Mortgage Loan With Bad Credit

The two most important factors in qualifying for a home loan are credit and income. You can have the best credit and credit scores but if you have no documented income, you will not qualify for a mortgage loan. As long as you have documented income but less than perfect credit, you will qualify for a mortgage loan. One thing potential home buyers need to know is that having bad credit does not mean you cannot qualify for a home loan. Mortgage lenders understand that consumers go through periods of bad credit due to extenuating circumstances such as unemployment, medical issues, and divorce. Periods of bad credit is very common and most folks who go through periods of bad credit rebound and 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 your credit. If your credit scores are very low due to recent derogatory credit items that has been posted on your credit report or a recent bankruptcy or foreclosure, then fixing your credit to qualify for home loan may be the thing to do. If you have very low credit scores and poor credit history with no active credit tradelines, fixing your credit to qualify for home loan may be a good start.

What Do Lenders Look At Borrower’s Credit Report

Mortgage lenders will review the mortgage loan borrower’s credit scores and also review the mortgage loan borrower’s credit report. You need a specific credit score to qualify for a home loan. For example, if you want a 3.5% down payment FHA home purchase loan, you need a minimum of a 580 FICO credit score.  Most often, Fannie Mae’s Automated Underwriting System will request verification of rent for mortgage loan borrower’s with credit scores of 620 FICO 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 FICO. If you want to purchase a condominium and the condominium is not FHA approved and need to qualify for a conventional loan and have credit scores of under 620 FICO and really want that condominium, you may need to try to improve your credit scores to 620 FICO or higher to qualify for a conventional loan. You need a 620 FICO credit score or higher to qualify for a conventional loan. If you are a first time home buyer or a renter that is thinking of purchasing a home in the near future but have less than perfect credit scores, you may want to start fixing your credit to qualify for home loan.

How Mortgage Lenders Review Your Credit Report

Just because you met the minimum credit score requirements to qualify for a particular mortgage loan program does not automatically guarantee you a mortgage loan approval. Besides looking at your credit scores, your mortgage lender will also review your credit report and review your overall payment history especially the past 12 to 24 months. Most mortgage lenders want to see a timely payment history in the past 12 months. Mortgage lenders will not approve mortgage loan borrowers with multiple recent late payments in the past 12 months. If you had late payments in the past 12 months, you may need to wait until you have shown timely payment history. If you just got a recent 30 day late payment and have a record of paying that creditor on time, contact the creditor and see if they can get you a one time reprieve and not report you 30 days late. One thirty day late payment can plummet one’s credit scores by more than 50 plus FICO points. If the customer service representative says no, ask politely to speak to a supervisor. Most creditors will get you a one time reprieve as long as you 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. If you have maxed out credit card balances, paying those balances down to 20% balance to credit limit ratio will greatly improve your credit scores. If you have no credit tradelines and no active credit accounts, getting three to five secured credit cards will greatly boost your 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 your credit report and that will drop your 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 your credit scores.

If you are a home buyer or are planning on purchasing a home in the new future and have lower credit scores or have bad credit, you 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.

 

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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