Mortgage after a short sale

**kittytango** · 08-31-2010, 04:33 PM

My husband and I both lost our jobs in early 2008. We were unable to continue paying for our home of 10 years and ended up selling it via short sale in February of 2010. We have been renting a house since April of 2008 and would like to purchase a home again asap. I talked with Churchill Mortgage (the mortgage company Dave promotes on his show) and they told me I had to wait until 3 years past my short sale before I could secure financing again to buy a home. The lady I spoke with pulled our credit and our scores were in the 590's. She suggested that we use these next 3 years to build our credit to a minimum of 620 to qualify for a loan in 2013. I've emailed Dave about this a few times, but never hear any replies on air (I know he's bombarded daily so I half don't expect it) I wanted to see what everyone here thinks about this...I feel like Dave would be against me building credit, but I cannot go the route of the "no credit" way since I DO in fact have a score...a bad one at that. I thought about saving up money to purchase items on credit, such as furniture, etc. and then putting the lump sum on a pre-paid debit (like Walmart sells) and then have the place of business draft the payment monthly to build my credit. I wouldn't have a payment to worry about going that route (the full amount would be on the card from the beginning), but would that be falsely building my credit? Its the only way I can think of doing this in a way that Dave would be ok with. Any suggestions or thoughts on this? Thanks in advance.

**mateosbaby** · 08-31-2010, 05:06 PM

You are building credit just by paying your electric bill, etc on time every month. The thing that most likely made that score go down is the fact that you did a short sale. Do not acquire debt just to get your score back up. Just keep paying your bills on time; it will go up with time.

That's the first thing I thought of when I read your post. I'm sure others will have more ideas.

**monkeywrangler71** · 08-31-2010, 05:57 PM

Paying utility bills does not build credit. They only report when you don't pay, not when you do pay.

I don't follow the whole furniture buying debit card scenario, but it sounds like a big confusing hassle and probably a lot of fees, not to mention buying new furniture. Why don't you ask your bank if you can get a small secured loan, put the proceeds in your savings account then pay it back the next month. Or get a department store card and just cut it up, or pay it off every time you use it.

**MomToTwoBoys** · 08-31-2010, 08:18 PM

Originally Posted by monkeywrangler71

Paying utility bills does not build credit. They only report when you don't pay, not when you do pay.

I don't follow the whole furniture buying debit card scenario, but it sounds like a big confusing hassle and probably a lot of fees, not to mention buying new furniture. Why don't you ask your bank if you can get a small secured loan, put the proceeds in your savings account then pay it back the next month. Or get a department store card and just cut it up, or pay it off every time you use it.

I agree. You should try to find other avenues to build your credit. Here are some ways to do it without sinking yourself into something permanent:

9 ways to build credit from scratch - MSN Money

That reminds me, I really should check my score and follow the same advice. I have a house here in Canada with a credit card, though, that I didn't have problems getting. But now that I think about it, I should check my score to see if anything's on it that needs repair.

**NikoSan999** · 08-31-2010, 08:34 PM

It will go up faster if you let the "repay" ride 2 or 3 months. Example, charge $50 in gas ( it's something you will be buying anyway, or groceries...DO NOT USE A GAS CREDIT CARD ). Pay it off in 2 or 3 payments. Wait say 3 months, do it again. Whether it's $50 or $500 it will still be reported and $50 will have little interest.

**craftypam** · 08-31-2010, 09:42 PM

Taking a loan out and paying it off in a month does not build credit. They want you to show them you are capable of making payments every month and not missing them.

**mateosbaby** · 08-31-2010, 10:48 PM

Originally Posted by monkeywrangler71

Paying utility bills does not build credit. They only report when you don't pay, not when you do pay.

Well, we just got our credit report for our mortgage, and we have never, ever been late paying our utility bills. They were on there, and they were part of the score. So IDK if it builds credit or not, but it certainly plays a part in it, according to our mortgage broker.

Anyway, that is my experience with it.

**Greebo** · 09-01-2010, 08:46 AM

Before you even think of buying another house - are you out of BS2 and do you have a fully funded emergency fund established?

