Derogatory Credit Mortgage Guidelines On Home Loans

Derogatory Credit Mortgage Guidelines on Home Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers derogatory credit mortgage guidelines on home loans. Over the years we have received thousands of phone calls, emails, and text messages about derogatory credit.  The team at Gustan Cho Associates are experts in helping people qualify for a mortgage with credit scores down to 500 FICO. In this blog, we will detail the different types of derogatory credit and how they affect your mortgage qualifications.

Gustan Cho Associates are mortgage professionals  licensed in 48 states including Washington, DC, Puerto Rico, and the U.S. Virgin Islands without LENDER OVERLAYS.

The information this blog may be viewed differently by other lenders. 80% of our clients at Gustan Cho Associates have been turned down by other banks or not getting the customer service they deserve from their current lender. Most of the time, our clients are turned down for lender overlays. The Consumer Financial Protection Bureau (CFBP) is a great resource for information regarding derogatory credit items.  Speak With Us About Derogatory Credit Mortgage, Click Here

Derogatory Credit Mortgage Guidelines on Late Payments

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You can have derogatory credit tradelines but to qualify for a mortgage, you cannot have late payments in the past 12 months. Late payments in the past 12 months is frowned upon not just mortgage lenders but all creditors.

A late payment is simply a financial obligation not paid on time. Most accounts will give you a grace period from your due date before you receive a late fee.

A true late payment reported to your credit report must be 30 days late or greater. A 30-day late payment will lower your credit score, a 60-day late payment will lower your credit score further, and so on. Typically, a credit report will report you up to 150 days late before the account is moved to a collection. 

Derogatory Credit Mortgage Guidelines on Outstanding Collection Accounts

A collection account is a type of financial account that has been sent to a third-party debt collector. The third party will attempt to collect the debt directly from you. The original company that created the debt more than likely sold the debt to a collection agency or other third party. It is now their responsibility to collect the money from you. This debt will now show up as a collection on your credit report. This has a significant derogatory effect on your overall credit score. Recent collections will severely drop your credit score.

Derogatory Credit Mortgage Guidelines on Charged-Off Accounts

What are charge-off accounts? A charged-off debt means the Creditor has given up trying to collect the funds from you. For the most part, this happens after several months of attempting to collect the debt. This does not mean you are off the hook, but it does mean the Creditor has written this debt off. A charged-off account does still show up on your credit report. You will usually see your credit scores drop when a charge off is reported. You may choose to pay a charged-off account to improve your credit scores. Depending on state regulations, these charged-off accounts may eventually fall off your credit report.

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Can Borrowers Qualify For a Home Loan With Outstanding Judgments?Can Mortgage Borrowers Qualify For A Home Loan With Outstanding Judgments?

What are Judgments: A JUDGMENT is a collection or unpaid debt that has become a court order. A court-ordered decision to file a lawsuit against you may be granted. Since it is a court order and public record, the debt collector will have more opportunities to collect the debt. They may even garnish your paycheck to do so. If you do not respond to a debt you owe, it may become a judgment. The judge may also award additional fees against you to collect a debt. These fees can include interest as well as attorney costs. A judgment gives debt collectors more ammunition to collect the debt against you. They may even attach a lien to your property.

Bankruptcy Mortgage Guidelines

Getting approved for a mortgage after a bankruptcy: Bankruptcy laws were put in place to protect the American people. This is meant to be used as a last resort to get back on your feet. People find themselves in horrible financial situations and bankruptcy may be the only way out. Filing bankruptcy can clean your debts and get you a fresh financial start in life.

Bankruptcy is a way to forgive the debt. Chapter 7 and Chapter 13 Bankruptcy are the most common bankruptcy for individuals. You should never be late with any payments after a bankruptcy.

Chapter 7 wipes out all of your debt and may allow the trustee to liquidate some of your property to pay the debt back. Chapter 13 bankruptcy reorganizes your debt and formulates a financial plan where you can pay your creditors back over a three to five-year period. Please consult a bankruptcy attorney for more specifics. 

