minimum score for FHA is 640, and they use the lower of your middle scores (if you are doing a joint application with your husband).
You do have the option to have a co-signer, but whomever co-signs for you will be subject to all the same credit and income criteria you are.
As a processor, I can honestly tell you that an underwriter would rather see someone with a BK that has been discharged and a re-establishment of credit than see someone with years and years of slow pays, collections, repossessions, etc. Not advising you to file BK, but you need to start working on your credit before you even attempt to buy a house.
And the income...
Is your income increasing or declining? What line of work are you in?
And FHA credit criteria is no more lax than conventional loans - its the higher income to debt ratio allowed that people get this generalization from.
I would also rent for a couple of years. It'll help you rebuild your credit. Which would you prefer... renting for two years, repairing your credit, and getting a loan with a reasonable interest rate, or buying now and having a HORRIBLE interest rate that will cost you tens of thousands more over the life of the loan?
However, if you really are determined to buy now, we went through NACA. It was very, very slow. YOu need rental history. It'll probably take almost a year. Silver lining: our interest rate is 1.9%.
You are NOT in a position to buy at this time. Interest rates will remain pretty close to the same rates until 2014 accoring to the prime rate not being increase until then.
Rent a cheap apartment and SAVE, SAVE, SAVE and take care of the negative on your credit reports. Rebuild credit by paying EVERYTHING on time, pay off any credit card debt monthly.
Credit Unions will often take rent payments as a form of good credit as well as utility payments. I would establish a savings and checking at a CU and talk with them about their mortgage requirements.
BEFORE you buy a house, establish a budget and live by it, save for a downpayment, closing costs, moving costs, start up costs, repair/renovation costs, decorating & additional furniture/appliances, tools, yard equitment & mist.
Establish a 6 month's EXPENSES emergency fund as well --- you will NEED this with a house.
Change your withholdings. You do NOT want a large tax refund. Why let the gov't have a interest free loan of your money --- get that in your paychecks. IRS.gov has a calculator to help you with that.
Renting is a step up from living with IL's. Get your financial life in order, save and then buy. Housing is not going to suddently increase in value any time soon. (And owning a house is MUCh more than just the mortgage payment.
When buying keep your housing costs to 25-28% of your TAKE HOME pay. That means: mortgage+PMI+insurance+ taxes + utilities + any HOA if applicable. Remember that utilities will be much more in a house than an apartment.
Buying a house before you are financially ready is a disaster waiting to happen.
I am assuming you still owe money for the debts you had. Take the 10K you plan to save and pay your debts with it. Rent something, save money, and then worry about buying a home.
Assuming I am correct and you still haven't paid your debts, and aren't planning to - sorry but I have no respect for that. You incurred the debts - you owe them. You have no business buying a home.
On the off chance I am wrong, and you did pay the debts - good for you! Keep saving, and be patient and soon enough your credit will build back up and you can buy a home!
Good luck!