How to fix your credit in hopes of buying a home??

[EricaE]

DH and I currently rent a home from my father. We pay $1,100 a month for a 3 bd, 2 ba home in a GREAT location (directly next to the elementary school that our kids attend).

My DH was only bringing home $1800 every month because of past tax issues (the IRS has been garnishing over $800 a month!!). He was a drug addict/alcoholic for many years prior to our marriage, and got himself into BIG tax trouble. We've been working with a lawyer through legal aid to fix those issues, and as of last week, we no longer owe the IRS, and the tax garnishment has stopped!!! So now we have an 'extra' $800 a month that we're not used to seeing.

We got a tax refund back this year, and used almost all the money to pay off past medical bills. We still have one... about $700 worth... that we are paying off $100 a month. We have zero credit card debt.

We are working really, really hard at fixing our lives. We feel so much better with the tax burden off our shoulders. DH has recently lost 100 pounds and has his health under control.

The last piece of the puzzle is to buy a home. My dad really wants us to buy this home from him, but our problem is our credit. We have horrid credit. But we're really serious about wanting to fix it in order to buy a home.

So where do we start?? Do we first get a copy of our credit report, and start fixing it one thing at a time? We have a long history of late payments, mainly because we had such a limited income due to the tax garnishment. But I expect things to get better from here on out, now that we'll have enough to actually pay our bills. (we are frugal people - we don't eat out, don't go on vacations - we are good at living within our means. So this 'extra' money will certainly go towards paying bills and savings, instead of blowing it just because we're not used to having it!)

I will be a first time homebuying, my DH owned a home with his ex wife many years ago. Will we still be considered first time home owners? My dad said that we should check out FHA (is that right?) loans - does anyone have any experience with this?

Any advice, ideas, comments would be great!

[JamieCatheryn]

Get your credit reports and take care of any inaccuracies by contacting the credit agency and the reporting institution. Make sure everything you have paid is reported as paid with all 3 agencies. Make sure anything positive is reported on each one if possible.

Pay off any outstanding debts and make sure they report paid as agreed.

Have one credit card at the best interest rate you can and have it paid off every month. If you already have them keep the oldest one.

The old problems that were reported correctly you'll just have to wait out, but a couple years of good stuff should balance it out fairly well. In 7 years your record should be spotless.

[TiredX2]

Will your father finance your home purchase (you pay him instead of the bank)? That would be the fastest was to home ownership.

Good luck!

[EricaE]

Will your father finance your home purchase (you pay him instead of the bank)? That would be the fastest was to home ownership.

Could you tell me more about this possibility? (sorry, I'm inexperienced when it comes to home buying!) Would our credit still be a factor?

[Denvergirlie]

Originally Posted by EricaE

Could you tell me more about this possibility? (sorry, I'm inexperienced when it comes to home buying!) Would our credit still be a factor?

If your father owns the house outright and has no mortage on the property, he basically becomes the bank and you now pay him back the house purchase price. However, really only works if he owns the hosue free and clear and he does not need the lump sum of the purchase price, but can instead afford to take payments on it.
Your credit would be of no effect, as your father is taking the risk that the loan could go bad.

[EricaE]

If your father owns the house outright and has no mortage on the property, he basically becomes the bank and you now pay him back the house purchase price. However, really only works if he owns the hosue free and clear and he does not need the lump sum of the purchase price, but can instead afford to take payments on it.

Oh, well that's not the case. He's still making payments on it.

[TiredX2]

Originally Posted by EricaE

Oh, well that's not the case. He's still making payments on it.

Could you just start making the payments for the house directly to him which he then passes to the bank. You write up a contract that you own the house but the mortgage is in his name. Or could he co-sign?

[TiredX2]

Back to the original question...

Yes, you get copies of your credit reports from all the agencies. Contest *in writing* all charges that are incorrect. Do you have any credit cards currently open? Do you have other bills you are currently paying?

[yeahwhat]

Another possibility is for him to be a co-signer on a mortgage loan, so his credit (which I presume is decent) counts as well in getting a loan.

[Ola_]

I think having a good size down payment would be to your advantage so I would start saving for that asap. It will lower the amount you need to borrow from the bank, and it may also help the bank consider you less risky because you're able to put down a larger chunk of cash to show that you're commited.

