In this blog, we will cover and discuss the various mortgage options home buyers with bad credit have in qualifying and getting approved on a mortgage loan. We get countless daily calls from Home Buyers With Bad Credit asking for advice on the types of mortgage options they have in getting approved for a mortgage. Can Home Buyers With Bad Credit qualify for home loans?  The answer to the question of can Home Buyers With Bad Credit qualify for home loans, the answer is it depends. Home Buyers With Bad Credit can qualify for home loans as long as they have been timely with their payments in the past 12 months.

Home Buyers With Bad Credit Mortgage Options

Can Home Buyers With Bad Credit Qualify For a Mortgage?

Having prior bad credit is fine due to extenuating circumstances. Outstanding collections and charge-off accounts do not have to be paid to qualify for owner-occupant government and/or conventional loans. However, to get an approve/eligible per automated underwriting system (AUS), borrowers normally need a timely payment history reporting on their credit reports for the past 12 months. One or two late payments are not deal killers. Many borrowers can get an approve/eligible per AUS with one or two late payments in the past 12 months. In this blog, we will discuss how home buyers with bad credit can qualify for mortgages. We will concentrate on FHA loans. FHA loans is the most popular loan program for home buyers with bad credit.

Best Loan Program For Home Buyers With Bad Credit

Let’s cover the various mortgage programs for home buyers with bad credit. There are government loans, conforming loans, and non-QM loans. The three government loan programs are FHA, VA, and USDA. Government loans are originated and funded by private lenders but are insured by a government agency. The government agency will partially insure and guarantee the loss to lenders if the lender follows their guidelines.

Conventional Loans Guidelines For Home Buyers With Bad Credit 

Fannie Mae and Freddie Mac set conventional loan guidelines. Therefore, conventional loans are called conforming loans because they need to conform to Fannie Mae and/or Freddie Mac Guidelines. Conventional loans are not government loans. However, lenders make sure they conform to Fannie Mae and/or Freddie Mac Mortgage Guidelines. The reason for this is Fannie Mae and Freddie Mac will not purchase conventional loans on the secondary market if it does not meet their standards. All government and conventional loans allow home buyers with bad credit. However, the best loan program for home buyers with bad credit is FHA loans. FHA loans have the most lenient mortgage guidelines for home buyers with bad credit.

Home Buyers With Bad Credit Mortgage Options

Eligibility Requirements For FHA Loans

It is much easier to get an approve/eligible per automated underwriting system on FHA loans than in any other loan program. Many home buyers with bad credit who may qualify for VA Loans often go with FHA loans versus VA loans because they cannot get an approve/eligible per AUS on VA but can on FHA loans. Here are the basic FHA Eligibility Requirements. The minimum credit score to qualify for a 3.5% down payment FHA loan is 580 FICO.

FHA and VA Loans With 500 Credit Scores

Borrowers with credit scores under 580 down to 500 FICO can qualify for FHA mortgages with a 10% down payment. There is a 2-year waiting period after the Chapter 7 Bankruptcy discharge date. There is a 3-year waiting period after foreclosure, deed in lieu of foreclosure, and short sale.

Home Buyers With Bad Credit Mortgage Options For Borrowers with 500 Credit Scores

FHA and VA Loans During and After Chapter 13 Bankruptcy 

Borrowers in a current Chapter 13 Bankruptcy Repayment Plan can qualify for FHA loans one year into the plan with Trustee approval and manual underwriting. There is no waiting period after a Chapter 13 Bankruptcy discharge date. Any borrowers who do not have a two-year seasoning period after a Chapter 13 Bankruptcy discharged date needs to be manually underwritten. Gustan Cho Associates is one of the very few mortgage brokers nationwide that can do manual underwriting on FHA and VA loans. Outstanding collections and charge-off accounts do not have to be paid off to qualify for FHA loans.

Home Buyers With Bad Credit Mortgage Options During and After Chapter 13 Bankruptcy

Qualifying For Mortgage With Recent Late Payments

There are instances where home buyers with bad credit and recent late payments can qualify for home loans. NON-QM loans have no mandatory waiting period requirements after bankruptcy and/or foreclosure. Borrowers who cannot get an approve/eligible per automated underwriting system (AUS) on government and/or conventional loans can qualify for non-QM loans. Let’s take a case study. Let’s say a homeowner recently sold their home and needs to purchase another home after the sale.

Getting Approved For a Mortgage with a Mortgage Late Payment in the Past 12 Months

If the homeowner had recent late payments on their mortgage in the past 12 months, they cannot qualify for a government and/or conventional loan until the late mortgage payments have been seasoned for at least 12 months. This holds true even though the mortgage loan balance has been paid off. This is a situation where they can utilize our non-QM loan program and purchase a home after the sale of their existing home. After six months to one year, they can then qualify for a traditional government and/or conventional loan. For more information on qualifying for a mortgage with bad credit, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are direct lenders with no overlays on government and conventional loans. We are experts in non-QM, bank statements, and alternative mortgage loan programs.

Home Buyers With Bad Credit Mortgage Options on Non-QM Loans