This article explores the various mortgage options available to homebuyers seeking approval for a home loan with bad credit Texas. Despite lower credit scores, mortgage applicants can still qualify for and be approved for a home loan. However, the crucial factor in obtaining approval for a mortgage with bad credit and lower credit scores is maintaining timely payments over the past 12 months. An automated underwriting system (AUS) algorithm governs each loan program’s agency mortgage guidelines.
What Is The Fannie Mae And Freddie Mac’s Automated Underwriting System (AUS)
The underwriting manual outlines the guidelines and procedures for underwriters evaluating loan applications, including those with bad credit Texas. Its primary aim is to establish consistency, accuracy, and adherence to regulations throughout the underwriting process.
Once a loan officer inputs a mortgage applicant’s full 1003 loan application, tri-merger credit reports, and income/asset/liability data, the AUS promptly generates automated findings within seconds.
The AUS provides one of three findings:
- Approve/eligible per AUS
- Refer/eligible per AUS
- Refer/with caution
An “Approve/eligible” result signifies approval, the desired outcome for a Home Loan With Bad Credit Texas. “Refer/eligible per AUS” indicates that the file is eligible, but borrowers require manual underwriting by a human mortgage underwriter. On the other hand, “Refer/with caution” results in a loan denial. Manual underwriting will be discussed in more detail in the following sections. Get approval for mortgage loan with bad credit in Texas
Understanding The Automated Underwriting System Findings
Approve/eligible per AUS which means an automated approval where the mortgage applicant meets all the agency mortgage guidelines. The borrower is approved as long as all conditions are met. Refer/eligible per AUS which means the AUS finds the loan applicant eligible for the individual loan program the applicant applied but the AUS cannot issue an automated approval.
The AUS is referring the file to a human underwriter for a manual underwrite. Refer/eligible per AUS means the automated system cannot render an automated approval due to one or more factors. A human mortgage underwriter needs are assigned to manually underwrite and make the final determination.
Manual underwriting is viewed as riskier files so the debt to income ratio cap is lower than AUS-approved loans. The debt to income ratio caps is determined by the number of compensating factors the borrower has. Mortgage underwriters have a lot of underwriter discretion on manual underwrites.
The Importance Of Timely Payments In The Past 12 Months
Mortgage lenders want to make mortgages so they can make money. They want to do everything possible to originate and fund loans.
However, they need to make sure the borrowers have the ability to repay the new housing payment. This is why they need to make sure the borrower has a decent payment history along with stable employment and stable qualified income.
The lender’s concern is if the borrower is able to make timely mortgage payments for the term of the loan. The lender fully understands periods of bad credit happen due to unemployment, loss of business, divorce, illness, death in the family, or other extenuating circumstances beyond the person’s control where it affects the flow of income. With a reduction of household income, people have a difficult time making timely payments on their bills where their credit suffers.
Do I Need To Pay My Past Oustanding Collections And Charged-Off Accounts To Get Approved For A Mortgage With Bad Credit?
Having prior credit is fine and understandable under the eyes of the lender. However, lenders want to see borrowers have re-built and re-established their credit after periods of bad credit. It is fine to have outstanding collections and charged-off accounts and qualify for a mortgage. However, most lenders want to see timely payments for the past 12 months.
The bottom line is you can have unpaid collections and/or charged-off accounts but you need timely payments in the past 12 months.
What Are My Mortgage Options To Get Approved For A Home Loan Bad Credit Texas
Texas homebuyers can definitely qualify for a home loan with bad credit Texas. We will go over the mortgage guidelines on the various loan program that is available for homebuyers with credit scores down to 500 FICO and bad credit. We will cover typical case scenarios the team at Gustan Cho Associates where we helped home buyers get approved for a mortgage with bad credit in Texas.
The team at Gustan Cho Associates are experts in helping homebuyers with lower credit scores and bad credit qualify for a home loan with bad credit in Texas. We will discuss and cover the various type of mortgage options homebuyers have. We will cover the minimum lending requirements on government-backed, conventional, and non-QM loans. Get Approvable for a home loan with bad credit, click here
Can You Buy a House With Bad Credit in Texas?
