Buying New Home With Bad Credit And Low Credit Scores

Gustan Cho Associates

This BLOG On Buying New Home With Bad Credit Was PUBLISHED On July 17th, 2019

Buying New Home With Bad Credit
Gustan Cho Associates

Home Buyers do not need perfect credit when Buying New Home With Bad Credit and Lower Credit Scores. Home Buyers who are interested in Buying New Home With Bad Credit and Bad Credit can do so with an FHA Loan. Buyers thinking about purchasing a first home and are ready to be a first time home buyer, here are some tips prior to entering into a real estate purchase contract.

  • Home Buyers should first narrow the area before beginning search
  • Check out the amenities in the area buying home
  • How far is it from work? 
  • How close is it to major expressways? 
  • How are the schools? 
  • How close is shopping centers? 
  • How much are the property taxes compared to neighboring areas?  
  • Contact a realtor to enhance search and get their opinions. 

Once narrowing property search in a specific geographical area and are ready to shop for a home, consult with a mortgage lender.

Consult With Mortgage Lender With No Overlays

Consult With Mortgage Lender With No Overlays

Buying New Home With Bad Credit requires a loan officer and lender that specializes in mortgages with bad credit. Loan officer will make sure that borrower qualifies for a loan program with credit and income profile. Loan Officer will determine what the maximum amount of loan borrowers qualify for.

Here is a basic typical mortgage process:

  • Mortgage lender will need to take a preliminary mortgage application and will need to run credit
  • Loan Officer will analyze the following:

After analyzing and evaluating the above, the loan officer can determine what the maximum proposed housing budget will be and the maximum home loan amount. 

  • Property tax and insurance information will be estimated using comparable properties in the areas borrowers are interested in.

Down Payment And Closing Costs

Down Payment And Closing Costs

The lender will approximately how much down payment needed and what the tentative closing costs will be.

  • The mortgage lender will then review the following:
    • Two years of tax returns
    • Two years W-2s
    • 2 months bank statements
    • Other documents
    • Determine the maximum amount that borrowers qualify for
  • The mortgage loan officer will then issue a pre-qualification letter

All pre-approvals issued at Gustan Cho Associates are full credit mortgage approvals that are fully underwritten and signed off by one of our mortgage underwriters. Loan Officers should not be allowed to sign off on a pre-approval letter. Over 75% of our borrowers are borrowers who either get a last-minute mortgage denial by other lenders or are stressing over their mortgage process because their pre-approval letters were not valid. All mortgage borrowers issued pre-approval letters at Gustan Cho Associates can bank their loan will not just close but will close on time because their pre-approval letters are loan commitments.

Buying A New Home With Bad Credit: What If I Don’t Qualify?

Buying A New Home With Bad Credit: What If I Don't Qualify?

Borrowers with recent bad credit or other financial issues may not qualify for a mortgage loan.  However, as long as they have income but had prior credit issues, the mortgage loan originator can help borrowers prepare in getting a mortgage in the near future. Most lenders require timely payments in the past 12 months. Borrowers can get an approve/eligible per Automated Underwriting System Findings with one or two late payments in the past 12 months. However, multiple late payments in the past 12 months may be a no go in getting AUS FINDINGS approval.

  • Mortgage loan originator can either send borrowers to a credit consultant or many mortgage loan originators, like myself, help future borrowers with their credit so they can qualify for a mortgage
  • Borrowers with multiple recent late payments may need to wait six months to twelve months before qualifying for a mortgage loan
  • Most lenders want to see at least a 12-month payment history with no late payments
  • Borrowers with credit scores under 580 need 10% down payment for FHA Loans per HUD Guidelines
  • To qualify for 3.5% down payment FHA Loans, borrowers  need 580 plus credit score
  • Raising credit scores can be done by paying down credit balances or adding secured credit cards 

Mortgage After Bankruptcy And Foreclosure

Mortgage After Bankruptcy And Foreclosure

Also, those who recently filed bankruptcy or had a foreclosure can start prepping themselves up in getting qualified ready to be homeowners by re-establishing their credit as soon as possible.

  • Borrowers need to realize that there are mandatory waiting periods to qualify for home loans after the following:
    • Bankruptcy
    • Foreclosure
    • Deed in lieu of foreclosure
    • Short sale
  • For bankruptcy, FHA and VA Home Loans require a two year waiting period from the discharge date
  • FHA requires three years waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • Department of Veteran Administration (VA) requires two years waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • However, just passing the waiting period does not automatically qualify guarantee home loans
  • Lenders want to see established credit tradelines
  • Many lenders have overlays on tradelines where they require seasoned tradelines of 12 to 24 months
  • They do not want to see any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • Rental verification is a must
  • The only way the mortgage lender will accept rental verification is by providing 12 months of canceled checks and/or bank statements
  • VOR form and/or letter from a registered property management company can be used in lieu of canceled checks and/or bank statements on verification of rent

Choosing The Right Lender When Buying A New Home With Bad Credit

Choosing The Right Lender When Buying A New Home With Bad Credit

FHA and VA Home Loans does not require borrowers to pay off outstanding collections and charge-offs.

  • However, most lenders have overlays on FHA Loans  and VA Home Loans where they require borrowers to pay off outstanding unpaid collection accounts and charge off accounts
  • Gustan Cho Associates does not require borrowers to pay outstanding collections and/or charge off accounts
  • The reason is due to lender overlays
  • Overlays are when a lender will have their own mortgage guidelines that have higher standards than those of FHA, VA, USDA, FANNIE MAE, FREDDIE MAC

When Buying A New Home With Bad Credit, borrowers who need a direct mortgage lender with no overlays, please contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. Gustan Cho Associates at Loan Cabin Inc. is a national five-star lender licensed in multiple with no overlays on government and conventional loans.

By Gustan Cho NMLS 873293

www.gustancho.com

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