Derogatory Credit

Can I Buy a House With Derogatory Credit Tradelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

Homebuyers can buy a house and qualify for a mortgage with derogatory credit. Borrowers do not need perfect credit to qualify for a home mortgage. You can have derogatory credit tradelines and qualify for FHA, VA, USDA, Conventional, Jumbo, and non-QM loans. Gustan Cho Associates are experts in helping homebuyers with credit scores down to 500 FICO qualify for a mortgage.

Do Different Lenders Have Different Requirements on Mortgage Loans?

Over 80% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies either due to lender overlays or because the lender did not have the loan program suited for the borrower.

Nobody likes to read the word “derogatory. credit”. Many derogatory credit items could haunt you when applying for a mortgage loan. Every major agency in mortgage lending has different criteria for derogatory credit marks. This blog will define what derogatory credit items may be listed on your credit report.

Best Mortgage Lenders For Bad Credit

All agency guidelines allow for derogatory credit that has been seasoned for at least 12 months. However, many lenders may require you to pay off the derogatory credit items as part of that lender overlay. Lenders can have overlays which are additional credit requirements higher than HUD, VA, USDA, Fannie Mae, and Freddie Mac. Gustan Cho Associates is a no-overlay mortgage broker who can assist with less-than-ideal credit.

Can I Get a Mortgage With Derogatory Credit?

We can help more individuals than most banks in lending institutions, who add strict lender overlays. This blog will educate our clients on potential derogatory remarks that may show up on a credit report.
Knowing the definition of derogatory credit items will make it easier to understand mortgage guidelines.

Mortgage Lenders For Low Credit Scores 

Since Gustan Cho Associates deal with many clients with credit scores lower than average, we offer mortgage loans with credit scores as low as 500 (FHA and VA loans). Typically, if a credit score is below 620, there will be derogatory remarks on the credit report. Since we have seen every credit profile under the sun, we are the experts in derogatory credit and how those remarks will affect your mortgage qualifications. 

Derogatory Credit Tradelines Look at by Mortgage Underwriters

In the paragraphs below, we will cover and discuss the most common derogatory credit items borrowers come to us with to get their mortgage loans approved. We will be covering the derogatory credit items we see on credit reports that can stand in the way of qualifying for a mortgage loan.

Derogatory Credit Tradelines

Can I Get a Mortgage With a Bankruptcy?

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You can qualify for a mortgage with bankruptcy. Gustan Cho Associates are experts in mortgage lending surrounding bankruptcies. Since we have a no overlay platform, we can help individuals in active Chapter 13 bankruptcy or borrowers with a Chapter 13 Bankruptcy under two years discharged. You will automatically be downgraded to a manual underwrite, which we are also experts in.

Can I Get a Mortgage During and After Chapter 13 Bankruptcy?

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Most banks and lending institutions will tell you you need to discharge your chapter 13 bankruptcy for a minimum of two years before they can assist. That is because they do not allow manual underwriting. Our team of loan officers and our operations staff are experts in assisting clients who may be in an active chapter 13 bankruptcy and the manual underwriting process.

Can I Get a Mortgage After Chapter 7 Bankruptcy?

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If you have a chapter 7 bankruptcy, each agency has a different waiting period before you may qualify. Unless you use a specialty loan program (NON-QM loan) offered by our team, you will need to be two years discharged from a chapter 7 bankruptcy to use an FHA or VA mortgage loan. You will need to wait four years before being able to use a conventional loan.

 Mortgage After Bankruptcy

If there is a bankruptcy on your credit report, chances are that quite a few derogatory remarks are leading up to filing bankruptcy. Hopefully, your bankruptcy includes all or most derogatory items on your credit report. If you have filed for bankruptcy, a mortgage lender will see these remarks on your credit report for up to 10 years.

Usually, a chapter 7 bankruptcy will stay on your credit for up to 10 years, while chapter 13 will fall off after seven years. The clock to fall off your credit report starts from the bankruptcy filing date. Since your lender will see this information, it is important to be upfront with your mortgage team if you have had bankruptcies in the past.

 Can I Get a Mortgage After Foreclosure?

