Home Loan With Bad Credit: Can I Qualify?

Qualifying For Mortgage With Late Payments

Gustan Cho Associates

You can qualify for a home loan with bad credit.  Bad credit has a broad definition.  Bad credit can mean having a prior bankruptcy, a prior foreclosure, a prior deed in lieu of foreclosure, a short sale, a charge off, collection accounts, tax liens, tax liens that have been paid off, judgments, judgments that have been paid off, late payments from years ago, recent late payments, and a variety of other meanings.  However, there are areas of bad credit that a mortgage lender looks at on any mortgage loan applicant.  It is very possible to get a home loan with bad credit, however, what the mortgage lender is looking at is the reason of your bad credit and whether or not you have re-established yourself and whether or not you will make the mortgage payments to the mortgage lender once they give you a mortgage loan.  You can have had prior bad credit but one of the things that a mortgage lender will look for is recent late payments and how recent were your late payments to how many creditors.

Review Of Overall Credit History

Your overall credit history from your credit report will be carefully reviewed and analyzed.  If you have a ten year credit history, the mortgage loan underwriter will review your payment patterns on your overall credit history.  For those seeking a home loan with bad credit, there has to have been a time where their credit went bad.  Why did it go bad?  Why were you paying your bills on time and all of a sudden did your credit deteriorate?  Was it a loss of a job?  Was is the loss of your business?  Was it a divorce?  Was it medical reasons?

Letter Of Explanation For Prior Bad Credit Will Be Required

As mentioned earlier, a mortgage loan underwriter will review your overall credit history and look at your overall payment history and payment pattern and see when your credit went bad.  Mortgage lenders understand that there are periods where consumers face extenuating circumstances such as a job loss, business loss, divorce, medical issues, and personal issues where there credit deteriorates.  The Great Recession of 2008 has ruined thousands, if not millions, of people and businesses where many of them were forced into filing bankruptcy and losing their homes.  If a person loses their job or business, they have no source of income to continue to pay their debt obligations.  It is not a crime to fall behind on their debt to their creditors.

Collection Accounts And Home Loans

Many folks could not take the dozens of daily harassment calls from credit collection agencies at all times of hours, 7 days a week with threatening phone calls that they were going to get sued.  Getting a new job was not easy due to the Great Recession of 2008.  Whole industries got wiped out or nearly wiped out.  Real estate agents, mortgage brokers, real estate investors,  and those in the construction industry were hurt the most and had the highest bankruptcy and foreclosure rates in the country.  All of the top producing full time realtors and mortgage broker colleagues I know have either filed bankruptcy or went through a foreclosure, deed in lieu of foreclosure, or short sale.  Many had to leave the field and find other lines of work.  Some had to get two part time jobs just to make ends meet.  I was a real estate investor with 7 apartment complexes, just under 3,000 residential units, with multiple homes and lost it all and got into the mortgage business after the real estate and mortgage meltdown of 2008.  Things were bad and the good old Golden days was not going to return.

Changes In Mortgage Industry After Mortgage Meltdown Of 2008

The whole mortgage industry went through a major overhaul.  Mortgage loan originators were now expected to become licensed both on the federal level and state level and all of them had to take national and state exams and had to go through federal and state background investigations as well as annual credit checks.  Letters of explanations should address the extenuating circumstances and be accompanied by documents such as termination letters, tax returns showing the decline in income, or other documents.  Mortgage underwriters do not go by sympathy but on facts.  For example, if you were a mortgage broker working for a sub-prime lender and that lender closed their doors, show documentation that the mortgage company went out of business.  Thousands of mortgage companies and real estate companies shut their door due to the Great Recession of 2008.

Re-Established Credit After Period Of Bad Credit

If you are seeking a home loan with bad credit, mortgage lenders want to see that you have re-established your credit after your period of bad credit.  Most mortgage lenders do not want to see any late payments or recent late payments after you have gotten back on your feet and want to see a timely payment history for the past 12 months.  Recent late payments will be a major negative.  Most mortgage lenders do not want to see any recent late payments in the past 12 months.  One or two recent late payments will not always be a deal breaker but mortgage underwriters will want to see why you had recent late payments.   If you have multiple recent late payments, you may need to either do credit repair to have those recent late payments removed off your credit report or you may need to wait until the recent late payments have been seasoned.

Recent Late Payments

If you had recent late payments in the past 12 months, you may need to correct the recent late payments issues first.  Mortgage lenders like myself will just go off the findings of Fannie Mae’s or Freddie Mac’s Automated Underwriting System and have no mortgage lender overlays.  If the automated findings will give you an approve/eligible with recent late payments, then we have no problem.  But the Automated Underwriting System will recognize the recent late payments and may not give you an automated approval.  In the event if you do not get an automated approved per DU FINDINGS and/or LP FINDINGS due to your recent late payments, then we need to correct your late payments on your credit report and see if we can get them deleted.

Solutions To Getting The Recent Late Payments Removed Off Your Credit Report

One of the solutions in getting your late payments removed off your credit report is to contact your creditor and see if they can remove the recent late payments off your credit report on a one time mercy basis.  If you have been timely with your creditor and have always paid your monthly payments on time, your creditor may remove the recent late payments as a one time courtesy off your credit report.  If the customer service representative says no, politely ask to speak to a supervisor and request to the supervisor that your are applying for a mortgage and if they can remove the late payment off your record for a one time basis and promise them that you will never ever be late again.  Many times this tactic works.  Second option is to hire a credit repair consultant that is able to remove a late payment off your credit report.  You can contact me at www.gustancho.com for a list of credit consultants that can do such tasks or see if you can get a referral of a reputable credit repair consultants.  I have seen credit repair consultants do magic such as removing late payments, collections, judgments, charge offs, bankruptcies, foreclosures, short sales, deed in lieu of foreclosures, and other derogatory credit items off a person’s credit report.  Do not just go online and shop for any credit repair consultant.  Make sure it is a referral and contact their previous clients and get references on how the credit repair consultant did for them.  I have had my own personal credit repaired and was extremely satisfied with my credit repair consultant and my credit repair consultant has help dozens of my mortgage loan applicants qualify for a mortgage loan.

If everything else fails with recent late payments, then you just need to season the late payment history for 6 to 12 months and wait until it ages.

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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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