Buying a new home with bad credit?

[IamDavid]

Here are the basics...

My credit sucks. Never cared till now.
I have a few thousand in old debts.
I have plenty of money to pay off but would rather use it towards a down payment on a home.. Which would be the better way to go? Pay everything off or buy a home with a higher rate?

 

[sygyzy]

Don't buy a house.

 

[IamDavid]

Originally posted by: sygyzy
Don't buy a house.

wow, that helps allot. thanks man...

 

[Drakkon]

pay everything off...even if you do get a HIGH mortgage you'll be even more in debt as time goes on...

 

[IamDavid]

If I pay everything off I will have to wait a long time for my credit to show it so I'd still have a high rate till then right?

 

[Falloutboy]

pay it off, and wait a year or two.

 

[Queasy]

Originally posted by: IamDavid
If I pay everything off I will have to wait a long time for my credit to show it so I'd still have a high rate till then right?

It would probably take no more than 6 months for all your payoffs to reach your credit report. Really no more than a month or two unless your credit card companies are dragging their feet with their reporting.

Just check your credit regularly after you do the payoffs.

The most important thing is that you don't have any 30/60/90 day late payments and nothing like bankruptcies or collections on your credit report.

 

[Viper GTS]

Don't pay it off! At least not yet.

Go to creditboards.com & check out their forum.

Your goal is to get those items off your credit report, if that takes paying it off so be it but DON'T just pay them off & wait.

Your first step no matter what is to get a copy of all three credit reports. Do a Google search for truecredit and walmart, get the walmart price for a truecredit subscription. You can pull your report daily, so you'll know exactly when things change.

Find out what's on your report, & go from there.

Viper GTS

 

[CrimsonChaos]

The rate you got your mortgage at would not necessarily decrease just because you paid off the loans. Usually the term of the loan, and the risk of the lendee (credit score) are the more important factors in determining what your rate is set at.

With that said, we'd need the exact numbers in order to give specific advice. For example, how much of a nest egg do you have, what are the interest rates of your debts, and what interest rate are you being quoted on a mortgage right now?

 

[zixxer]

eh.

I have all great credit, although not very much of it (2 credit cards, a bike payment, and I'm 21.... so only a couple years old credit) and just bought a house.

My issue is that where I live, my mortgage on a 4bedroom 3bath w/ 1/3-1/2 an acre is less than my rent at my old townhouse, and $150 more than a 2 bedroom apt. It's stupid to rent here.

The KEY is to find a GOOD first time home buyer loan. I completely LUCKED into 4.5% 30 year fixed, 1.5% down no pmi, no points paid.

 

[homestarmy]

Guess you've learned a lesson. Don't screw people who lend you money.

Pay them off first. You are screwing them, would you like it if they screwed you?

 

[QED]

Man... some people around here are harsh.

The OP never said he wasn't going to pay his debts... he was just asking overall what is the best strategy for getting a mortgage.

My best advice would be to find a reliable mortgage broker-- they would be able to take a look at your credit situation as well as your complete financial situation to find out what works for you. Plus, they generally have dozens and dozens of different loan programs and mortgage companies they work with-- so you can pick and choose the rates and terms you're looking for.

Generally speaking, if you going to buy a house in the next 6 months... I would NOT pay off the old debts. If you credit is sucky, you are going to need all the downpayment you can get.

For the most part, you can the worst credit in the world, but if you have 20% to put down almost no lender will refuse you their business.

However, one thing to try is call up your creditors. Tell them your situation-- you have extra cash, you'd like to pay them off but you have other creditors to pay off as well, and see if they make you a deal in that they will take a partial payment and report it as paid in full, or take full payment in exchange for reporting it as never late.

If the credit card balks at your request, ask to speak to a manager. If they balk, hang up and call the next creditor. But don't simply hand over all of your cash to the creditor without getting something in return first-- once you've paid them, they have no further incentive to help you.

In the long run, paying off your creditors will help your credit. In the short term, it's not much of a help at all.

 

[Chryso]

Originally posted by: MathMan
Man... some people around here are harsh.

The OP never said he wasn't going to pay his debts... he was just asking overall what is the best strategy for getting a mortgage.

My best advice would be to find a reliable mortgage broker-- they would be able to take a look at your credit situation as well as your complete financial situation to find out what works for you. Plus, they generally have dozens and dozens of different loan programs and mortgage companies they work with-- so you can pick and choose the rates and terms you're looking for.

Generally speaking, if you going to buy a house in the next 6 months... I would NOT pay off the old debts. If you credit is sucky, you are going to need all the downpayment you can get.

For the most part, you can the worst credit in the world, but if you have 20% to put down almost no lender will refuse you their business.

However, one thing to try is call up your creditors. Tell them your situation-- you have extra cash, you'd like to pay them off but you have other creditors to pay off as well, and see if they make you a deal in that they will take a partial payment and report it as paid in full, or take full payment in exchange for reporting it as never late.

If the credit card balks at your request, ask to speak to a manager. If they balk, hang up and call the next creditor. But don't simply hand over all of your cash to the creditor without getting something in return first-- once you've paid them, they have no further incentive to help you.

In the long run, paying off your creditors will help your credit. In the short term, it's not much of a help at all.

Getting something in return? He has, in effect, stolen from them. You think they should reward him for giving back their property? People who borrow money and don't pay it back make rates higher for the rest of us.
Waaah, I can't buy a house because I borrow money and don't pay it back. Poor me.

 

[waggy]

also check with local,state , federal agency's. there are many programs out there to help first time home buyers. HUD has some really great ones if you do not mind living in smaller areas.