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Foreclosure. A past foreclosure is something your lender will need to know about. Underwriting guidelines have seasoning requirements after foreclosures before you may qualify for a new home. A foreclosure is a default on a mortgage loan where the bank kicks you out of your home. Typically, this results from missing four consecutive months of mortgage payments. A mortgage company has the right to evict you after you are 120 days late. This process can be daunting and time-consuming.

When Does The Waiting Period Start on Foreclosure?

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The seasoning time frame starts after your name is deeded off the property. So, if you are in a foreclosure process, the longer you stay in that home, the longer it will be before you qualify for a mortgage loan in the future. While Gustan Cho Associates offer mortgage programs with no foreclosure seasoning requirement, you can expect to pay more money to utilize one of these specialty mortgage loans (NON-QM).

Since the seasoning requirements vary per agency, it may take as long as three years before qualifying for an FHA loan or up to seven years for a conventional mortgage. For more information on foreclosure seasoning requirements, don’t hesitate to get in touch with Mike Gracz at 630-659-7644. You may also email your foreclosure questions to

 Can I Get a Mortgage After a Short Sale?

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Homebuyers can qualify for a mortgage after a prior short sale. A short sale can be less harmful to your credit than a foreclosure but is treated similarly in the eyes of an underwriter. A short sale is the sale of a property at a price lower than the amount owed by the current owner of the home. Typically, a short sale happens when a distressed borrower needs to sell the property before an official foreclosure occurs.

How Does The Short Sale Process Work?

The proceeds from the short sale will go to the current lien holder. The current lienholder can then forgive the remaining balance of the home. Or the current lienholder can attach a judgment to the current homeowner for the difference in the amount owed on the property and the short sale amount. In certain states, after a short sale is completed, the current lender may not collect the difference.

When borrowers know they are headed for an actual foreclosure, they may begin the short sale process. A borrower must receive their current mortgage company’s permission to enter a short sale. A short sale process can be difficult if there is more than one lien holder on the property. In a situation where the short sale has a second mortgage, each lender must approve the short sale. 

Can I Buy a House After a Deed-In-Lieu of Foreclosure?

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What about a deed in lieu of foreclosure? This process is very similar to a true foreclosure. Very similar to a short sale where the borrower will contact their current mortgage company and ask for a deed in lieu. A deed in lieu means the current lien holder will deed the home back to the lender in exchange for a clean walkaway.

Meaning the borrower and lender agree to surrender the property with a deed in lieu. Typically, this step is taken after a short sale fails before a true foreclosure is initiated. Once again, this process will be slightly less impactful on your credit score, but it is still a major derogatory item in the eyes of mortgage qualifications.

What Are Significant Derogatory Credit Events?

Bankruptcies, foreclosures, short sales, and deeds in lieu are some of the most extreme derogatory items we see on credit reports. Below are a few more common and less extreme derogatory remarks we may see on your credit report.

Repossession Derogatory Credit Tradelines

Homebuyers can qualify for a mortgage at Gustan Cho Associates with a repossession. Gustan Cho Associates can deal with all sorts of credit profiles and have seen many vehicle repossessions in our day. A vehicle reset repossession is a highly derogatory remark with an auto loan. A vehicle repossession will occur when you miss payments. The creditor has the right to take possession of the vehicle back due to lack of payments or nonpayment.

Vehicle repossession is quite a bit worse if the situation is involuntary. You can give your vehicle back with a voluntary repossession, which still looks bad in the eyes of credit scoring but not quite as bad if they need to come to take the vehicle from you. Depending on the mortgage loan program you are seeking, the repossession will typically need to be seasoned at least 12 months old or older.

 Can I Buy a House With Unpaid Collection Accounts?

Collections. Gustan Cho Associates are experts with mortgage lending surrounding collections on the credit report. Collections can happen when a creditor is not paid on time. After your late payments report, the creditor does not receive compensation payments.
The collection process has started. This is when a creditor or collection agency will come after you for the money owed. A collection is a derogatory mark that can come back to haunt you when qualifying for a mortgage.

