More Lenders Loosen Overlays: Home Loan With Bad Credit

Home Loan With Bad Credit

Gustan Cho Associates

Majority of mortgage lenders have mortgage lender overlays when it comes to credit scores.  FHA only requires a 580 FICO credit score from a mortgage loan applicant to qualify for a 3.5% down payment mortgage loan.  However, mortgage lenders can impose their own lender overlays which are their own internal mortgage lending guidelines that surpass the minimum mortgage lending guidelines of FHA.  With regards to credit scores, the majority of mortgage lenders require higher credit scores than the minimum 580 FICO credit scores mandated by FHA.  Majority of mortgage lenders have credit score lender overlays of 640 FICO.  This means that mortgage lenders will not accept any mortgage loan applications and qualify any mortgage loan applicants with credit scores of under 640 FICO.  There are others who loosened their credit score lender overlays to 620 FICO.  The good news is that many mortgage lenders are dropping and loosening their credit score lender overlays.  Some have even dropped their credit score lending overlays to the FHA minimum credit score requirement of 580 FICO.

What Types Of People With Bad Credit?

Bad credit can affect any type of people.  I have mortgage loan applicants who are retirees, minimum wage workers, blue collar workers, white collar workers, bankers, police officers, fire fighters, teachers, attorneys, construction workers, mortgage brokers, realtors, pilots, judges, professors, salespeople, business owners, and others who have gone through periods of bad credit due to numerous circumstances.  Bad credit will follow for anyone who has lost their business, lost their jobs, went through a divorce, had to take a job that they were underemployed,  had medical issues, gotten sued, or had other forms of extenuating circumstances.  Just because you had periods of bad credit does not mean that you are financially irresponsible.   For example, if you had a career as an engineer for the past 20 plus years making $120,000 and your company shut down and due to the shut down you became unemployed, how are you going to make your monthly minimum debt payments?

Unemployment Income And Other Income

Unemployment income is most likely a fraction of what you used to make and most companies will not offer the same wage to an engineer as the older company and would start them off at a fraction of the money the unemployed engineer used to make at his older firm.  Many companies rather hire a brand new college graduate and offer them an entry level salary like $30,000 per year and train the employee themselves.  Even though age discrimination is illegal and against labor laws, age discrimination does exist.  I know of many cases where people went back to school to learn a new trade after becoming unemployed and graduated at the top of their class but could not get job offers while their younger classmates who had lower grade point averages secured high paying jobs.  The 2008 economic, credit, and real estate meltdown has left millions of Americans jobless and most of those who got new jobs found jobs that they were overqualified for and are only making a fraction of what they used to make.  Plus, those who eventually got jobs, it took them many months or even years to get new jobs.  During the period of unemployment is the time period where they could no longer make their payments and many were forced to file bankruptcy, could no longer afford their homes and go through foreclosure, deed in lieu of foreclosure, or short sale, and had to live on their credit cards which eventually could not meet their minimum credit card payments and defaulted on their credit cards.  Yet, there are millions of Americans who were drowned with debt that they could not even afford to file bankruptcy.  Most bankruptcies cost over $1,000 and some could not even have enough money for groceries.  According to statistics, unemployment rates have dropped significantly, however, this is not the case.  Look around and see how many people you know who had their unemployment run out and have jobs that are not secure or are underemployed.  I know of attorneys, previous business owners, mortgage brokers, realtors, and other professionals who used to make six figures prior to the economic collapse who are working odd jobs and can barely afford groceries and who just gave up on the job market.  Some folks with advanced college degrees even took jobs as manual laborers.  Eventually, everyone recovers and re-establish themselves and live within their means.  People that used to make $150,000 per year may only now make $50,000 and they need to budget their lifestyle and live within the $50,000 salary limits.  That may include downsizing on the home they can live and the areas they can purchase a home.  The good news is that mortgage lenders do understand that people can go through periods of bad credit and many mortgage lenders cater towards folks who have had prior bad credit.

What Is Bad Credit Mortgage Loan?

You can qualify for a home loan with bad credit as long as you have a full time job or stable sourced income that is likely to continue with prior bad credit.  The key in getting a home loan with bad credit is that you could have had a period of bad credit but you need to have re-established yourself.  Your credit scores can be low and you can have outstanding collection accounts and charge offs on your credit report but you need to have re-established credit and all of your payments in the past 12 months needed to have been timely.  If you have recovered yourself from your period of bad credit but are still continuously late on your payments, you will not qualify for a mortgage loan.  Mortgage lenders will review your overall credit history and see periods of bad credit.  They will want letters of explanations why your credit deteriorated during that particular period and if it was due to a business loss or unemployment, that is a great extenuating circumstances and the mortgage loan underwriter will understand.  However, if you had solid employment and you have just been a habitual late payer throughout your whole credit history, the mortgage loan underwriter will just assume that you have total disregard of credit and the chances of you getting a mortgage loan approval will not be good. Related> Home loan with bad credit Related> Bad credit mortgage loans Related> Mortgage with 580 FICO credit scores Related> Can I get a mortgage with under 580 FICO credit scores?

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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