Types Of Bad Credit Mortgage Loans & Qualification Requirements

This BLOG On Types Of Bad Credit Mortgage Loans & Qualification Requirements Was UPDATED On August 26, 2017

Mortgage loan borrowers with prior bad credit such as a prior bankruptcy, foreclosure, deed in lieu, short sale, open collections, judgments, tax liens, and charge offs can qualify for bad credit mortgage loans.

  • Home buyers who want to purchase a home can qualify with many bad credit mortgage loan programs for borrowers with less than perfect credit.
  • There are many qualified home buyers who have the down payment, closing costs, and are able to afford being homeowners, however, cannot qualify for a mortgage with many lenders due to their lender overlays.

Here are the most popular loan programs:

  • FHA Loans
  • VA Loans
  • USDA Loans
  • Conventional Loans
  • NON-QM Loans
  • Bank Statement Mortgage Loans For Self Employed Borrowers

Role Of The Federal Housing Administration

FHA mortgage loans are the most popular loan programs for home buyers seeking bad credit mortgage loans and first time home buyers than any other loan program.

  • FHA is not a lender but a government agency.
  • The United States Department of Housing and Urban Development (HUD) is the parent of FHA.
  • The role of the Federal Housing Administration (FHA) is to insure owner occupant mortgages originated and funded by banks and private mortgage companies in the event FHA Borrowers default on their FHA Loans.
  • FHA will insure the lender for the loss due to foreclosure.
  • Due to the FHA Guarantee against defaulted loans lenders are willing to fund FHA Loans with low down payment and low mortgage rates.

Borrowers can qualify for FHA Loans after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale after meeting waiting period requirements. Borrowers do not have to pay outstanding collections and charge off accounts to qualify for FHA Loans.

FHA Bad Credit Mortgage Loans

  • FHA insured mortgage loans make those who have had prior bad credit become homeowners. 
  • However, most lenders do want to see some established credit after the period of bad credit has been over. 
  • Most lenders want to see timely payments in the past 12 months, re-established credit, and no overdrafts in the past 12 months. 
  • One or two late payments and one or two overdrafts does not mean an automatic mortgage loan disqualification but a good letter of explanation will be required. 
  • Bad credit mortgage loans is extremely popular due to the recent economic and banking collapse and there is life after bad credit. 
  • Here are some general guidelines for bad credit mortgage loans.

Bad Credit Mortgage Loans Eligibility Requirements

FHA Loans are the most popular bad credit mortgage loans.

  • Minimum credit scores of  500 FICO  and above.
  • For borrowers with credit scores between 500 FICO and 579 FICO, the minimum down payment of 10% is required. 
  • To qualify for a minimum down payment of 3.5%, the minimum credit score required is 580 FICO or higher. 
  • Non-traditional credit accepted is accepted for those who do not have installment loans or revolving credit. 
  • Non-traditional credit are credit such as rental verification, utility payments, phone payments, and other scheduled monthly payments that are not reported on the credit reporting agencies.
  • The Gustan Cho Team at USA Mortgage specializes in helping home buyers with 3.5% down payment FHA Loans.
  • Minimum of 580 FICO credit score is required.
  • The Gustan Cho Team at USA Mortgage are experts with no overlay bad credit mortgage loans. 
  • Borrowers with an Automated Underwriting System approval by Fannie Mae can close their loan in 30 days or less. 
  • 46.9%/ 56.9% debt to income ratios.
  • Rental history is not needed unless conditioned by AUS.

Cases Where Borrowers Qualify For Conventional Loans But Not FHA Loans

There are instances where a borrower will qualify for Conventional Loans but no FHA Loans.

  • Borrowers who had mortgage part of their Chapter 7 Bankruptcy, there is a four year waiting period from the discharged date of the Bankruptcy and the recorded date of the foreclosure can happen at a later time.
  • The four year waiting period clock on conventional loans start from the discharged date of the Chapter 7 and not the recorded date of the foreclosure.
  • However, with FHA Loans, there is a three year waiting period from the recorded date of the foreclosure which is past the discharged date of the Chapter 7 Bankruptcy.

This is the case where borrowers with mortgage part of Chapter 7 Bankruptcy can qualify for Conventional Loans but not FHA Loans.

Working With The Gustan Cho Team

The Gustan Cho Team at USA Mortgage specializes in helping home buyers who have been denied at other lenders are stressing during mortgage process.

  •  Constant communication. 
  • Borrowers will be working together with me from the time of application until clear to close. 
  • Most bad credit mortgage loans are closed in 30 days or less. 
  • Fast track bad credit mortgage loans  can be closed in 10 to 14 days as long as we can order a rush appraisal.
  • 3.5% down payment with score above 580, can be 100% gifted.
  • 10% with score down to 530 can be 100% gifted
  • $100 down for HUD owned homes. Also offer Escrow hold back.
  • Lowest rates because we are direct lenders.
  • Pre-approvals based on AUS underwriting no pre-quals.
  • Seller can pay for buyers closing costs, taxes, insurance & MIP.
  • 6% max seller contribution with FHA Loans and USDA Loans
  • 4% maximum seller contribution with VA Loans.
  • Fixed or adjustable rates offered.
  • No prepayment penalty.
  • Bilingual if needed.
  • Also have bilingual processors on site.
  • Can flip homes into FHA loans without the 91 day waiting period.
  • 580 min score for 2-4 units (new program).
  •  500-579 credit score requires 10% down pmt.
  • The Gustan Cho Team at USA Mortgage lends on manufactured homes.

Qualifying For FHA Loans With Bad Credit

What are bad credit mortgage loans?

  • Mortgage borrowers can qualify for bad credit mortgage loans, however, they need to have re-established credit for the past 12 months.
  • FHA does not require outstanding collection accounts and charged off accounts to be paid and having prior bad credit is fine.
  • However, borrowers will need an approve/eligible per automated underwriting system findings.
  • In order to get an approve/eligible per AUS, borrowers need to have been timely on all of their payments in the past 12 months.
  • One or two late payments are not deal killers but habitual late payments will be an issue.

Home Buyers who need to qualify for bad credit mortgage loans with a direct lender licensed in multiple states with no lender overlays on government and conventional loans can contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us for faster response at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Gustan Cho NMLS ID 873293

Related> Home Loan With Bad Credit In Indiana

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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