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Level 2

House Loans and Down Payments

How do I get approved for a house loan if I have a very low credit score and quite a bit of debt?
49 Replies
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Level 20

House Loans and Down Payments

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.

Level 2

House Loans and Down Payments

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

Level 8

House Loans and Down Payments

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.

Level 7

House Loans and Down Payments

You need a credit card to improve your credit score, Carl. It does not help when you close your credit card accounts.
Level 8

House Loans and Down Payments

In all fairness to Carl, he said to stop using the credit cards.  He did not say to close them.

Level 7

House Loans and Down Payments

Dave, when you do not use your card i.e when you stop using your card and pay only the monthly due. You will pay off the credit card balance. So, “stop using your card” is also as same as close your credit card. Unless, one keeps the credit balance at around 80% i.e spend about 20% of the credit limit.
Level 20

House Loans and Down Payments

Hey, when you're trying to get out of a debt hole or fix your credit, the absolute first thing you *must* do is...

STOP DIGGING!

That doesn't mean you throw the shovel away.

Level 20

House Loans and Down Payments

In response to Article, it's your payment history that has more impact on the credit score. Not the charging history so much.

Level 7

House Loans and Down Payments

Right, Carl. It’s your payment history and not the charge. So, there will not be any payment due if you do not owe even 0.01% of your credit line to pay for.