Mortgage Approval Process And Credit Scores
Income, credit, credit scores, assets, and liabilities all play a major part in the mortgage approval process. Two things that are the most important factor at the initial mortgage qualifying state are debt to income ratios and credit scores. Income plays the most important role in calculating debt to income ratios. However, just because you have good income and good credit scores does not guarantee a mortgage approval. A borrowers credit report and credit scores are carefully analyzed and scrutinized.
What Do Mortgage Loan Underwriters Look At A Mortgage Applicant’s Credit Report And Credit Scores
You can have good credit scores and qualify for a mortgage lender’s minimum credit scores requirement but there is more to that in deciding whether you qualify for a mortgage loan approval. Here is what mortgage loan underwriters look at when reviewing your credit report and credit scores.
1. No late payments in the past 12 months. If you did have a late payment in the prior 12 months, it does not mean a mortgage loan denial but will not look good and a good letter of explanation is required.
2. Overall credit history. Mortgage loan underwriters will look at your payment pattern for the past several years. You can have a good credit score with a poor payment history. If there are late payment history in the past, it will not look favorable and will look like you are financially irresponsible. Again, if this is the case, a detailed letter of explanation will be required. Poor payment history can be grounds for a mortgage loan denial even if you have good credit scores.
3. Credit disputes on a credit report are not allowed during the mortgage approval process. Zero balance items can be disputed, however, any credit derogatory items with open balances are not allowed under any circumstances. The disputes either have to be removed or the balance needs to be paid and a new credit report needs to be pulled and show those credit disputes removed. Removing credit disputes from a credit report can lower a borrowers credit scores.
4. Open collections, judgments, tax liens, charge offs, bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale records are looked at and evaluated.
5. Student loans cannot be in collections and must be current or have a deferment and/or forbearance. You will not get approved if you have a delinquent government account.
6. Judgments are frowned upon and a mortgage loan borrower needs a payment agreement with the judgment creditor and a two month proof that he or she has been making timely payments via cancelled checks.
7. Tax liens are not allowed unless there is a payment agreement in force and at least a two month payment history which needs to be verified via two months of cancelled checks.
8. Open collections are fine and do not make any payments if you have outstanding open collection accounts. By making a payment on an old collection account or partial payment, it will retrigger the old derogatory credit and report it as a fresh item which will drop your credit scores by more than 80 points.
Contact me at Gustan Cho Associates
The chances are that you will get a mortgage loan approval if you have good income and good credit scores but you cannot just assume a mortgage approval is guaranteed. If you have had prior credit issues and now have re-established credit, please contact me and I will be more than happy to advise you in getting a guaranteed mortgage approval.
Gustan Cho NMLS ID # 873293
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