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Due to a personal circumstance, I was unable to pay my bills for about 6 months and it took my credit score from a 720 to 520 (repo, charge-offs, and collections). I now have about 50k in the bank, no bills besides rent and utilities, and the debts that are closed that ruined my credit total 15k. What do I need to do to repair my credit enough to purchase a home? Most lenders will not approve a mortgage for credit scores less than 620. I am worried I will pay the closed accounts and be out that money in addition to still having bad credit.

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    What's the price of a home you're considering? The advice will differ greatly if you're looking at buying a $75k home versus a $400k home. – Kevin Jul 24 at 15:35
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    What do you mean "the debts are closed". You mean they have been fully charged off? Then you can probably pay them back for 10 cents on the dollar or so. – D Stanley Jul 24 at 15:35
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    The answer might be, "Reestablish your credit, starting with a secured card, and wait seven years." – RonJohn Jul 24 at 15:44
  • @RonJohn Or move to Detroit, where you can get a house in cash for that. – ceejayoz Jul 24 at 15:48
  • Kevin, probably in the 200-275k range. – Curious One Jul 24 at 15:49
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This won't be a short process and while you may not like it but there is a clear path to home ownership with a mortgage. You will need to settle all your debts. Even if your CS was over 800, a lender will not approve you with collections on your account.

Luckily you have cash. Follow the typical advice when settling a debt: never give access to your accounts, make an offer for a one time payment to settle the debt (no payment schemes), get the offer in writing. Using money orders or pre-loaded debit/gift cards are all good options for payment. Typically you can settle these for less than you actually owe, but negotiating them down takes time. You sound like you are in a rush.

Even if you only settle dollar for dollar, you would be left with 35k for a down payment. While your credit heals, which will probably take about 6 months, bolster your down payment.

The other option is you continue to save and buy a property for cash. A lot of money is paid for the origination of a mortgage, so you can avoid those costs. How long did it take you to save the 50K?

  • I thought write-offs followed you for 7 years? – RonJohn Jul 24 at 17:21
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    They might, but once you settle the debt, have a decent income, and have a healthy down payment none of that really matters. – Pete B. Jul 24 at 17:23
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    Do you mean none of it matters in that the credit score will quickly recover, or the credit score will remain low but the mortgage rate won't be jacked up, or the mortgage rate will be jacked up but it's still worth buying a house? – nanoman Jul 24 at 18:04
  • The credit score will rebound quite a bit as soon as there are no collections/negative items. And go up for about 6 months. It will take 7 years for the notices to be completely removed. – MikeP Jul 26 at 17:25

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