The State Of Texas is one of the largest states in the United States. Texas is also one of the fastest-growing states and the housing market is booming. Many California residents migrate to Texas due to the still low housing prices compared to California. The average home value of Texas is 50% of California housing prices.
A substantial percentage of clients of Gustan Cho Associates are Texas home buyers. The team at Gustan Cho Associates are experts in helping homebuyers who need to qualify and get approved for a mortgage in Texas with bad credit.
What is the Minimum Credit Score to Buy a House in Texas?
If you’re seeking a mortgage loan in Texas, remember that the minimum credit score requirement is affected by the lender and loan type you choose. The minimum credit score required for conventional loans is 620.
FHA loans may accept scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment. This enables borrowers with lower credit scores to still qualify for a loan. However, it’s important to note that individual lenders may have specific requirements.
It’s important to note that while credit score is important, lenders also consider other aspects of your financial situation, such as your income, debt-to-income ratio, employment history, and down payment amount. Therefore, it’s a good idea to shop around and speak with different lenders to see what options are available to you based on your specific circumstances.
Mortgage Option Comparisons: Conventional Versus FHA Loans In Texas
Texas is a community property state. There are nine community property states in the United States. Texas homebuyers who are married need to count the spouse’s debt when qualifying for a Texas home loan even though the spouse is not on the mortgage.
FHA Loan Requirement And Guidelines In Texas
FHA loans are the most popular loan program in Texas for first-time homebuyers. borrowers with bad credit, recent college graduates, borrowers with no credit scores, homebuyers with credit scores down to 500 FICO, borrowers with outstanding collections and/or charged/off accounts, and borrowers with high-debt to income ratios.
Texas Home Buyers Qualifying For Home Loan With Bad Credit Texas
Texas homebuyers who are first-time homebuyers seeking a home loan with bad credit Texas came to the right website. We will explain how first-time home buyers or home buyers with prior credit issues can qualify for Home Loan With Bad Credit Texas With Gustan Cho Associates.
Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. The company grew every year and now has close to 1,000 licensed and support personnel and still growing. Gustan Cho Associates is one of the largest direct lenders in the state of Texas. Has a five-star old-fashioned business model. Gustan Cho is hands-on and still to this date originate loans.
No Lender Overlays On Home Loan With Bad Credit Texas
We close 100% of all of our pre-approvals because all of our pre-approvals at Gustan Cho Associates Mortgage Group is a full credit loan approval signed off by one of our mortgage underwriters. Lender Overlays are additional mortgage guidelines imposed by individual lenders that are above and beyond those of federal guidelines on FHA, VA, USDA, and Conventional Loans. Gustan Cho Associates has no lender overlays on government and conventional loans.
Texas Homebuyers With Bad Credit
This is why we can close mortgage loans where other lenders can’t. Most first-time homebuyers think just because they have had prior bad credit that they do not qualify for a residential mortgage loan. I specialize in helping Texas first-time homebuyers seeking a home loan with bad credit Texas. There are many borrowers who went to several lenders and were told that they did not qualify for a home loan with bad credit Texas.
Getting Denied For A Mortgage Loan In Texas Due To Lender Overlays
One thing that these lenders did not tell these borrowers is that they may not qualify for a home loan with bad credit Texas with their lending institution but can qualify for a home loan with bad credit Texas with another direct lender with no overlays. Not all lenders have the same mortgage qualification requirements.
Banks, for example, want higher credit score borrowers with no outstanding collections and/or charge off accounts. Texas mortgage borrowers do not have to pay off outstanding collection accounts and charge off accounts to qualify for a mortgage loan.
Borrowers can qualify for FHA Loans in Texas with less than perfect credit, bad credit, and outstanding collection accounts, and charge-off accounts. I will go into detail on the qualification requirements per FHA Guidelines. Click here to find a lender with no overlay
Mortgage Requirements On Home Loan With Bad Credit Texas For First-Time Homebuyers
How bad can your credit be for a first-time homebuyer seeking a home loan with bad credit? This is the most common question I get asked by a first-time homebuyer seeking a home loan with bad credit Texas.
A first-time homebuyer seeking a home loan with bad credit Texas can have prior derogatory credit due to some extenuating circumstances such as unemployment, medical reasons, divorce, or loss of business. The first-time homebuyer seeking a home loan with bad credit cannot have total disregard for credit.
