Credit Repair To Qualify For Mortgage

Gustan Cho Associates

Going Through Credit Repair To Qualify For mortgage

Is going through credit repair to qualify for mortgage recommended? Your credit scores is what determines whether or not you qualify for a particular mortgage loan program.  There are minimum credit score requirements for all mortgage loan programs.  For example, to qualify for a 3.5% down payment home purchase mortgage loan with a FHA Loan , the minimum credit score required is 580 FICO credit score.  You need a 620 FICO credit score to qualify for a Conventional Loan.  Mortgage lenders do not expect perfect credit but they do expect minimum credit scores that is mandated by HUD, VA, USDA, Fannie Mae, or Freddie Mac in meeting the minimum mortgage lending guidelines with regards to credit scores. Credit Repair to qualify for mortgage often times is not needed for those home buyers or mortgage loan borrowers with no outstanding collection accounts. However, if you are a mortgage loan borrower with many outstanding collection accounts, credit repair to qualify for mortgage is highly recommended.

Qualifying For Mortgage With Bad Credit Or Should I Credit Repair To Qualify For Mortgage

Bad credit happens to the best of us. Most consumers make their payments on time and have regards to credit, however, there are times where consumers go through extenuating circumstances such as a business loss, loss of job, gaps in employment, medical issues, or other issues where their income stream is interrupted and they cannot make their schedule payment obligations to creditors.  Unfortunately, most creditors will report their payment history to the three credit reporting agencies and this will hurt the consumer’s credit scores.  Derogatory items will stay on your credit report for a period of 7 years from the date of last activity and bankruptcies are reported for a period of 10 years.  One thing consumers need to understand is that prior bad credit will affect credit scores when it is first reported but as the bad credit item ages, it will have less and less impact on the consumer’s credit report.  Just because a person has filed bankruptcy or had a foreclosure two or three years ago, that person can have a 700 FICO credit score if they have added positive credit and have re-established credit.  Many times credit repair is a waste of money if you are spending thousands of dollars to remove and delete older collection items or derogatory credit.  Many times credit repair will really hurt you if you are applying for a mortgage loan or intend in going through the mortgage loan application and mortgage approval process.  If you want to do credit repair to qualify for mortgage, do it way prior to applying to applying for a mortgage. Doing credit repair to qualify for mortgage during the mortgage process will halt the mortgage approval process because you cannot have credit disputes during the mortgage process. All credit disputes needs to be retracted when you are doing credit repair to qualify for mortgage during mortgage process. We will discuss these issues in the following paragraghs.

Home Loan With Bad Credit: Is Credit Repair To Qualify For Mortgage Needed?

You can qualify for mortgage with prior bad credit, low credit scores, open collections, and prior bankruptcy and foreclosure.  Many home buyers, especially first time home buyers, freak out when they are ready to purchase a home because they have prior bad credit.  You can qualify for a mortgage loan without having to pay off old collection accounts or hiring a credit repair company to delete off old collection accounts and spend hundreds if not thousands of dollars.  Please consult with a specialty mortgage lender like myself who specializes in home loans with bad credit.

Good Credit, Bad Credit, No Credit: Review Your Credit Report

Whether you have stellar credit or bad credit, review your credit report at least once a year for errors.  Every consumer, by law, is allowed on free annual credit report from each of the three credit reporting agencies: Transunion, Experian, and Equifax.  You can request your free credit report by visiting www.annualcreditreport.com.  Credit reporting agencies are not perfect and a percentage of consumer credit reports do contain errors.  Review your credit report carefully and make sure the credit bureaus are not reporting anything late that you are not late on or you have any derogatory that do not belong to you.  If you see errors, you need to contact the credit bureaus or send him a certified mail along with documentation that the creditor and/or credit bureaus made a mistake in reporting the credit item erroneously.

Past Bad Credit: How Bad Is It?

If you have unpaid collection accounts, you can still qualify for a mortgage loan with unpaid collection accounts.  Mortgage lenders ignore medical collection accounts even with larger unpaid balances.  Do not pay any old collection accounts, unless it is a pay for delete, because by paying off old unpaid collection accounts, it will re-activate the old dormant collection account and your credit scores will plummet because the credit scoring system will update it like it is a new fresh collection account.

If you have unpaid non-collection accounts, as long as the total aggregate unpaid balance is $1,000 or less, than you have nothing to worry about.  However, if your total unpaid credit balance is $1,000 or greater, then the mortgage underwriter will take 5% of the unpaid collection balance and use it towards calculating your debt to income ratios.  For example, if you have an aggregate unpaid collection balance of $10,000, 5% of the $10,000, or $500 will be used as a monthly debt obligation in calculating your monthly debt to income ratios even though you do not have to pay for it.  You do not have to pay off the $10,000 to get a mortgage approval but the 5% used to qualify for income may be a problem for higher debt to income ratio borrowers.  If you make a written payment agreement with the creditor, the monthly payment agreement can be used in lieu of the 5% calculation.  If you have a lot of unpaid collection accounts with high balances, a credit repair program may be advised.

Credit Repair T Qualify For Mortgage

You may not need to spend hundreds of dollars for credit repair to qualify for a mortgage.  Before you enter into a credit repair program, please consult with a mortgage loan originator who is an expert in home loans with bad credit.  The only time I recommend credit repair for home buyers or homeowners seeking a refinance mortgage is when they have large unpaid collection accounts where it impacts their debt to income ratios.  Also, if you have credit cards or revolving credit accounts, make sure that you do not have those credit cards maxed out and keep them with a balance no greater than 20% of the credit limit.  A maxed out credit card will affect your credit scores.

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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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