Home Loan With Recent Late Payments Mortgage Guidelines

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This BLOG On Home Loan With Recent Late Payments Mortgage Guidelines Was UPDATED On December 17th, 2019

Home Loan With Recent Late Payments
Gustan Cho Associates

Borrowers seeking trying to qualify for home loan with recent late payments, FHA loan is the best route to take.

  • FHA loans have extremely loose lending guidelines when it comes to prior bad credit
  • Borrowers can have the following types of bad credit and qualify for mortgage:
    • bankruptcy
    • foreclosure
    • deed in lieu of foreclosure
    • collection accounts
    • judgments
    • tax liens
    • recent late payments
    • charge offs
    • low credit scores

Role Of FHA

What is the Role Of FHA

The Federal Housing Administration fully understands that people have gone through periods of hard time such as the following:

  • unemployment
  • loss of business
  • divorce
  • medical issues
  • other extenuating circumstances
  • The Federal Housing Administration, FHA, is under the direction of the United States Department of Housing and Urban Development, also referred to as HUD
  • FHA is not a lender
    • They are a government entity that insures residential owner occupant mortgage loans to lenders
  • Lenders needs to be HUD approved
  • Need to follow HUD guidelines in order for their FHA loans to be insured in case of default which leads to foreclosure and loss
  • HUD has created specific guidelines when it comes to Home Loan With Recent Late Payments

Qualifying For Mortgage With Prior Bad Credit

Qualifying For Mortgage With Prior Bad Credit

Borrowers can qualify for FHA Loans with credit scores as low as 500 FICO.

  • However, if borrowers credit scores fall between 500 and 579, a 10% minimum down payment is required
  • HUD allows home buyers to qualify for FHA Loans with as little as a 3.5% down payment
  • However, to qualify for a 3.5% down payment home purchase borrower needs a 580 minimum credit score
  • There are reasons why a mortgage loan applicant has credit scores under 640
  • Credit scores under 640 is considered poor credit scores
  • A mortgage loan applicant can have prior bad credit and qualify for a mortgage loan

Qualifying For Mortgage With Outstanding Collections And Charge Offs

Qualifying For Mortgage With Outstanding Collections And Charge Offs

A mortgage applicant can have collection accounts with credit balances.

  • Borrowers does not have to pay off the credit balance off in order to qualify for a mortgage loan
  • Charged off accounts does not matter and do not have to be satisfied

Qualifying For Mortgage After Bankruptcy And Housing Event

Qualifying For Mortgage After Bankruptcy And Housing Event

Mortgage loan applicant can have a prior bankruptcy and qualify for a mortgage loan:

  • There is a 2 year mandatory waiting period to qualify for a FHA loan from the date of the discharge of bankruptcy
    • Borrowers can qualify after a foreclosure and /or after a deed in lieu of foreclosure after three years from the recorded date of the foreclosure and/or deed in lieu of foreclosure
  • A mortgage loan applicant can qualify for FHA Loans after 3 years from the short sale date of their property
  • A mortgage applicant can qualify with a judgment and/or tax lien
  • This holds true as longs as a written payment agreement is in effect:
    • Mortgage loan applicant needs to show they have been making at least three payments by providing three canceled checks
  • Loan applicant can qualify for a FHA insured mortgage loan with prior charge offs

FHA Loan With Bad Credit

FHA Loan With Bad Credit

HUD is extremely generous when it comes to their mortgage guidelines for home buyers with prior bad credit.

  • PRIOR BAD CREDIT is the key phrase here and not recent late payments
  • FHA is extremely tough when it comes to recent late payments:
    • So are lenders
  • HUD does not condone home buyers or refinance mortgage loan applicants with any recent late payments
  • Most lenders will not approve loan applicant if they had a late payment in the past 12 months
  • However, if loan applicant had just one or two late payments in the past 12 months, there is a possibility borrowers may get a pass
  • The most common problem most people who come to me to apply for a mortgage loan with recent late payments are folks who had a recent late payment on credit card bills

Recent Late Payment On Credit Card Bills

Recent Late Payment On Credit Card Bills

90% of the recent late payments on a mortgage loan applicant cases I see are recent late payment on credit card payments.

