Buying A House With Bad Credit Explained

Advice In Buying A House With Bad Credit

Buying a house with bad credit is possible. Mortgage lenders understand that hard working folks can have periods of bad credit due to loss of jobs, loss of business or other extenuating circumstances such as family matters, illness, and divorce. If you are late on your monthly debt payments, your creditors will report them on the credit reporting agencies and derogatory information stays on your credit report for a period of seven years from the date of last activity.  Having bad credit is like having a hang over. Once you are 30 days or more late on your monthly debt payments, it will plummet your credit scores, however, as the derogatory credit information ages, your credit scores will gradually go back up and eventually the bad credit will have little or no impact on your credit scores. However, it does take time for your credit scores to get back up and there are ways of expediting boosting your credit scores back up. Mortgage lenders do have minimum credit score requirements to qualify for a home loan. FHA Loans require a minimum of a 580 FICO credit score for a borrower to qualify for a 3.5% down payment home purchase FHA Loan. Fannie Mae and Freddie Mac, the two mortgage giants in the United States that sets standards and rules for Conventional Loans, require a minimum credit score of 620 FICO credit score to qualify for a Conventional Loan. VA Loans normally require a 580 FICO credit score, however, VA does not have a minimum credit score requirement. The minimum credit score set for VA Loans depends on the VA mortgage lender. USDA Loans normally require a 640 FICO credit score and most Jumbo mortgage lenders will require a 700 FICO credit score. Two things that mortgage lenders look at when evaluating credit on a mortgage loan borrower is credit scores of the borrower and the overall payment history of the mortgage borrower which is reflected on the borrower’s credit report. Many mortgage borrowers who had prior bad credit can have high credit scores in a little over a year after the period of bad credit as long as they have been timely with their monthly payments and have new re-established credit after the period of bad credit. I have seen hundreds of cases where mortgage borrowers have credit scores of over 700 FICO credit scores one year after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. The key is not to be late with any monthly debt payments after a bankruptcy and/or foreclosure because many mortgage lenders will not extend credit to anyone who had a late payment after bankruptcy or foreclosure .

Buying A House With Bad Credit: Bankruptcy And Foreclosure

Home buyers can purchase a home after a bankruptcy and foreclosure after meeting the mandatory waiting period. For FHA Loans, there is a two year waiting period to qualify for a FHA Loan after a Chapter 7 Bankruptcy discharged date. A home buyer can qualify to purchase a home with a FHA Loan one year into a Chapter 13 Bankruptcy repayment program with the approval of the Chapter 13 Bankruptcy trustee and as long as they have been timely with all of their payments to their creditors for the past 12 months. There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date. All FHA Loan underwrites after a Chapter 13 Bankruptcy discharge that has been seasoned for less than two years from the Chapter 13 Bankruptcy discharged date needs to be manual underwriting and all FHA manual underwriting guidelines will apply such as verification of rent requirements and compensating factors . Fannie Mae and Freddie Mac has a mandatory four year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date. There is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date.

There is a three year mandatory waiting period to qualify for a FHA Loan after a foreclosure, deed in lieu of foreclosure, and short sale. There is a four year mandatory waiting period to qualify for a Conventional Loan per Fannie Mae and Freddie Mac mortgage lending guidelines after a deed in lieu of foreclosure and/or short sale. There is a seven year mandatory waiting period to qualify for a Conventional Loan after a foreclosure.

Buying A House With Bad Credit: Mortgage Part Of Bankruptcy

If you had a mortgage part of your Chapter 7 Bankruptcy, there is a waiting period of three years from the recorded date of your foreclosure to qualify for a FHA Loan even though the mortgage was part of your Chapter 7 Bankruptcy and the Chapter 7 Bankruptcy has been discharged. Some mortgage lenders will just take their sweet time in transferring the name of the property that was included in the bankruptcy out of the mortgage note holder’s name and into their name and this hurts the potential home buyer because the three year waiting period clock will not start until the deed to the property has been transferred out of their name and into the name of the mortgage lender and reflects it on the recorder of deeds office in the county the property is located. However, with Conventional Loans, new rules and regulations were recently implemented and launched by Fannie Mae where if you have a mortgage as part of your Chapter 7 Bankruptcy, then there is a four year waiting period from the discharged date of your Chapter 7 Bankruptcy regardless of when the foreclosure to the property was finalized. This is great news for those who had a mortgage or mortgages as part of their Chapter 7 Bankruptcy.

Buying A House With Bad Credit: No Overlays

Most mortgage lenders will have mortgage lender overlays . Mortgage lender overlays are additional requirements and guidelines that each individual mortgage lender sets on top of the minimum lending guidelines by FHA, VA, USDA, Fannie Mae, and Freddie Mac. For example, FHA requires a minimum credit score of 580 FICO credit score for a home buyer who wants to purchase a home with 3.5% down payment. However, a particular mortgage lender and/or bank may have mortgage lender overlays on credit scores where they may require a 640 FICO credit score when FHA only requires a 580 FICO. This is an example of a lender overlay and there are many lender overlays mortgage lenders may have. That is why if you do not qualify with one particular bank or mortgage lender does not mean that you do not qualify with another mortgage lender. Buying A House With Bad Credit is possible but I suggest and advice that you choose a mortgage lender with no lender overlays. I am a mortgage lender with no lender overlays and just go off the minimum mortgage lending guidelines and just go off the findings of the Automated Underwriting System .  If you are buying a house with bad credit and need a mortgage lender with no overlays, contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer all of your questions.

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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