Financing in Gardner>Question Details

Katie P., Home Buyer in Gardner, MA

Low FICO scores and First Time Home Buyers were told we can't do anything....HELP!!!!!

Asked by Katie P., Gardner, MA Tue Mar 23, 2010

My fiancé and I are looking to purchase a home I have a FICO score of 543 with a few late payments and he has a FICO score of 647 with no recent credit. We have about 5-10K we can put down and are looking for a 2 family or 3 family apartment building price range from 50,000 - 110,000 we are going to live in it and fix it up to rent. We have been told that there is no way right now we can do this we want to get in to the $8,000 tax credit and are ready any day to get this done, can someone help?????

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Answers

10
No.

With all due respect, it's clear that with a FICO score of 543 you've made a few bad financial decisions. And you're trying to figure out how to make another.

First, improve your credit scores. But beyond that, work on improving your money management skills. People tend to overlook that; they sometimes think that all they have to do is improve their scores and everything will be OK. Credit scores are a reflection of your spending and repayment patterns. Those need to change, too.

Second, you don't even have enough money for closing costs on the sort of property you're looking at, to say nothing of a down payment. And that doesn't include any repair expenses, either. And that doesn't provide you any cushion in case of major repairs, or vacancies.

Third, the $8,000 tax credit shouldn't be the deciding factor, especially not when you've got the negatives listed above.

Fourth: What $8,000 tax credit? Even assuming you and your fiance both qualify for the credit, and assuming you could afford to buy (without a down payment and without a reserve fund), and assuming you could qualify, there's no $8,000 at the end of the rainbow. It's a 10% credit up to $8,000. In a multi-unit building, it's only applicable to the unit you occupy. From the IRS web site at http://www.irs.gov/newsroom/article/0,,id=206291,00.html :
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Q. I purchased a duplex home with two separate dwelling units. I will live in one dwelling and will rent out the other dwelling unit and report the rental income on Schedule E. May I qualify for the first-time homebuyer credit, and what amount do I use for the purchase price to determine the amount of the credit?

A. Yes, you may qualify for the credit for the dwelling unit that you use as your principal residence. To determine the amount of your credit, you must allocate the purchase price of the duplex between the two separate dwelling units. You may not use the entire purchase price of the duplex to determine the amount of your credit.
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So, if you bought a 2-family building for $50,000 and the two units were equal-sized, then your dwelling--your unit--would be valued at $25,000, so your tax credit would be $2,500 . . . not $8,000. Check with an accountant for details.

In short, you don't have the credit or the cash to buy. Nor would you receive the tax credit you're thinking you would.

Your plan isn't a bad one--buying a small building, living in one unit, and renting the others out. However, you need to improve your credit. (Well, there are ways to buy with not-so-great credit, but you need to develop your money management skills.) You also need to save more cash. Even if you bought with creative financing and eliminated the down payment, you'd need more than $5,000-$10,000 for closing costs plus reserves for repairs, unexpected maintenance, and vacancies.

Hope that helps.
3 votes Thank Flag Link Tue Mar 23, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Dan's right.

Katie, with a FICO score of 543, you're no more ready to buy a home than someone with a broken ankle is ready to run a marathon. You've got to heal that credit, rehab it and strengthen it, and get that up into the high sixes - your financee just needs a little strength training!

Seriously, you guys are just not in shape to be running the $8,000 dash.
1 vote Thank Flag Link Tue Mar 23, 2010
Hello Katie, Some great advice below and some interesting analogies. Most are absolutely correct, fix your FICO scores and let the $8000 go. Chances are in 1-2 years you will find a great home with prices still most probably lower than today. Best of Luck!

P.S. See the original post and hope you waited the year!
0 votes Thank Flag Link Mon Mar 14, 2011
Katie:

The best thing you can do for your family is to rent in a modest place and save cash. While you are saving cash work with your loan officer to fix your credit score. Once you are bothy in the upper 600's then you can confidently enter into the home ownership market. There will be plenty of time to take advantage of this buyer's market. Best
0 votes Thank Flag Link Mon Mar 14, 2011
Yes, Talk with NACA. They work with people with not so perfect credit, and they do NOT look at FICO scores. They will council you up front in order to get qualified. The plan is very good. Their website is listed below.
0 votes Thank Flag Link Mon Mar 14, 2011
First, today is not the day for you to buy a house.
Second, there is no reason tomorrow could not be the day for you to buy a house. Since you need to wait to buy use this time wisely. Repair your credit. And do the right things to prepare yourself sow when the time is right you can buy a house of your own.

a mortgage lenders blog on how to improve your credit
http://www.trulia.com/blog/al_akerman/2010/01/can_i_get_a_mo…
A way to see if it makes more economic sense to rent or buy.
http://www.trulia.com/blog/dan_chase/2010/01/does_it_make_mo…
Why renting could make more sense even if it costs more.
http://www.trulia.com/blog/dan_chase/2010/02/why_rent_if_you…

Things to do when you have 1 year or more before you will be buying a house.
http://www.trulia.com/blog/dan_chase/2010/01/i_want_to_buy_a…
And finally, ways to build up a down payment which will be needed.
http://www.trulia.com/blog/dan_chase/2010/01/how_do_i_get_a_…

Regrettably it is almost certain you will not be able to buy a house today. If you read and apply some of what is offered above in 1-5 years you should be able to buy a house of your own.

Anything that is worth getting is worth both sacrificing and waiting for.
0 votes Thank Flag Link Tue Mar 23, 2010
good evening katie....if you are wanting to close that quickly..then the deal can only go in his name..if his score is that high....he might just qualify....i am not licensed there or i would help you myself..have him call a local mortgage co there to pull his credit, (a tri-merge) and see if it would pull the weight of an fha purchase...also...he can have a direct realtive go on the deal with him as a "non-occupant co-borrower" to help strengthen the file..hope that helps...best regards.......bob mcclure...first preferred mortgage- southfield, michigan......
0 votes Thank Flag Link Tue Mar 23, 2010
You are out of luck unless you find some owner financing - or - can qualify on his income and credit alone.

Multi-unit dwellings are underwritten even MORE stringently than single family homes.

Get your payments in order and credit scores up - and try again once the scores are above 620.

Good Luck!
0 votes Thank Flag Link Tue Mar 23, 2010
TRY CALLING A FEW DIFFERET MORTGAGE REPS, THIS IS BETTER THEN TRYING ONE BANK.FIND ONE WHO DOES FHA MORTGAGES, IT MIGHT HELP, AND IN THE MEAN TIME ASK ONE TO HELP YOU GET YOUR FICO SCORE UP. GOOD LUCK!
0 votes Thank Flag Link Tue Mar 23, 2010
I am sure that you are not going to be able to fix your credit in the short amount of time that is remaining. If you problems are late payments, there is no way to correct that other than to start paying on time, and hope that you have accounts that have stayed open. If so, start paying them down as well. As far as your fiance goes, he should see what he still has open, and start to use the cards for small amounts and pay back immediately.
0 votes Thank Flag Link Tue Mar 23, 2010
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