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Buying A House With Bad Credit And Lower Credit Scores

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Buying A House With Bad Credit And Lower Credit Scores

This BLOG On Buying A House With Bad Credit And Lower Credit Scores Was PUBLISHED On July 11th, 2019

Buying A House With Bad Credit And Lower Credit Scores

Advice In Buying A House With Bad Credit

Buying a house with bad credit is possible. 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, creditors will report them on the credit reporting agencies
  • The 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 hangover
  • 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
  • Eventually, bad credit will have little or no impact on consumer credit scores
  • However, it does take time for credit scores to get back up
  • There are ways of expediting boosting credit scores back up

In this article, we will discuss Buying A House With Bad Credit And Lower Credit Scores.

Credit Score Mortgage Guidelines 

Credit Score Mortgage Guidelines

Lenders do have minimum credit score requirements to qualify for a home loan.

  • FHA Loans require a minimum of a 580 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 set standards and rules for Conventional Loans, require a minimum credit score of 620 FICO credit score to qualify
  • VA Loans normally require a 580 FICO credit score
  • However, the 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
  • Jumbo mortgage lenders will require a 700 credit score
  • Non-QM Jumbo Loans allow credit scores down to 500 FICO

How Credit Is Analyzed And Viewed By Mortgage Underwriters

How Credit Is Analyzed And Viewed By Mortgage Underwriters

Two things lenders look at when evaluating credit on a borrower is credit scores and the overall payment history which is reflected on the borrower’s credit report.

  • Many borrowers who had prior bad credit can have high credit scores in a little over a year after the period of bad credit
  • This holds true 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 borrowers have credit scores of over 700 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
  • This is because many 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

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 an FHA Loan after a Chapter 7 Bankruptcy discharged date. A home buyer can qualify to purchase a home with an 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 an 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 have 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 an 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 an FHA Loan. This holds true even though the mortgage was included in the Chapter 7 Bankruptcy and the Bankruptcy has been discharged.

  • Some 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
  • This is 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 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
  • This is 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 With Lender With No Overlays

Buying A House With Bad Credit With Lender With No Overlays

Most lenders will have mortgage lender overlays:

  • Mortgage lender overlays are additional requirements and guidelines that each individual lender sets on top of the minimum lending guidelines by FHA, VA, USDA, Fannie Mae, and Freddie Mac
  • For example, HUD requires a minimum credit score of 580 credit score for a home buyer who wants to purchase a home with 3.5% down payment
  • However, a particular lender and/or bank may have overlays on credit scores
  • They may require a 640 credit score when FHA only requires a 580 FICO
  • This is an example of a lender overlay and there are many overlays mortgage lenders may have
  • That is why if you do not qualify with one particular 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 lender with no lender overlays
  • Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no lender overlays
  • We just go off the minimum mortgage lending guidelines
  • We 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.

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