Home Buyers Bad Credit Mortgage Tips And Lending Guidelines

This BLOG On Home Buyers Bad Credit Mortgage Tips And Lending Guidelines Was UPDATED And PUBLISHED On May 28th, 2020

Many First Time Home Buyers do not realize the simplicity of qualifying for a mortgage and becoming homeowners.

  • Many first time home buyers are under the impression that they need 20% down payment on home purchase and need perfect credit
  • This is not the case
  • Gustan Cho Associates has helped countless of renters become homeowners
  • We are experts in helping first time home buyers bad credit

In this article, we will discuss and cover Home Buyers Bad Credit Mortgage Tips And Lending Guidelines.

FAQ By First Time Home Buyers

What are frequently asked questions from home buyers for the first time

Here are the questions we are going to answer on this blog:

  • Are you a first time home buyer?
  • Home Buyer Bad Credit?
  • Buying first home is not as difficult as it seems
  • How about first time home buyers bad credit?
  • Can first time home buyers bad credit qualify for mortgage?
  • What is the minimum credit score required to qualify for home loan for first time home buyers bad credit?
  • Do collections and charged off accounts need to be paid off?
  • What down payment is needed?

Are rates higher for first time home buyers bad credit mortgage?

Reasons Why Renters Are Afraid To Qualify For Mortgage

There are many advantages of being a homeowner versus a renter :

  • Home Buyers do not need perfect credit to qualify for mortgage
  • Buyers do not need a lot of money to become homeowners
  •  Borrowers do need qualified income
  • Qualified Income is a full time job or income from other income sources such as social security income, pension income, or other income sources
  • First Time Home Buyers Bad Credit have come to the right website
  • We offer multiple online advice for first time home buyers

We can help and guide home buyers who have had prior bad credit, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, as well as prior short sale.

Advice For First Time Home Buyers Bad Credit

Once a person has decided to become a first time home buyer, they should due their due diligence and go over  personal finances and personal situation.

  • How much is current rent? 
  • How much of a mortgage payment is affordable? 
  • Have area and neighborhood is the location going to be? 
  • How long is the homeowner planning on living in the area they select? 
  • Is home buyer intending on moving out of the area after a year or so
  • It may not be a good idea to buy a home if the buyer is not intending in living in the area for at least three to five or more years
  • 3.5% minimum down payment  is required on FHA Loans for a home purchase
  • Down payment can be gifted by family member
  • Homeowners comes with responsibility

Will be responsible for repairs and maintenance on home as well as reserves in the event if something goes wrong like a broken furnace, or broken appliances.

Down Payment And Closing Costs

What is the advance payment and closing costs

Down payment is required on home purchases. All real estate transactions comes with closing costs:

  • FHA loan programs require a 3.5% minimum down payment
  • 5% down payment is required for conventional mortgage loan
  • Closing costs average around 2% of the home purchase price
  • However, most buyers can get a sellers concession towards a buyer’s closing costs
  • Most home buyers do not have to worry about closing costs
  • Buyers who cannot get a seller to agree to give sellers concession towards a buyers closing costs, then lender can cover most of the closing costs with lender’s credit in lieu of charging slightly higher rate
  • The down payment needs to be sourced
  • Borrowers who do not have the minimum down payment required can get the down payment from a family member and/or relative as a gift

The gift funds cannot be a loan and the donor needs to certify that the gift funds will not be paid back and is solely a gift.

Advantages Of Being Homeowner Versus Renter

There are many advantages of being a homeowner versus a renter.

Sometimes new mortgage on new home is the same or lower than current rental payments.

  • One of the major advantages of being a homeowner is building equity over the time
  • As a renter, the rent paid is a non recoverable expense
  • Mortgage interest, property taxes, and other housing expenses are often tax deductible

Homeowners are paying mortgage instead of paying rent to landlord so landlord gains equity.

Security As Homeowners

Homeowner can decorate home the way it suits them and their family without having to ask the landlord for permission.

