How Do Mortgage Lenders View Credit Report?
By Gustan Cho
Your credit score is what determines whether you qualify for a mortgage loan and what mortgage loan program you qualify for. Mortgage lenders do not only go by credit scores but a mortgage loan underwriter will also review your credit report and review your credit history. You can have a good credit score to qualify for a mortgage loan but if there are certain credit items on your credit report that may make you ineligible to qualify for a mortgage loan. Late payments in the past 12 months are taken very seriously and multiple late payments in the past 12 months can be a disqualifier for a mortgage loan. One or two late payment on your credit report may be acceptable but you would need a good letter of explanation with the circumstances on why you had that one or two late payment in the past 12 months. Late payments on your mortgage payments is definitely a problem. Most mortgage lenders will not allow any late payments on your mortgage payments in the past 12 months. There are a few mortgage lenders that will allow a one time 30 day late payment in the past 12 months.
Credit Score And Credit Report
Once you enter into a real estate purchase contract and sign the mortgage loan application package and disclosures, the credit report pulled by your mortgage loan originator will be used throughout your mortgage approval process. The credit score on that credit report will be used to qualify you for the particular mortgage loan program and that credit score will be used throughout the whole mortgage approval process until the mortgage loan closes. However, the mortgage loan underwriter will do a soft credit pull prior to issuing a clear to close. If your credit scores dropped dramatically, it does not matter because the credit score used will be from the credit report that was initially submitted with your signed mortgage application. However, if there are changes on your credit report, that will be taken into consideration. For those with borderline debt to income ratios, increases on credit card balances may affect their debt to income ratios and they may be asked to pay down the credit card balances and have the mortgage loan processor to do a credit supplement so it reflects on the person’s credit report. If a mortgage loan borrower purchased a new high ticket item such as an automobile or furniture during the mortgage approval process and the new monthly debt obligation pop ups when the underwriter does a soft credit pull, the monthly obiligation will be taken into account for debt to income ratio qualification.
What If Old Collection Account Pops Up On Credit Report During Mortgage Approval Process?
Many folks have gone through credit repair prior to applying for a mortgage loan and had many deragatory credit items such as collections, late payments, charge offs, judgments, and other negative items removed from their credit reports. There are times when the derogatory credit items re-appear on a consumer’s credit report during the mortgage approval process. If a derogatory credit item appears prior to a clear to close is issued and the mortgage loan underwriter finds out when he or she does a soft credit pull prior to issuing the clear to close, it can affect the mortgage approval process. If the derogatory item that pops up on the credit report is a charge off or collection account with zero balance or a unpaid balance of $1,000 and under, you need not worry about because it is exempt. If the collection account is a medical collection account with an unsatisfied balance, don’t worry about. Medical collections are exempt. If a bunch of late payments that is under 12 months old, then you can have an issue and need to work on correcting the problem. Your mortgage loan originator will have several options to handle this situation and will work with you. Your mortgage approval process and clear to close can be delayed until this issue is resolved. A judgment re-appearing can be a problem and you may have to negotiate a settlement amount with the judgment creditor and that judgment can be paid at closing with underwriter approval.
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