Having total disregard for credit means that he or she cannot be blatantly late if they had the means to pay their monthly credit obligations. For example, the mortgage loan underwriter will be reviewing a mortgage loan applicant’s credit history as well as their employment history.
How Mortgage Underwriters Review Credit Payment History Of Borrowers
Let’s take a case scenario on how mortgage underwriters review borrowers’ overall payment history. If the mortgage loan applicant has a ten-year credit history and their payment history shows the following:
- In year 7 and year 8 borrowers had a bunch of late payments, derogatory credit, and collection accounts
- On year 9 and 10 had re-established their credit by getting 3 secured credit cards
- No late payments since getting those secured credit cards
- The mortgage underwriter will cross-check that period of derogatory credit with the employment history
How Mortgage Underwriters View Prior Bad Credit Payment History Of Borrowers
The mortgage loan underwriter will review the overall borrower’s credit history. The underwriter will investigate the borrower’s period of bad credit. How was the borrowers’ credit prior to the bad period of credit?
What was the reason for the borrower not being able to meet their monthly debt obligations?
- Unemployment?
- Divorce?
- Medical Issues?
- Change Of Jobs?
- How long was the period of bad credit?
- Was it due to unemployment?
- Has the borrower re-established credit?
- Has the borrower been timely in the past 12 months?
If the borrower has had a period of bad credit due to unemployment, this is perfectly understandable. Underwriters will want to see that the borrower has since gained full-time employment and that their employment is likely to continue for the next three years. Re-Established Credit and no late payments after gaining new employment is a must. No Late Payments After Bankruptcy And/Or Foreclosure.
Borrowers With Disregard To Credit Versus Bad Credit Due To Extenuating Circumstances
However, on a different case scenario, if the mortgage applicant had a ten-year credit history and has been employed consistently but has been consistently making late payments and has had continued collection accounts, charge offs, and other derogatory, then this individual will be deemed as financially irresponsible and most likely will not get a residential mortgage loan approval.
Prior payment history reflects the financial responsibility of the mortgage loan applicant and is a good indicator of their future payment prediction. This is how mortgage lenders and other creditors view credit history and payment history.
Everyone can have a hiccup in their lives. Their credit scores can be majorly hurt. What mortgage underwriters look for in borrowers seeking a home loan with bad credit Texas is that they have recouped and are now fully employed. Underwriters also want to see that borrowers have re-established credit and have no late payments in the past 12 months.
How to Get an FHA Loan in Texas with Bad Credit?
FHA Mortgage Guidelines are fair and relaxed for borrowers that most folks can qualify for an FHA loan with bad credit in Texas.
Here are the basic updated FHA Guidelines:
- Borrowers can qualify for Texas FHA Loans with a 580 credit score.
- The minimum down payment required for an FHA home purchase loan in Texas is 3.5%
- HUD, the parent of FHA, allows borrowers with credit scores between 500 and 579 FICO to qualify for FHA loans in Texas
- 2 year waiting period after Chapter 7 Bankruptcy discharged date to qualify for FHA loans in Texas
- 3 year waiting period after the recorded date of foreclosure and/or deed in lieu of foreclosure to qualify for FHA Loans in Texas
- 3 year waiting period after short sale date to qualify for FHA Loan
- Texas home buyers can qualify for FHA Loan with outstanding collection accounts and charge off accounts without having to pay them off
- Home Buyers can get approved for FHA Loans one year into a Chapter 13 Bankruptcy Repayment Plan
- Texas Borrowers are eligible for FHA Loan with no waiting period after a Chapter 13 Bankruptcy discharged date on a manual underwrite
- HUD allows non-occupant co-borrowers to be added to borrowers and there are no limits on the number of co-borrowers
- HUD allows 100% gifted funds on FHA Loans for the down payment and closing costs on a home purchase
- HUD allows up to 6% in sellers concessions by home sellers to cover home buyers closing costs
FHA loans are the most popular loan program for first-time homebuyers and borrowers with bad credit and lower credit scores. Speak With us to get a FHA loan in Texas with bad credit
Texas VA Loan Requirements
VA Loan Requirements in Texas have lenient mortgage guidelines. Here are the minimum Texas VA Loan Requirements:
- No down payment required
- Lenders offer 100% financing with no mortgage insurance premium required
- There are no minimum credit score requirements on VA loans.
