Fixing Your Credit To Qualify For Home Loan And Get Pre-Approved

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Fixing Your Credit To Qualify For Home Loan And Get Pre-Approved

This BLOG On Fixing Your Credit To Qualify For Home Loan And Get Pre-Approved Was UPDATED On July 27th, 2018

The two most important factors in qualifying for a home loan are credit and income.

  • Home buyers can have the best credit and credit scores but with no documented income they will not qualify for a mortgage loan
  • As long as borrowers have documented income but less than perfect credit, they will qualify for a home loan
  • One thing potential home buyers need to know is that having bad credit does not mean they cannot qualify for a mortgage
  • Lenders understand that consumers go through periods of bad credit due to extenuating circumstances such as unemployment, loss of business, medical issues, and divorce
  • Periods of bad credit is very common
  • Most folks who go through periods of bad credit rebound
  • They re-establish their credit and the bad credit on their credit reports is a blemish that will eventually not affect them as time goes by
  • Now the question is how bad is the credit
  • If credit scores are very low due to recent derogatory credit items that has been posted on credit report or a recent bankruptcy or foreclosure, then fixing your credit to qualify for home loan may be the thing to do
  • Borrowers with low credit scores and poor credit history with no active credit tradelines, fixing your credit to qualify for home loan is the start of home ownership

What Do Underwriters Look At Borrower’s Credit Report

Mortgage underwriters will review borrower’s credit scores and credit report. Home buyers need a specific credit score to qualify for a home loan.

  • For example, for  a 3.5% down payment FHA home purchase loan, buyers need a minimum of a 580 credit score
  • Most often, Fannie Mae’s Automated Underwriting System will request verification of rent for borrower’s with credit scores of 620 and under
  • If you cannot provide verification of rent and have credit scores of 620 FICO or under, then you may need to try to boost your credit scores to at least a 620
  • If a buyer wants to purchase, lets go over this case scenario:
    • a condominium and the condo complex is not FHA approved
    • need to qualify for a conventional loan
    • if borrowers credit scores are under 620 and really want that condominium they may need to try to improve credit scores to 620 or higher to qualify for a conventional loan
  • Borrowers need a 620 credit score or higher to qualify for a conventional loan
  • For first time home buyers or renters who are thinking of purchasing a home in the near future but have less than perfect credit scores, they may want to start fixing your credit to qualify and get pre-approved

How Mortgage Lenders Review Your Credit Report

Just because borrowers meet the minimum credit score requirements to qualify for a particular mortgage loan program does not automatically guarantee them a loan approval.

  • Besides looking at credit scores, underwriters will also review credit report
  • Mortgage underwriters will review overall payment history especially the past 12 to 24 months
  • Most lenders want to see a timely payment history in the past 12 months
  • Lenders will not approve borrowers with multiple recent late payments in the past 12 months
  •  Borrowers with late payments in the past 12 months may need to wait until they have shown timely payment history
  • Borrowers who just got a recent 30 day late payment and have a record of paying that creditor on time, contact the creditor
  • Try to see if they can get a one time reprieve and retract the 30 days late for a one time good will for a loyal customer
  • One thirty day late payment can plummet one’s credit scores by more than 50 plus points
  • If the customer service representative says no, ask politely to speak to a supervisor
  • Most creditors will get a lifelong on time paying consumer a one time reprieve as long as they had a timely payment history

Quick Fixes In Fixing Your Credit To Qualify For Home Loan

There are a few quick fixes in fixing your credit to qualify for home loan. Consumers with maxed out credit card balances, paying those balances down to 10% balance to credit limit ratio will greatly improve credit scores.

  • Consumers with no credit tradelines and no active credit accounts, getting three to five secured credit cards will greatly boost credit scores
  • Never pay off an old dormant collection account
  • Paying off older dormant collection accounts will re-activate the late payment and derogatory on credit report and can drop credit scores
  • You can add yourself on to a family member’s credit card as authorized user
  • However, if the main user of the credit card is late on his or her credit card monthly payments or has maxed out credit cards, this will hurt credit scores

Home buyers who are planning on purchasing a home in the new future and have lower credit scores or have bad credit should think of fixing your credit to qualify for home loan. Fixing your credit to qualify for home loan does take time so please plan ahead and it is never too late to start a credit repair regiment. Our team at Gustan Cho Associates can help home buyers prepare for mortgage by assisting them with fixing their credit. Please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Home buyers can also email us at gcho@gustancho.com.

 

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