I have been thinking for the past few days about getting a blog up about our financial start to homesteading and keep getting stuck on this introduction paragraph. I know the information that I want to provide here. I want to give you a general insight on my credit situation, the pain of talking to banks and bankers about credit scores, the array of accounts, history and collections, and debt-to-income ratios. I want to provide some advice (although I am not a professional) about repairing credit and the final path we took to home-ownership. However, for the life of me, I have been struggling getting through this introduction. I have finally figured out why…
I never had an introduction into credit-worthiness myself. Think about it. In high school everyone takes classes on writing checks and budgeting your monthly bills, cooking meals and taking care of children and no one talks about credit scores. When I was eighteen, I took some generalized advice on credit from family members. Grandma suggested getting some lines of credit; you’ve heard the saying, “No credit is worse than bad credit.” But that was all the advice I received. At eighteen I bought my first car, applied for a couple of credit cards and tried, simply, to obtain any kind of credit score.
I have definitely made some mistakes in my credit history since then. I won’t deny, when I was younger, I had a credit card that I maxed out ($300 available credit) and didn’t make one payment. I’ve had cell phones and utility bills go into collections. Last year, my partner Jesse and I decided to move in with my mother for a year to get aggressive on our savings and fixing my credit history. As of December, 2015 I had six collection accounts, totaling just under $3,000, had two credit cards that were at 80% utilization and a credit score just under 600. I knew the bank was going to require at least a 620 credit score before they would even talk to me, so that was my first goal.
If you are paying collection accounts, it is a good idea to get the company you are paying to agree to delete the collection account from their records, thus immediately removing the blemish on your credit. It was a little difficult at the beginning because one banker would tell me to pay off the debt in full, while others would tell me it is okay to settle with the collection agency as long as they removed the account from my history. One banker would tell me, since one account is almost seven years old and the company isn’t reporting it on my credit anymore, that it is not as important to pay off. Another banker would tell me I had to pay off everything, no matter what, and it didn’t matter if they removed the account from my history, as long as I had proof that the account was paid.
I really felt like I was getting the run-around. Credit is a very confusing topic, and every banker has different qualifications. Unfortunately, I believe even if a banker told me I didn’t have to pay off a certain account, by the time I went through the application process they would have wanted my record to be as clean as possible. So I paid everything off, except one collection account (because the collection agency would not call me back to take my money) and did see a bump in my credit score. I went from a 594 to a 614 and was feeling really good about where I was headed, but still had to come up with that six points. My credit card balances were the only thing left that was affecting my credit.
I decided to get aggressive on those, too. I took a debt consolidation loan out to pay the balances down to under 10% utilization. I figured the loan would be a good aspect on my credit because I hadn’t ever done a personal loan, giving me more of a mix of account types; having a mix of different types of accounts – like a credit card, a car loan and a personal loan – and having a variation between installment loans and revolving accounts helps your credit score and profile. I achieved my 10% mark, got the new loan, kept my debt-to-income ration the same (by not having a payment due each month on the cards, but replacing that payment with the loan payment) and waited to see how this would change my score. Finally, I got good news, and got my middle score up to a 637. I was ready to start filling out applications, to see what I would be able to afford and how much I would now have to save up for my down payment. Having paid so much of my debts off in the past few months pretty much wiped out any savings we had, so replenishing the savings and seeing what I would qualify for was all I could do until I had the down payment. Or so I thought.
A banker won’t even start your application until they know you have a down payment. I was confident that I could put a 3% down payment together in no time (because I was trying to qualify for FHA, which offers low down payments to start) but the banker wouldn’t go anywhere with the application. I was told that money had to be in my account for 90 days, called seasoned money, before they could tell me what I would be able to qualify for. This confused me. I don’t know how much of a mortgage the company would give me, so how was I to save up 3% of an unknown number? I knew of another banker that specialized in zero-percent down-payment loans, so I decided to give his bank a try. He ran the numbers that I gave him, I was shooting for a $60,000 mortgage, just guessing that would be a good place to start. The zero-down banker told me, after putting all my information in his underwriting program, that the computer told him, “No.”
No reason why, just his computer denied me. He suggested trying to get my credit score over a 640 now and maybe that would help, but really he couldn’t be sure, because the computer system simply gives a yes or a no. I felt stuck. Should I get another loan? Should I get another credit card? What can I do at this point?
I thought, maybe, if I lowered my mortgage total that would help. I started looking into mobile homes and buying land separately, maybe try and keep my mortgage under $45,000…But couldn’t find a company that would sell a mobile for under $75k. Credit and banking got the best of me. I really felt like there was nothing else I could do that would absolutely help me, worried that if I do anything with my credit or get more applications out that my score would be dropping faster than gaining. Every time a company runs your credit, your score takes a hit, and I already had enough inquiries on my report. I knew that I couldn’t give up on our dream of buying our homestead, but felt like I had exhausted all of my options, and I was really starting to get down on myself. At this point, also, we had lived in my mom’s basement for almost a year, and didn’t want to extend our stay too much…
Revolving credit issues, confusing bankers and this approaching time crunch were weighing heavy on my mind…Where could we possibly go from here? Well, we did buy our homestead and we want to help others that have struggled with credit and banks. We did not take a traditional route to get here, and will explain more in part 2.
[…To Be Continued…]
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