Qualifying For Bad Credit Home Loans With Collections & Charge Offs

This BLOG On Qualifying For Bad Credit Home Loans With Collections & Charge Offs Was UPDATED On August 16, 2017

Many renters are under the belief that they need 20% down payment and good credit to qualify for mortgage loans. This is not the case. The Gustan Cho Team specializes in helping home buyers qualify for bad credit home loans.

  • I help homeowners with bad credit home loans in most of the 50 states, and can help home buyers  qualify for bad credit home loans.
  • Many do not realize that they can qualify for home loans with bad credit.
  • Many assume that just because they have outstanding collections and charged off accounts that they do not qualify for home loans.
  • We will cover on this blog on how credit scoring can effect chances of getting a loan.
  • Our viewers will have an even greater chance of making the dream of home ownership a realistic reality.
  • We are direct mortgage lenders with no mortgage lender overlays.
  • The Gustan Cho Team at USA Mortgage can help home buyers qualify for a 3.5% down payment home purchase FHA Loan with credit scores as low as 580 FICO.
  • Over half of our mortgage loan borrowers are borrowers who were told they do not qualify for a home loan by other mortgage lenders due to their mortgage lender overlays.
  • The Gustan Cho Team at USA Mortgage NMLS 227262 has no lender overlays on government and conventional loans.

Qualifying For Bad Credit Home Loans

Mortgage Borrowers credit scores will dictate the mortgage interest rates.

  • A low credit score means higher mortgage rates, credit card rates, automobile loan interest rates, and installment loan interest rates. 
  • Many employers pull credit checks as part of their hiring and promotional process. 
  • Job applicants can actually be turned down for a job with bad credit scores.
  • Employees can be denied a promotion with less than perfect credit. 
  • There are many negative impact of bad credit.

How Else Can Impact Of Credit Scores On Mortgage Loans?

Employers view those who have bad credit as being financially irresponsible.

  • That is not always the case. 
  • A person can lose a job and due to the loss of income can be behind in their payments. 
  • One 30 day late payment on a monthly payment can drastically impact a person’s credit score. 
  • There are even jobs that disqualifies a person from a job position if they have ever filed bankruptcy. 
  • In some states, loan officers cannot be a mortgage loan originator license if the applicant has filed bankruptcy or has outstanding judgments, collections, and/or foreclosure.

Impact Of Credit Scores On Mortgage Have Affect On Insurance Premiums

Impact of credit scores on mortgage loans also include higher insurance premium.

  • Mortgage loan applicants who have poor credit scores will be paying more in insurance premium than those with better credit scores. 
  • It does not matter what type of insurance. 
  • The insurance company will even pull credit for homeowners insurance. 
  • The impact of bad credit scores will definitely have an effect on the cost of homeowners insurance.

Other Negative Impact Of Credit Scores On Mortgage Loans

Other negative impact of credit scores on mortgage can be whether or not you qualify for a mortgage.

  • Mortgage Loan Applicants who have had a recent late payment on an installment loan, it could mean a disqualification for a mortgage loan. 
  • It would be next to impossible for a homeowner to quality for a mortgage refinance loan if they had a late payment in the past 6 months.

Qualifying For Bad Credit Home Loans

There is a light at the end of the tunnel for those who have bad credit.

  • Consumer credit will naturally improve as bad credit ages. 
  • Consumers who have collections, bankruptcy, or foreclosure on credit report, their credit scores will naturally improve as months and years pass. 
  • The more time that goes by, the less the impact of bad credit scores. 
  • After two years, most of bad credit will not have any impact on credit scores.

We will be discussing more on credit repair and how to improve your credit scores in future blogs.

FHA Bad Credit Home Loans

FHA is the most popular loan program in the United States for first time home buyers and borrowers with bad credit. Not all mortgage lenders have the same FHA mortgage requirement.

There are two types of FHA Guidelines:

  1. HUD Guidelines
  2. Mortgage Lender Overlays

All FHA Mortgage Applicants need to meet HUD Guidelines.

  • HUD (U.S. Department of Housing and Urban Development) is the parent of FHA (Federal Housing Administration).
  • FHA is not a lender but a government agency that insures FHA Loans originated and funded by banks and private mortgage lenders in the event FHA homeowners default on their FHA Loans.
  • FHA will insure the financial institution against loss due to foreclosure.
  • However, in order for FHA to insure lenders, lenders need to follow all FHA Guidelines. 

How Can I Qualify For FHA Loan With Bad Credit?

What are bad credit home loans?

FHA has very generous FHA Guidelines for borrowers with bad credit home loans. However, please do not confuse with having prior bad credit and having bad credit currently. Lenders who specialized in bad credit home loans like The Gustan Cho Team at USA Mortgage have no problem qualifying borrowers with prior bad credit but want to see they have re-established credit and been timely for the past 12 months.

Here are FHA Guidelines On Bad Credit Home Loans:

  • Minimum 580 Credit Scores for 3.5% down payment home purchase loans
  • Outstanding Collections and Charge Off Accounts do not have to be paid
  • Maximum debt to income ratio 46.9% front end and 56.9% back end
  • Multiple Non-Occupant Co-Borrowers allowed
  • 100% gift funds for down payment allowed
  • Up to 6% sellers concessions allowed
  • 2 year waiting period after Chapter 7 Bankruptcy discharged date to qualify for FHA Loans
  • 3 year waiting period after recorded date of foreclosure and deed in lieu of foreclosure to qualify for FHA Loans
  • 3 year waiting period from short sale settlement date reflected on HUD to qualify for FHA Mortgage Loans
  • No waiting period after Chapter 13 Bankruptcy discharged date to qualify for FHA Loans (Manual Underwriting)
  • Borrowers can qualify for FHA Loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval (Manual Underwriting)

Borrowers who need to qualify for FHA Bad Credit Home Loans with a direct lender with no lender overlays, please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Related> 5 factors that impact credit scores

Related> Credit Scores in Mortgage Process

Related> Can you get a mortgage with low credit scores?

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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