 

[QED]

Originally posted by: Chryso


Getting something in return? He has, in effect, stolen from them. You think they should reward him for giving back their property? People who borrow money and don't pay it back make rates higher for the rest of us.
Waaah, I can't buy a house because I borrow money and don't pay it back. Poor me.

See what I mean about being harsh?

I never advocate anyone not paying their bills. He was talking about whether or not to pay them off immediately or not. So the question is a matter of WHEN to pay, not if you ever pay.

If you have owe 5 creditors $1000 apeice, and you only have $2000 to pay them off you would be dumb (credit-wise) to simply pick two creditors and mail them $1000 a piece and leave nothing for the others.

There's nothing wrong with calling a creditor up and seeing if they can help you out in some way.

For the OP: if your credit cards are already charged off, there is almost ZERO benefit to be had by paying them off now. However, make sure for all non-charged off debts that you keep up with your monthly payments. Do not let a 30-day late become a 60-day late, or a 60-day late become a 90-day late.

 

[Chryso]

Originally posted by: MathMan

Originally posted by: Chryso


Getting something in return? He has, in effect, stolen from them. You think they should reward him for giving back their property? People who borrow money and don't pay it back make rates higher for the rest of us.
Waaah, I can't buy a house because I borrow money and don't pay it back. Poor me.

See what I mean about being harsh?

I never advocate anyone not paying their bills. He was talking about whether or not to pay them off immediately or not. So the question is a matter of WHEN to pay, not if you ever pay.

If you have owe 5 creditors $1000 apeice, and you only have $2000 to pay them off you would be dumb (credit-wise) to simply pick two creditors and mail them $1000 a piece and leave nothing for the others.

There's nothing wrong with calling a creditor up and seeing if they can help you out in some way.

For the OP: if your credit cards are already charged off, there is almost ZERO benefit to be had by paying them off now. However, make sure for all non-charged off debts that you keep up with your monthly payments. Do not let a 30-day late become a 60-day late, or a 60-day late become a 90-day late.

Well, I didn't think any of the previous replies were too harsh and I didn't want to make a liar out of you...

 

[IamDavid]

Thanks guys, I don't think your being to harsh. A bit misguided maybe but that's my fault for not posting the whole situation. If I wasn't planning on paying everything back I would have filled for bankruptcy and been done with it.

I owe around 5K which I could pay completely off but I would rather use it as part of a down payment. The 5K isn't really what I am worrying about, it's the affect owing it will have on my rates. And if I have that poor of credit history will I even be eligible for a loan with a good down payment..

 

[Mermaidman]

If your $5K debt is high interest, you should pay that off first. In fact, I think you should pay it off, unless it's some super low-interest student loan.

Also, IMO, taking on a non-traditional mortgage loan is no better than renting. Can you wait and save enough for a 20% down payment, AFTER paying your debt? And if the 'experts' are right about a housing bubble, you may be better off waiting a year before buying a house. Of course, that depends on where you live.

(I've been listening to Dave Ramsey, the financial counselor guy on radio, and he emphasizes being debt-free first and foremost.)

--And why do you have bad credit?

 

[axnff]

First of all, 5k is nothing when buying a house. Kiss 2500 - 8000 goodbye just at closing (depending on the loan, the offer, points, HUD, etc).

Second, you can pay stuff off and fax a copy of the statement, and perhaps a canceled check, to the credit reporting agencies and they can (and will) immediately reflect that on your report. Call first to find out the proper procedure for this. Better yet, when you work with a mortgage broker, they can usually pull the best organized, most detailed reports and collate them for you (the free ones, or even the ones you buy, are usually difficult as all hell to actually get any information out of). Brokers also work directly with the local CRAs, so you can just bring copies of statements and checks their, and they can update your numbers in real-time.

Buying a house is going to cost some coin, no two ways about it. After closing on it, every house is going to need things done (even if as simple as getting the locks changed, getting a few tools, a lawnmower, snow shovel, trash containers, new thermostat, smoke detectors, fire extinguishers, etc). If you can start off debt-free, you have a huge leg up.

Trust me, I did it the wrong way (lots of revolving debt, no cash), and I have regretted it damn near every day since. I will not buy another house with PMI. I will not buy another house that doesn't have enough equity to cover an agent's commission should I need to sell quickly (almost found myself in that position - can't afford to keep the house but can't afford to sell it, either). I won't buy a house where I can't afford to pay cash for lawn care and other tools to maintain.

If you truly have bad credit (outstanding debt has very little to do with it, until you get up into truly impressive amounts), there is a reason for it....

 

[Mermaidman]

Originally posted by: axnff
First of all, 5k is nothing when buying a ....

Axnff has 145 posts in 5 years! He speaks wisely, at least with that acct

 

[ponyo]

How old are the debts? There are statue of limitation for most debts. If the debt is old enough you can get it removed from your credit report and never have to worry about that debt. Major exception to this rule are federal student loans. Those never expire and you have to pay that back.

 

[Mermaidman]

Originally posted by: Naustica
How old are the debts? There are statue of limitation for most debts. If the debt is old enough you can get it removed from your credit report and never have to worry about that debt. . .

Uh, if you borrow money, you should repay it. Or am I being naive?

 

[HomeAppraiser]

Do what MathMan said about negotiating with your creditors, axnff has good advice too.

From what I hear the Wheat Belt in central US is a buyers market right now. Rising interest rates have shut out many first time home buyers and sellers are offering incentives such as down payment assistance paying all of the buyers closing costs. Most first time homebuyer programs WILL make you payoff your bad debt before lending you money. Try to offer your creditors a 100% principal payoff if they wave those hideous penalties, late charges and accumulated interest AND will FAX you paid receipts. Be straight with your loan officer and see what they can work out. Good luck.