Mortgage with 650 score

[departed]

I'm planning to make a use of the extended 8000 tax credit and buy a home...my current credit score is in 650 range. Ofcourse, I have been turned down for the conventional loan unless I pay 20% down and pick up the higher interest rate. So, I am still calculating if paying PMI with FHA is better than paying higher interest along with hefty down payment for conventional.

Now here are a few question which I am trying to understand..

1. What if I try to boost my score?

Is it a good idea to take a secured loan from a bank against a CD. Will I be able to improve my score within 2-3 mo.s???

2. How we calculate the monthly mortgage payment? What is the formula?


Can someone please help me here.

Thanks in advance!!!

[Bigwoodystyl]

1. The fastest way to boost your score quickly is to pay down all of your revolving debt to $0.

a. If you can get derogatory items deleted, that will also help.

b. A secured tradeline will not boost your score immediately and will likely cause more harm than good over a short-term.


2. It's easier, faster and more reliable to use a mortgage calculator (there are thousands online at no charge) than to compute your payment based on a formula.

That said, however, the formula is relatively simple.

Pmt = P[i(1 + i)n]/[(1 + i)n - 1]

Where:
Pmt = monthly pmt
P=Principal being amortized (the amount of the mortgage that you finance)
n=the length of the term expressed in months.
i=monthly periodic interest rate expressed as a decimal (e.g. if the interest rate is 5%, then i=.05/12 or .00416666)

[2ndTimeAround]

Originally Posted by departed

I'm planning to make a use of the extended 8000 tax credit and buy a home...my current credit score is in 650 range. Ofcourse, I have been turned down for the conventional loan unless I pay 20% down and pick up the higher interest rate. So, I am still calculating if paying PMI with FHA is better than paying higher interest along with hefty down payment for conventional.

Now here are a few question which I am trying to understand..

1. What if I try to boost my score?

Is it a good idea to take a secured loan from a bank against a CD. Will I be able to improve my score within 2-3 mo.s???

2. How we calculate the monthly mortgage payment? What is the formula?


Can someone please help me here.

Thanks in advance!!!

Your question concerning PMI - on FHA loans it automatically drops off after 5 years. For first time buyers or a purchase with little money down, FHA is the way to go.

If you have 20%, by all means getting a conventional loan is the best way.

Here is a link for mortgage calculator - http://www.mortgage-calc.com/mortgage/simple.html

If you are going to need a calculator away from a computer - go to Walmart and buy a BA II Plus calculator ($29 bucks). You have to read the instructions how to set it up. Use mine everyday, in the last 11yrs on my 2nd calculator (the first one - the battery run out, never replaced it).

Concerning your credit report - I don't think you will get the results your looking for in only 2 to 3 months of paying on a secured loan. It is going to take 1 to 2 months to get listed on your credit report.

I suggest taking out the loan (if you do not have a car payment now), making more than the required payment, after 4 to 6 months your get reported as being more responsible, and your score can do up quickly.

Also make sure you do not have on your report - any out dated or derogatory information. Keep any credit cards 50% below your credit limit, 25% is better.

Credit is earned not given......

Good Luck

[unusualsuspect]

Agree w/ above post (as a former mortgage broker)...

The only mortgages you'll get w/ a 650 score will be FHA. You'll need at least 3% down and carry PMI for 1st 5 years if this is a purchase loan.

Keep the CD as proof as assets during escrow. It will help you more when they are underwriting the loan than by borrowing against it.

[Denita]

The only addition I have to make to the above post is FHA recently increased the min downpayment to 3.5% rather than 3%.

CASH IS KING. THE MORE SAVINGS YOU HAVE THE BETTER! They both are right about the extra cash in a CD or other savings really helps you more as a compensating factor then trying to borrow against it. The FHA permitted DTI limits were reduced this month (Nov 2009) and the underwriters ALWAYS like to see more cash available to the borrower than just what is required. Make sure you have enough for closing costs too. Even if you get the seller to contribute toward your closing costs and prepaid expenses, not all sellers will pay all of those costs.

Bigwoodystyl is right about paying down your existing debt! That is the quickest way to a score increase. Also the lenders' underwriters like to see that you have little to no debt on your cards.

If you can pay off a car note (if you have one), even better for you. The loans are going through extra cautious underwriting these days.