  • Many renters are not allowed to have pets
  • Homeowners can decide to adopt any cats, dogs, or other pets without permission from landlord

Homeowners can feel secure because landlord does not decide whether or not to renew lease.

What Do I Do Next Once I Decided To Be A Homeowner?

Once renters decided to become homeowners, the next step is to seek the advice of a mortgage lender.

Lenders do not charge anything for qualifying and pre-approving borrowers:

  • Loan officers will ask mortgage applicants to complete a four page mortgage application, also known as a 1003

Mortgage applicants need to state the following on the 1003:

  • gross monthly income
  • asset information such as the money in checking and saving account
  • IRA’s
  • 401k
  • investment accounts
  • employment information
  • social security number
  • date of birth
  • two years residential history
  • complete a questionnaire which asks about past and present financial situation

Analysis Of Credit Scores And Credit Report

What is the analysis of credit results and credit report

Loan originator will then run a tri-merger credit report:

  • Will go over the credit report to see if there are any inaccuracies reported on credit report
  • Mortgage loan originator will then submit home loan application to Fannie Mae’s or Freddie Mac’s Automated Underwriting System for an automated approval
  • With an automated approval per DU FINDINGS and/or LP FINDINGS, loan officer will crosscheck the loan officer’s company lender overlays
  • How a pre-approval is issued depends on the individual mortgage company
  • All pre-approvals issued by GCA Mortgage Group are full credit approvals fully underwritten and signed off by mortgage underwriters

Pre-Approved borrowers can then hire a realtor and start shopping for home and enter into a real estate purchase contract.

Can I Still Get A Mortgage Loan Approval For Home Buyers Bad Credit

The minimum credit score required for a 3.5% FHA insured mortgage loan is 580

  • Borrowers can still qualify for FHA Loans with prior bad credit
  • Borrowers can still qualify for a mortgage even if they have unsatisfied open collection accounts without having to pay them off
  • I strongly recommend do not pay off old collection accounts
  • Because by doing so, consumers re-activate older collection account can drop credit score
  • Lenders do want to see borrowers have been timely with all of payments in the past 12 months
  • One or two recent late payments are not deal breakers
  • Good letter of explanation will be required
  • Habitual late payers will have a problem
  • Worst case scenario, recent late payers might have to show six months of on time payment history
  • Overdrafts in the past 12 months are normally not allowed
  • One or two overdrafts will not be deal breakers
  • But habitual recent overdrafts can be a problem

Home Buyers Bad Credit After Bankruptcy And Foreclosure

Borrowers can still qualify for mortgage loan after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. However, most lenders will not qualify borrowers with late payments after bankruptcy and foreclosure. Late payments after bankruptcy and/or foreclosure is not a deal killer with lender with no overlays.

Gustan Cho Associates Mortgage Group has no overlays on FHA, VA, USDA, and Conventional Loans.

  • There is a mandatory waiting period of two years after the discharge date of Chapter 7 bankruptcy on FHA, VA, USDA Loans
  • There is a four year waiting period after Chapter 7 Bankruptcy on Conventional Loans
  • Borrowers can qualify for VA and FHA Loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee approval
  • There is no waiting period to qualify for VA and FHA Loans after Chapter 13 Bankruptcy discharged date
  • There is a three year waiting period after the recorded date of a foreclosure and/or deed in lieu of foreclosure on FHA, VA, USDA Loans
  • With VA Loans, the waiting period is two years after foreclosure, deed in lieu of foreclosure, short sale
  • There is a three year waiting period after the date of a short sale which is reflected on the HUD’s settlement date of the short sale

Home Buyers Bad Credit can qualify for mortgage but should have timely payments in the past 12 months.

Qualifying For Mortgage With Lender With No Overlays

Home Buyers bad credit who need to qualify for mortgage with a direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. We have zero overlays on FHA, VA, USDA, and Conventional Loans. We are available 7 days a week, evenings, weekends, and holidays.

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