Not sure if your DH would be considered a first time buyer. Here the answer would be yes if he hasn't been a home owner (even if just on paper) for at least the past 5 years. But I'm not sure about the US.

BTW, you mentioned that your dad wants you to buy his house. Is that something that you want to do, with all the extra costs that come from home ownership? Don't let dad push you into it if it's not something you want to do.

[EricaE]

Do you have any credit cards currently open? Do you have other bills you are currently paying?

No, no credit cards. DH did mention that we need to get one simply to start building good credit. And no, we're not currently paying off any other bills now - just that one hospital bill.

BTW, you mentioned that your dad wants you to buy his house. Is that something that you want to do, with all the extra costs that come from home ownership? Don't let dad push you into it if it's not something you want to do.

We do want to buy a home, and this house is great because of the location. Plus it's been in my family ever since it was built 40 years ago - my great grandpa's built it, then my aunt bought it, then my dad, and now we're renting it. BUT - I suppose that if we were to be qualified for a loan, we might not want to buy this house. We really do need a 4 bdr, and this house is pretty outdated. I don't know - for now we're just going to start by fixing our credit, then we'll figure out the next step.

[happysmileylady]

First, you said you now suddenly have an extra $800 a month. And you have a $700 medical bill. Well, I am going to say use your $800 extra to pay that bill. And, if I am reading you right, then you will be debt free, right? Debt free is THE place to be and you want to be there as soon as possible, not 7 months from now.

Second, pull up your credit reports from annualcreditreport.com. You are legally entitled to one free report, for each of you, from each of the three agencies, once every 12 months. Pulling up those reports will give you a clear picture of just what your credit looks like right now.

Third, when you get your reports, dispute any incorrect information. The reports should come with instructions on how to do that. Also, if you see anything that you think is probably right but you don't remember or aren't sure about, you can also request that the creditor verify the debt and they are required to by law. If they can't it needs to be removed.

And at this point, if you are totally debt free and your credit reports are totally accurate, I am going to suggest giving it time. Use that time to save up a down payment and research the homebuying process and also researching just where you want to live. Things like property taxes, utility prices and services, all of those should factor into your decision. I do not recommend getting a new cc or anything else to try to improve your credit. If all your bills are paid off and your credit reports are accurate, putting time between the last bad mark and your current situation is going to help improve that score, without doing anything. Opening a new card right away might even hurt more than it helps. JMHO.

Check out Dave Ramsey, Suze Orman, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (I think I have those titled right.) Those can help you learn about how your score is figured, how to correct wrongs, what sort of house you can afford on your income and all sorts of other good stuff.

[femalephish]

Originally Posted by happysmileylady

First, you said you now suddenly have an extra $800 a month. And you have a $700 medical bill. Well, I am going to say use your $800 extra to pay that bill. And, if I am reading you right, then you will be debt free, right? Debt free is THE place to be and you want to be there as soon as possible, not 7 months from now.

Second, pull up your credit reports from annualcreditreport.com. You are legally entitled to one free report, for each of you, from each of the three agencies, once every 12 months. Pulling up those reports will give you a clear picture of just what your credit looks like right now.

Third, when you get your reports, dispute any incorrect information. The reports should come with instructions on how to do that. Also, if you see anything that you think is probably right but you don't remember or aren't sure about, you can also request that the creditor verify the debt and they are required to by law. If they can't it needs to be removed.

And at this point, if you are totally debt free and your credit reports are totally accurate, I am going to suggest giving it time. Use that time to save up a down payment and research the homebuying process and also researching just where you want to live. Things like property taxes, utility prices and services, all of those should factor into your decision. I do not recommend getting a new cc or anything else to try to improve your credit. If all your bills are paid off and your credit reports are accurate, putting time between the last bad mark and your current situation is going to help improve that score, without doing anything. Opening a new card right away might even hurt more than it helps. JMHO.

Check out Dave Ramsey, Suze Orman, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (I think I have those titled right.) Those can help you learn about how your score is figured, how to correct wrongs, what sort of house you can afford on your income and all sorts of other good stuff.

THIS. All of it. Spot on.

[schreiberwriter]

I've been a long-time renter and have seen my landlords shell out anywhere from $500 to $5000 for emergency repairs. Before I purchase a home, I will make sure to have a way to fund such repairs.