How Will Derogatory Credit Tradelines Affect Mortgage Process

Can you get a mortgage with recent late payments: Late payments will have a direct correlation to your mortgage qualifications. The automated underwriting system (see our AUS BLOG for more) likes to see ZERO late payments for the past 12 months and sometimes 24 months depending on the mortgage product.

Late payments are weighted differently depending on the type of account. For example, going 30 days late on a revolving credit card does not have as much impact as going 30 days late on an installment debt.

Installment debt, such as an auto payment, has the same payment each and every month. Similar to a mortgage. When you know the exact payment each and every month and the due date, there is less excuse to miss the payment. The automated underwriting system correlates this to your mortgage payment. Which will be the same each and every month. Underwriting requirements like to see a track record of paying your bills on time.

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How Derogatory Credit Mortgage Guidelines Collections Affect Mortgage Process

Can I get approved for a mortgage with outstanding collection accounts: Collections have a significant derogatory effect on your overall credit score. A collection account is considered one of the most derogatory credit reporting accounts. Recent collections will hurt your score more than older collections. Collections in the past 12 months usually disqualify you from receiving a mortgage. It is important to understand the difference between a collection and a medical collection. While a medical collection does hurt your credit score, it does not impact your ability to qualify for a mortgage. 

Derogatory Credit Mortgage Guidelines on Charged-Off Accounts 

Finally some good news, charged-off accounts do not hold you back from obtaining a mortgage, assuming they are over 12 months old. Many lenders will require you to pay a charge off before closing that is an OVERLAY, not a GUIDELINE. Per FHA, VA, and FANNIE MAE a charged off debt does not need to be factored into your debt to income ratio. No matter what the balance of your charged-off account is, a $0 payment will be counted against your overall debt to income ratio. A charged-off account will still have a correlation with your credit score but will not affect your mortgage qualifications assuming the charge-off is more than 12 months old.

Derogatory Credit Mortgage Guidelines on Judgments

Judgments will have a direct effect on your mortgage qualifications. You may not close a mortgage transaction when there is a judgment against you. If you have a judgment and the means to pay the judgment at closing, this is the path of least resistance. The lender will order a payoff on your judgment and that will be added to the dollar amount you need to bring to close on your home. If you are attempting to complete a refinance, the judgment will need to be paid as part of the closing. If you do not have the means to pay the Judgment in full, you must be on a payment plan. You must prove you are actively attempting to pay the debt back before applying for a mortgage. Typically, you need to pay the Judgment for 6 months before applying for a mortgage. 

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Agency Derogatory Credit Mortgage Guidelines on BankruptcyHow Qualifying For A Mortgage With A Direct Lender With No Overlays

Bankruptcy will also have a direct impact on your mortgage qualifications. Depending on the type of loan, type of bankruptcy, and the results of the bankruptcy will determine when you are eligible for mortgage financing. Please see our blog on MORTGAGES AFTER BANKRUPTCY (FHA and VA, and Conventional loans) for more details. We are experts in mortgage financing when bankruptcies are involved. We encourage you to reach out for more information. 

Qualifying For a Mortgage With a Lender With No Overlays

The information in this blog is basic information. For more specifics please reach out directly to Gustan Cho Associates at 800-900-8569 or text us for a faster response. You can email us at  We are mortgage experts who are available 7 days a week. Just because a derogatory event has happened, does not mean homeownership is not possible. We work with many families for up to a year before they qualify for their dream home. No two financial situations are the same, we have seen every credit profile out there. From credit scores in the 400’s all the way up to the 800’s. We are here to help you and your family realize the dream of homeownership becomes a reality by any means possible. We will come up with a custom financial plan if you do not qualify today. You have nothing to lose by reaching out, we look forward to hearing from you!

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