How Unpaid Collection Accounts Can Affect Debt-To-Income Ratios

Depending on the mortgage program, your overall credit profile, and the assets available, a collection may make or break your underwriting qualifications. Typically, if your collection is over 12 months old, the amount may not need to be paid, and we will utilize 5% of the total balance owed as a monthly payment against your debt-to-income ratio.

Lenders With Overlays on Outstanding Collection Accounts

Many lenders have specific overlays surrounding collection accounts. Since Gustan Cho Associates do not have lender overlays, we go off of agency guidelines and nothing further surrounding collection accounts. To discuss your qualifications with collections and detail, please get in touch with the collection expert, Mike Gracz, at 630-659-7644 or

Do I Need To Pay Charge-Off Accounts To Qualify For a Mortgage?

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Charge offs. Charges are also a derogatory mark on your credit report. Although a charge-off can sometimes be a positive thing in the eyes of mortgage lending, it is still a remark that will significantly lower your credit score. If the charge-off accounts are over 12 months old, typically, Gustan Cho Associates will not need to count a monthly payment against the balance of the account charged off.

Derogatory Credit Tradelines With Zero Outstanding Balance

A zero-dollar payment will be used for that tradeline. A charge-off that is less than one year old may impact your ability to qualify for a mortgage loan. A charge-off is when a collection agency has given up on trying to collect the money from you. Technically, you still owe that money, but it is something that the creditor realizes they probably will not be able to collect. They charge the debt off their books and deem it uncollectable.

 Can I Get a Mortgage With Late Payments on My Credit Report?

Late payments. Late payments are the beginning of all derogatory items on your credit. Even if you have maxed out credit cards, a high balance on an auto loan, and other on-time accounts reporting to your credit profile, you will still have a solid credit score. Probably a 680 or higher.

As soon as you start missing payments that report to the credit bureaus, that’s where everything starts to snowball downhill. An occasional late payment here and there is something that can be rectified. Your credit score will recover as long as you get back on track in a timely fashion. The credit bureaus understand that life isn’t always perfect, and things out of your control may arise to put you in hard financial times.

How Long After a Late Payment Can I Get a Mortgage?

When you have a history of late payments that become collections or charged off accounts, things can start to get ugly. As you purchase larger items, such as a vehicle or a home, late payments on these accounts will significantly impact your credit score. Staying on time with all of your payments is crucial. And that is why you should not stretch yourself too far with high payments.

Whether you are a first-time reader or an avid follower of Gustan Cho Associates, you should understand that we are experts in mortgage lending with less-than-ideal credit profiles. Since we only have to go off agency guidelines, it is possible to qualify for a home loan even if you have made financial mistakes in the past.

How Long Do Lenders Look at Late Payments?

To discuss your derogatory credit items and purchase a home, we encourage you to reach out to our team today. All of our loan officers at Gustan Cho Associates are up to date on derogatory credit. It is our job to help you qualify for a home loan or help you understand your credit profile to educate you on when you will qualify for a home loan in the future.

Our team of mortgage experts at Gustan Cho Associates will develop a financial plan to help you qualify for your dream home as soon as possible.

How Far Back Do Late Payments Affect Credit Score For a Mortgage?

One of the most common frequently asked questions at Gustan Cho Associates is how far back do late payments affect credit score for a mortgage loan approval. As long as you have been timely on all of your payments in the past 12 months, you should be good.

If you have a copy of your credit report, send it to for a detailed analysis. Remember that mortgage underwriting qualifications are based on tri-merge credit reports. Experian Fair Isaac Version 2, TransUnion FICO classic 4, Equifax FICO classic V5, often referred to as 2,5,4 scoring models.

Getting Pre-Qualified For a Mortgage With Derogatory Credit Tradelines

Our mortgage experts are here to help you and your family qualify for a home loan. During these unknown financial times, it could be harder than ever to afford to rent a home or apartment. Our team has access to over 160 loan programs and offers our services in 48 states. We would love the ability to put a second set of eyes on your mortgage qualifications if another lender has turned you down. Our no overlay platform may be the difference maker. Feel free to reach out with any mortgage-related questions seven days a week. Mike Gracz is available at 630-659-7644 or at


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