How Mortgage Underwriters Analyze Credit History And Income

This BLOG On How Mortgage Underwriters Analyze Credit History And Income Was UPDATED On January 16th, 2018

Credit history and income are the most important factors that play in a mortgage loan approval. There are certain mortgage guidelines on How Mortgage Underwriters Analyze Credit History And Income on borrowers.

  • There are certain minimum mortgage lending guidelines when it comes to credit history and income
  • There are also waiting periods after someone has the following:
    • Chapter 7 bankruptcy
    • Chapter 13 Bankruptcy
    • Foreclosure
    • Deed in lieu of foreclosure
    • Short sale

Credit History And Income Mortgage Guidelines

Here are the basic credit history and income requirements for a home mortgage loan borrower to qualify for mortgages.

  • The way on How Mortgage Underwriters Analyze Credit History And Income is similar on government loans, conventional loans, non-qm loans, jumbo loans, and other alternative financing programs
  • The most common loan program today are FHA Loans
  • HUD, the parent of FHA, promotes home ownership and home buyers can qualify for FHA Loans with 580 credit scores and less than perfect credit
  • We will cover FHA Loans on this blog
  • Viewers who have questions on other loan programs on ways on how mortgage underwriters analyze credit history and income, please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com

Waiting Period Requirements After Bankruptcy And Housing Event

There are mandatory waiting period requirements to qualify for mortgages after bankruptcy and/or housing event (foreclosure, deed in lieu of foreclosure, short sale).

  • The Gustan Cho Team at USA Mortgage has alternative types financing called non-qm loans
  • On non-qm loans, there is no waiting period after housing event and a one year waiting period after bankruptcy discharge date
  • Most Jumbo Mortgage lenders will require a seven year waiting period to qualify for Jumbo Loans after Chapter 7 Bankruptcy

Home Loan After Bankruptcy

Home Buyers can become homeowners again after bankruptcy. However, there are waiting period to qualify for home loans after both Chapter 7 and Chapter 13 Bankruptcy:

  • Chapter 7 Bankruptcy: 
    • There is a mandatory two year waiting period after the discharge date of Chapter 7 bankruptcy to qualify for FHA, VA, USDA Loans
    • There is a two year waiting period to qualify for VA Loans after Chapter 7 Bankruptcy discharge date
    • There is a four year waiting period to qualify for Conventional Loans after the discharge date of Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy
    • Both VA and FHA Allows borrowers to be eligible for mortgages one year into a Chapter 13 Bankruptcy Repayment Plan
    • There is no waiting period to qualify for VA Loans and FHA Loans after Chapter 13 Bankruptcy discharge date
    • The Gustan Cho Team at USA Mortgage are experts in originating and funding VA and FHA Loans during and after Chapter 13 Bankruptcy discharge
    • There is a two year waiting period to qualify for conventional loans after Chapter 13 Bankruptcy discharge
    • There is a four year waiting period to qualify for conforming loans after Chapter 13 Dismissal date

Qualifying For Mortgage After Housing Event

There are mandatory waiting period requirements to qualify for government and conventional loans after a housing event.

  • 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 to qualify for FHA and USDA Loans
    • There is a two year waiting period after the recorded date of foreclosure and/or deed in lieu of foreclosure to qualify for VA Loans
    • The three year waiting period clock starts when the name of the deed transferred out of the homeowners name
    • Or the date of the sheriff’s sale to qualify for FHA and USDA Loans
    • For short sales, there is a three year waiting period to qualify for FHA and USDA Loans
    • For VA Loans, the waiting period after short sale is two years
    • For conventional mortgage loans, a borrower can qualify for a conventional loan after four years from the recorded date of the deed in lieu of foreclosure and/or short sale
    • There is a seven year waiting period to qualify for conventional mortgage after recorded date of foreclosure

Qualifying For Mortgage With Outstanding Collections And Charge Offs

The Gustan Cho Team at USA Mortgage is a direct lender with no overlays on government and conventional loans. We do not require borrowers to pay off outstanding collections and charge offs on FHA, VA, and Conventional Loans (owner occupant conventional loans only).

  • Collections, Charge offs, Overdrafts, and Late Payments: 
    • Collection accounts that are over a year old do not have to be paid even with outstanding balances
    • Charge offs with outstanding balances do not have to be paid
    • Borrowers 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
    • 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 explanation

Qualifying For Mortgage With Deferred Student Loans

  • Student loans: 
    • Borrowers cannot be delinquent on a government loans
    • 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
    • VA is the only mortgage loan program that exempts deferred student loans from debt to income ratio calculations on student loan that 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
    • FHA requires 1.0% of the student loan balance to be used as a monthly debt on outstanding student loan balance or the following:
      • The borrower needs to get a letter from the student loan provider stating what the estimated fully amortized monthly payments over an extended term (normally 25 years) will be after the student loan gets out of the deferment period
    • If this cannot be done, then the monthly amount used is 1.0% of the balance of the student loan

Qualifying For Home Loans With Outstanding Judgments And Tax Liens

  • 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
    • Borrowers with an outstanding judgment or tax liens  can now qualify for mortgages if they have a written payment agreement from the judgment creditor on judgments and the IRS on tax liens
    • The written payment agreement needs to be in effect and the borrower needs to have three months of payment seasoning
    • Three months of cancelled checks and the payment agreement needs to be provided to the mortgage lender

How Underwriters Qualify Self Employed Borrowers

  • 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

Other Income That Can Be Used

  • 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
  • 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 15%
    • For example, if net paycheck from social security and/or disability income is $1,000, grossing it up by 13% will yield $1,150.00
    • This figure will be used to calculate your income for mortgage qualification purposes
    • Same with pension income
    • With net pension monthly income check borrowers can normally gross it up by 15% of 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 Requirement

To qualify for a 3.5% down payment FHA Loans, a borrower needs a minimum credit score of 580.

  • To qualify for residential mortgage loan for those who have a credit score between 500 and 579, borrower needs need 10% down payment to qualify for FHA Loans
  • VA does not have a minimum credit score requirement
  • However, a 580 credit score is recommended by veteran borrowers to get an approve/eligible per Automated Underwriting System Approval
  • USDA requires a 580 credit score

No Mortgage Lender Overlays

Home Buyers needing to get qualified with a direct lender with no lender overlays, contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are a five star direct mortgage banker with mortgage lender overlays, and licensed in multiple states.

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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