  • That monthly minimum credit card payment is so important
  • Even if your minimum payment is $5 dollar
  • If you skip that $5 dollar minimum due payment and decide to pay off the entire credit card balance the following month, it will negatively affect credit scores
  • The credit card company will report a 30 days late on credit report
  • That late payment will stay on credit report and be part of credit history for the next 7 years
  • That one $5 dollar late payment in the past 12 months can kill the chances of  getting a mortgage loan
  • The good news is that if you have one recent late payment such as a recent late payment on credit card payment, there may be a solution where you can still qualify for a mortgage loan

Contact Creditor For One Time Reprieve

Contact Creditor For One Time Reprieve

Mortgage Loan Applicants with recent late payment on credit card payment, auto loan payment, or any other credit payment and this was the only late payment and had a good payment history with  creditor, contact the creditor and see if they will remove the recent late payment history as a one time good will gesture.

  • Tell them nicely that it was a total oversight on borrowers part:
    • That the recent late payment history is hindering chances of qualifying for a mortgage loan
  • Many times the creditor will check consumers overall payment history with them:
    • They will make a one time exception
    • They can remove the recent late payment history off credit report
  • If the customer service representative tells consumer that they cannot remove the recent late payment off their credit report, ask to speak to a supervisor
  • Many times when the customer service representative says no and when ask to speak to a supervisor, the supervisor may give consumer sympathy and take the recent late payment off their record
  • One recent late payment on credit report can plummet credit scores by more than 50 plus points
  • Whether it is a $5 dollar minimum payment or $400 dollar payment, the late payment will both impact credit scores the same
  • A late payment is considered a late payment period no matter how much the minimum monthly payment is

Consult With Direct Lender With No Overlays With Home Loan With Recent Late Payments

Consult With Direct Lender With No Overlays With Home Loan With Recent Late Payments

When trying to qualify for Home Loan With Recent Late Payments, make sure to consult with a direct lender with no overlays on Home Loan With Recent Late Payments.

  • Most lenders will have lender overlays on Home Loan With Recent Late Payments
  • Even if borrowers get an automated underwriting system approval on AUS, lenders can disqualify borrowers for Home Loan With Recent Late Payments as part of their mortgage overlays

Instead of applying to a bank, consult with a mortgage lender with no overlays and explain the recent late payment to the loan officer.

  • Mortgage brokers represent multiple lenders
  • But the issue with mortgage brokers is that they are not lenders and do not have control
  • Mortgage Brokers need to deal with a representative of a direct lender who in turn the rep needs to contact someone within the mortgage lender
  • Not all lenders will disqualify borrowers for Home Loan With Recent Late Payments

Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify with other lenders due to their overlays.

Letter Of Explanation For Home Loan With Recent Late Payments

What is this Letter Of Explanation For Home Loan With Recent Late Payments

Borrowers who had a recent late payment and you have found a lender that will take on your deal, the chances are that they will require a detailed letter of explanation.

  • The letter of explanation does not need to be a novel
  • It just needs to state the facts and if borrower can provide supporting documents, it will be greatly to borrowers advantage
  • One case scenario where I ran into a loan applicant with a recent late payment on his credit report was that the mortgage loan applicant did not use one of his credit cards for some time
  • Renewal time came and he did not realize that the renewal annual fee was $75 dollars and a minimum payment of $10 dollars was due
  • He did not think nothing of it until he had to apply for a mortgage and the late payment history showed up on his credit report
  • This did a lot of damage and the credit card company would not remove the recent late payment record off his credit report
  • However, the mortgage loan applicant provided supporting documents along with a letter of explanation and everything was fine

All in all, one recent late payment will not disqualify you from getting a mortgage approval.  Multiple late payments all at the same time due to an extenuating circumstances can also not bar you from a mortgage loan approval.  However, recent late payments throughout the past 12 months will definitely not qualify your for a mortgage loan.

Mortgage Borrowers who need to qualify for Home Loan With Recent Late Payments, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

Related> Late payments: Can I qualify for a mortgage loan?

Related> Recent late payments: Home loan with bad credit Related> Can I qualify for a mortgage with late payments?

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