Can I Qualify For Conventional Loan With Bad Credit?

Conventional Loans have much tougher credit requirements than FHA Loans.  Conventional Loans require a minimum of a 620 FICO credit score where the minimum credit score required for a FHA Loan is 580 FICO credit score.  You can qualify for a conventional loan with bad credit but conventional loan with bad credit have tougher mortgage lending guidelines than FHA Loans.  There are certain rules and conventional lending guidelines with regards to credit scores, collection accounts, prior bankruptcy, and prior foreclosures when it comes to qualifying for conventional loan with bad credit.

Credit Scores And Debt To Income Ratios On Conventional Loans

Minimum credit scores required to qualify for a conventional loan is 620 FICO.  However, just because you meet the minimum credit score requirements does not mean that you will qualify for a conventional loan.  You also must meet the minimum debt to income ratios required.  Conventional Loans have a maximum debt to income ratio cap of 45% debt to income ratios, much lower than FHA Loans.  FHA Loans have maximum back end debt to income ratio caps up to 56.9%.  Debt to income ratios are the sum of all of your monthly minimum debt payments and obligations divided by your monthly gross income.

Conventional Loan After Bankruptcy And Foreclosure

There is a mandatory four year waiting period after bankruptcy to qualify for a conventional loan from the discharged date of bankruptcy.  There is a four year waiting period to qualify for a conventional loan after a short sale and the recorded date of a deed in lieu of foreclosure.  There is a seven year waiting period after foreclosure to qualify for a conventional loan.  The waiting period after bankruptcy and foreclosure to qualify for a conventional loan is much greater than FHA Loans.  With FHA Loans, the waiting period after bankruptcy is two years from the date of the discharged date of the bankruptcy.  There is a three year waiting period after a short sale, foreclosure, and deed in lieu of foreclosure.

Mortgage Rates On Conventional Loans

Mortgage rates on conventional loans depends mainly on credit scores, types of property, and loan to value.  To get the best mortgage rates on conventional loans, the borrower needs a 740 FICO credit score, and loan to value of at least 80% LTV.  Condominiums and two to four unit properties warrant higher mortgage rates on conventional loans because mortgage lenders view condominiums and two to four unit properties as riskier properties to lend on.  A 620 FICO credit score is considered a super low credit score for conventional loans.  Having a 620 FICO credit score is equivalent to having a 580 FICO credit score on FHA Loans.  A prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale has no impact on the mortgage rates on conventional loans.  Prior bad credit has no impact on conventional loans.

Deferred Student Loans

FHA Loans allows deferred student loans that has been deferred for over 12 months to be exempted from debt to income ratio calculations.  However, that is not the case with conventional loans.  Deferred student loans cannot be exempted from debt to income calculations. If you have deferred student loans that are greater than 12 months deferred, the future monthly payment of your student loans will be used to calculate your debt to income ratios. If no future monthly payment can be provided, then 2% of the outstanding balance of your student loans will be used to calculate your monthly student loan payment.

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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