- There is no maximum debt to income ratios.
- Outstanding collection and charged-off accounts do not have to be paid off to qualify for VA loans in Texas.
- There is a two-year waiting period after Chapter 7 Bankruptcy, Foreclosure, Deed In Lieu Foreclosure, Short Sale to qualify for VA loans in Texas.
- VA co-borrower guidelines only allow spouses of the main borrower to be co-borrower on VA Loans
- HUD allows up to 6% in sellers concessions by home sellers to cover home buyers closing costs
- VA permits 4% sellers concessions
VA loans are the best loan program. However, you need to be a qualified veteran with a certificate of eligibility to qualify for VA loans.
How To Qualify And Approved On Home Loan With Bad Credit Texas
Gustan Cho Associates is a mortgage company licensed in multiple states including Texas with no lender overlays on government and conventional loans. We are mortgage bankers, correspondent lenders, and mortgage brokers. We process and underwrite FHA, VA, and conventional loans but also have the ability to broker non-QM loans in Texas.
The team at Gustan Cho Associates created a partnership with our clients in Houston, Austin, and other big cities in Texas. Home Buyers who need to qualify for a Texas FHA, VA, Conventional, or non-QM mortgage loan, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. We have experienced Texas licensed loan officers to help and are available 7 days a week, evenings, weekends, and holidays.
FAQ – How To Get Approved For Home Loan With Bad Credit Texas
- 1. What is the Fannie Mae and Freddie Mac’s Automated Underwriting System (AUS)? The Automated Underwriting System (AUS) is a sophisticated computer system by Fannie Mae and Freddie Mac. It analyzes mortgage loan applications, credit reports, and financial data to render automated findings within seconds. These findings determine whether an applicant is approved, referred for manual underwriting, or denied.
- 2. What are the different findings generated by the AUS? The AUS can render three types of findings:
- Approve/eligible per AUS: Indicates automated approval, provided all conditions are met.
- Refer/eligible per AUS: Indicates eligibility for the loan program but requires manual underwriting.
- Refer/with caution: Results in a loan denial.
- 3. How important are timely payments in the past 12 months for mortgage approval with bad credit? Timely payments in the past 12 months are crucial for mortgage approval, especially for borrowers with bad credit. Lenders assess a borrower’s payment history, stability of employment, and income to ensure they can make timely mortgage payments throughout the loan term.
- 4. Do I need to pay my past outstanding collections and charged-off accounts to get approved for a mortgage with bad credit? Many lenders require borrowers to have made timely payments in the past 12 months, even if there have been understandable credit issues. If you have demonstrated recent financial responsibility, you may still qualify for a mortgage with outstanding collections and charged-off accounts.
- 5. What are my mortgage options for getting approved with bad credit in Texas? Texas homebuyers with bad credit can qualify for various loan programs, including FHA, VA, conventional, and non-QM loans. These programs have different credit score requirements and lending criteria, so exploring your options with a knowledgeable lender is essential.
- 6. Can I buy a house with bad credit in Texas? In Texas, it’s possible to buy a house with bad credit. The required credit score varies by lender and loan program. However, FHA loans may be available to borrowers with credit scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment.
- 7. How do I get an FHA loan in Texas with bad credit? When considering FHA loans, knowing the guidelines and working with an experienced lender is important. This type of loan offers flexible credit requirements, allowing individuals with a credit score of 580 or higher to qualify for a low down payment of 3.5%.
- 8. What are the VA loan requirements in Texas for borrowers with bad credit? VA loans offer excellent benefits for qualified veterans, including no down payment and flexible credit requirements. Borrowers with bad credit may still qualify for VA loans. Still, eligibility is based on the lender’s discretion and VA guidelines.
- 9. How can I qualify and get approved for a home loan with bad credit in Texas? To qualify for a home loan with bad credit in Texas, working with a reputable lender like Gustan Cho Associates is crucial. They offer various loan programs and specialize in helping borrowers with lower credit scores navigate the mortgage process.