**kittytango** · 09-01-2010, 10:02 AM

Thanks for the replies guys. I have baby step 1 completed and am currently working on a 6 month emergency fund & 20% downpayment for the house. I only have 1 debt right now and that's my car payment, which is scheduled to pay off in Feb 2012. I cannot get approved for a home loan until Feb 2013, so I am continuing making the payments on my car to keep my credit score rolling instead of paying off the loan early (as suggested by Churchill Mortgage). If I HAVE to open accounts to build credit, I will probably take the advice of going through a bank for a small secured loan for one route. The debit card idea would be ok too, since the lady at Churchill said I need several "types" of credit on my report...the debit card scenario would be, for instance: my wedding band is missing 8 out of 16 stones. I could go to a jewelry store, confirm they report good credit, and pick out a new wedding ring for a few hundred dollars. Find out what the financed cost would be (for arguments sake, say all financing & costs totalled $600) I would then go to Walmart and purchase a pre-paid debit card and load the $600 onto it. Once I receive the card, I could finalize the paperwork @ the jewelry store and give them the card info for them to draft monthly. Then I write RING across the card in black sharpie and put the card up. Then my payments are made on time every month and I don't have to even think about it. I am not doing the credit card thing. Even when I had stellar credit and a mortgage, I got turned down for credit cards and the mere thought of applying for one makes my stomach turn. ick. I have on time payments with all my utilities & I have 3 years worth of rent receipts...My car, I've been paying on for 5 years already with no late payments in the past 2.5 years. Hopefully that will stand for something.

**Greebo** · 09-01-2010, 10:17 AM

Originally Posted by kittytango

Thanks for the replies guys. I have baby step 1 completed and am currently working on a 6 month emergency fund & 20% downpayment for the house. I only have 1 debt right now and that's my car payment, which is scheduled to pay off in Feb 2012.

You are not doing the DR plan then.

BS 1 is $1,000 in the baby emergency fund.
BS 2 is pay off all non mortgage debt as FAST as you can, smallest to largest balance
BS 3 is Fully Funded EF

And a downpayment is step 3b.

My advice, if you want to be consistent with DR, is take that accumulated money in your FFEF and "Downpayment" fund and cut it back to $1,000 (or a bit more) and pay off your car as fast as you can.

I cannot get approved for a home loan until Feb 2013, so I am continuing making the payments on my car to keep my credit score rolling instead of paying off the loan early (as suggested by Churchill Mortgage).

*sigh* I'm sorry to hear them recommending this - it puts the focus on the credit score.

Listen, in 3 years if you are DEBT FREE and have money in the bank for a 20% downpayment, you are going to have NO problem getting a mortgage - you just need to use a bank that does real underwriting. You don't need the credit score and you CERTAINLY don't need to be paying interest on a DEPRECIATING CAR to keep your score higher.

**kittytango** · 09-01-2010, 01:03 PM

That has been my hangup all along. Churchill supposedly follows the Dave Ramsey approach to things yet they are suggesting for us to go into debt to get our credit score above 620. I figured if Dave promoted them, they would do the manual underwriting and my receipts would work well enough. Why would she suggest I do this?? That's the only reason I veered from Dave's plan to begin with. I reckon I should just scrap Churchill's plan and do it Dave's way and then when the time comes, search for a mortgage company that DOES do manual underwriting. *sigh*

**Greebo** · 09-01-2010, 01:22 PM

Dave will tell you that a low credit score will still hurt you even if you do manual underwriting, because your credit score is part of your history.

Your best option may be to rent a while longer and plan on the 100% down purchase plan.

**scottp999** · 09-03-2010, 06:58 PM

I investigated this Novemeber 2009. I looked at the Fannie Mae and Freddie Mac Seller guides. I found them online. At that time it was only 24 months before they would consider you a candidate for another conventional loan that they would purchase from the loan originator. Conforming loans would probably require 20% down, and the rules may have changed in the last 10 months.

I worked a short sale for my fiancee on her home, luckily she moved in with me after it was completed. We have yet to marry, but will soon. I just refi'd our house to 4.5 30yr in my name only. It was important to do that now, because most mortgage lenders take the lower of the two credit scores of a married couple. So even in my credit score is 800+ it won't matter as soon as we get married.

For Fannie Mae's Guide, start here: https://www.efanniemae.com/sf/guides/ssg/

On the right there is a link for Allreg online. That's were you want to go and you will need to temporarily allow pop-ups for the application to appear in your brower.

In the seller guide, section B3 - 5.3:

2010 Selling Guide
Part B, Origination Through Closing
Subpart B3, Underwriting Borrowers
Chapter B3-5, Credit Assessment
Section B3-5.3, Traditional Credit History

Deed-in-Lieu of Foreclosure and Preforeclosure Sale

These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.

The following waiting period requirements apply:

Waiting Period Additional Requirements
Two years 80% maximum LTV ratios1
Four years 90% maximum LTV ratios1
Seven years LTV ratios per the Eligibility Matrix