Credit History And Income: Credit To Qualify For Mortgage
Credit history and income are the most important factors that play in a mortgage loan approval. There are certain minimum mortgage lending guidelines when it comes to credit history and income. There are also waiting periods after someone has a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.
Credit History And Income Guidelines
Here are the basic credit history and income requirements for a home mortgage loan borrower to qualify for a residential mortgage loan in Illinois, Florida, California, Wisconsin , and Indiana.
1. Bankruptcy: There is a mandatory two year waiting period after the discharge date of a bankruptcy to qualify for a FHA insured mortgage loan.
2. Foreclosure, Deed in Lieu of Foreclosure, Short Sales: There is a mandatory waiting period of 3 years from the recorded date of the foreclosure or deed in lieu where the name of the deed needs to be recorded into the lender’s name and out of the mortgage borrower’s name or the date of the sheriff’s sale. For short sales, it is the date of the HUD settlement statement. For conventional mortgage loans, a home mortgage loan borrower can qualify for a conventional loan after two years from the recorded date of the deed in lieu of foreclosure and/or short sale if and only if they can put down 20% down payment on the home purchase.
3. Collections, Charge offs, Overdrafts, and Late Payments: Collection accounts that are over a year old do not have to be paid even if you have a balance on it and charge offs are not a problem for FHA insured mortgage loans. You cannot have any bank overdrafts in the past 60 days. Overdrafts in the past 12 months can be deal killers but mortgage lenders only asks for 60 months bank statements. Recent late payments are really frowned upon and multiple recent late payments can be an issue. One or two late payments in the past 12 months is acceptable as long as the borrower has a good letter of explanantion.
4. Student loans: You cannot be deliquent on a government loan if you intend in qualifying for a mortgage loan. All student loans in collections or in default needs to be out of collections and in good standings before a mortgage loan borrower can proceed with the mortgage approval process. FHA does allow deferment and the monthly payments during the deferment period is not calculated in calculating the debt to income ratios as long as the student loan has been deferred for longer than 12 months. With conventional loans, the monthly payments during the deferment period is calculated for debt to income qualifications. The borrower needs to get a letter from the student loan provider stating what the estimated monthly payments will be after the student loan gets out of the deferment period. If this cannot be done, then the monthly amount used is 2.0% of the balance of the student loan.
5. Judgments and tax liens: Most mortgage lenders do not accept a mortgage loan borrower with an outstanding judgment or tax liens until the judgment and tax liens have been paid off. However, I do have wholesale mortgage lenders that will accept a borrower with an outstanding judgment or tax liens as long as a payment agreement is in effect and the borrower has been making timely payments via bank checks for two consecutive months. Two months of cancelled checks and the payment agreement needs to be provided to the mortgage lender.
6. Self employed and independent contractor employees: Bad news for self employed and 1099 employees is that in order to qualify for a residential mortgage loan, two years of tax returns needs to be filed and verified.
7. Part time income, overtime income, and bonus income: Part time income, overtime income, and bonus income can be used if and only if the borrower has had a history for 2 full years and be verified by both W-2s and a verification of employment. Mortgage lenders want to see that the part time income, overtime income, and bonus income will also likely to continue for the next three years.
8. Social security, pension, child support income: Social security and disability income can be used for mortgage loan qualification and many times can be grossed up by 25%. For example, if your net paycheck from social security and/or disability income is $1,000, grossing it up by 25% will yield $1,250.00 and this figure will be used to calculate your income for mortgage qualification purposes. Same with pension income. If you get a net pension monthly income check, you can normally gross it up by 25% of your monthly pension income amount. Child support and alimony income can be used if the likelihood of it continuing for the next three years.
Minimum Credit Scores: FHA Insured Mortgage Loans
To qualify for a 3.5% down payment mortgage loan, a borrower needs a minimum credit score of 580 FICO. To qualify for residential mortgage loan for those who have a credit score between 530 FICO and 580 FICO, you need a minimum 10% down payment.
No Mortgage Lender Overlays
If you are a mortgage loan borrower who is looking for a mortgage lender with no mortgage lender overlays, contact me at 262-716-8151 or at www.gustancho.com . Many mortgage lenders have their own mortgage lender overlays beyond what FHA, Fannie Mae, Freddie Mac require. I have zero mortgage lender overlays and your DU or LP FINDINGS is your mortgage loan approval.
Back to Work Extenuating Circumstances
Borrowers can now qualify for HUD’s FHA Back to Work Extenuating Circumstances due to an economic event which shortens the waiting period to a one year waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. To qualify for the FHA Back to Work Extenuating Circumstances due to an economic event, the borrower needs to have been out of work or underemployed for six months or more prior to the initiation of the bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Please contact me at 262-716-8151 or at www.gustancho.com for more information.