How Derogatory Credit Impacts Credit Scores For Mortgage

This ARTICLE On How Derogatory Credit Impacts Credit Scores For Mortgage Was PUBLISHED On March 6th, 2020

How Derogatory Credit Impacts Credit Scores For Mortgage

How Derogatory Credit Impacts Credit Scores For Mortgage:

  • It is no secret Gustan Cho Associates are experts in mortgage lending when it comes to derogatory credit
  • We receive inquiries every day regarding the waiting period to enter a mortgage after a derogatory credit event such as a foreclosure or bankruptcy
  • In this blog, we will detail how a derogatory credit event will affect your credit score and what loan options are available after a derogatory event
  • We offer all of our mortgage products without LENDER OVERLAYS
  • We do not have any additional waiting periods after derogatory credit events
  • This allows us to help more borrowers than most lenders! 

In this article, we will discuss and cover How Derogatory Credit Impacts Credit Scores For Mortgage.

How Derogatory Credit Impacts Credit Scores For Mortgage And Types Of Bad Credit Tradelines

There are many different types of derogatory credit events.

  • They each have a different degree of severity
  • Something like a 30-day late payment will have less impact on your credit score than a 90-day late payment
  • It sounds like common sense but it can be more difficult with more severe derogatory credit events such as a short sale compared to deed-in-lieu
  • The information in this article is for informational purposes only, we advise you to contact a real estate attorney for specifics regarding your financial situation

The following information will be discussed in general terms and is not specific to any person or example.

How Derogatory Credit Affects 780 FICO Borrowers

Starting credit score of 780 and the effects of derogatory credit events:

  • With a starting credit score of 780, you will see a dramatic decrease in your credit score after a derogatory event
  • It is estimated that a 30-day mortgage late payment will take your credit score all the way down to the 670 -690 range
  • A 90-day late payment will drop your score down to the 650-670 range
  • Hopefully, you are able to recover from the late payments and get back on track
  • But if you are not, you may need to enter into a short sale/deed in lieu, foreclosure, or even bankruptcy
  • If you are able to enter into a short sale / deed-in-lieu without a balance due, your credit score will more than likely fall to the 655 – 675 range

If there is still a balance due after the short sale / deed-in-lieu, then your score will drop further, to the 620-640 range. The same is true if you need to go as far as foreclosing on the home (620-640 range).

How Derogatory Credit Impacts Credit Scores For Mortgage: Bankruptcy

How Derogatory Credit Impacts Credit Scores For Mortgage: Bankruptcy

There are times where you may need to enter into bankruptcy which will affect your credit score even further.

  • Your credit score on more than likely drop all the way down to the 540 – 560 range
  • The impact on your score can be enough to make you sick, now let’s discuss how long these events will take to recover from
  • Having a strong starting credit score of 780 will be hard to get back to, and it will take time
  • A 30-day mortgage late payment may take as long as three years to get your credit score back to 780
  • A 90-day late can take as long as 7 years!

A short sale / deed-in-lieu or foreclosure will take a full seven years to recover from. And bankruptcy will take seven to ten years before you see your credit score back in the 780 range.

How Derogatory Credit Impacts Credit Scores For Mortgage On Borrowers With 720 Credit Scores

Starting credit score of 720 and the effects of derogatory credit events:

Let’s say your credit score is slightly lower, to begin with, and you have a 720 score before the derogatory events.

  • A 30-day mortgage late payment will drop your score all the way down to the 630 to 650 range
  • If you go 90-days late, your scores will drop to the 610 – 630 range
  • If you are not able to get caught up and need to enter into a short sales the last deed in lieu (without a balance due after closing), your scores will drop to the 605 – 625 range
  • If you don’t have enough equity to cover the balance due to a short sale, your scores will drop to the 570 – 590 range
  • If you are unable to come to an agreement on a short sale or deed-in-lieu, you will then need to enter into foreclosure which will more than likely drop your score to the 570 – 590 range
  • Or you may enter into bankruptcy, which your score will drop into the 525- 545 realm
  • Because your starting credit score is 720, it will be a little easier to recover your scores back to the 720 range
  • A 30-day late payment on your mortgage will take roughly two-and-a-half years to recover from, and a 90-day late payment will take about three years to recover from

If you go as far as a short sale, deed-in-lieu, or foreclosure, it will take approximately seven years for your credit to get back to the 720 range. A bankruptcy will also take between seven and ten years to get back to 720.

How Derogatory Credit Impacts Credit Scores For Mortgage On Borrowers With 680 FICO

Starting credit score of 680 and the effects of derogatory credit events:

  • In 2019, it is estimated that the average American’s credit score hovers right around 680 to 695 range
  • So, the following information will relate to many readers
  • With a starting credit score of 680, a 30-day mortgage late payment will drop your score all the way to the 600 – 620 range
  • A 90-day late will drop you to about the same range
  • Once again, if you are not able to get caught up, the damage to your credit score will be more intense
  • If you do enter a short sale or deed-in-lieu without a balance due after closing, your credit score will drop to the 610 -630 range
  • If there is a balance due after the short sale / deed-in-lieu, the scores will dip to the 575-595 range
  • The same range is true for an official foreclosure
  • If you enter into bankruptcy to protect your home, your score can go as low as the 530 – 550 range
  • Since getting your scores back to 680 is more feasible than 720 or even 780, your scores will recover at a faster pace
  • A 30-day mortgage late payment will take about six months to recover from

A short sale / deed-in-lieu, or foreclosure will take you approximately three years to get back to 680. If you do file bankruptcy you can expect a five-year period to elapse before your credit score is back to the 680 range.

Each Consumer Has A Different Case Scenario

Why every consumer has a different case scenario

Once again, the information above is for informational purposes only and is not specific to your scenario. Your credit score may suffer more or less, but the information above will give you a nice baseline of what to expect. If you find yourself in a tough financial situation and are unable to pay your mortgage, we recommend reaching out to a real estate attorney as soon as possible. Each state handles these situations differently. It is important to have an expert on your side.

Non-QM Loans For Bad Credit

As you can see, these events take a long time to recover from. It is best to not stretch the budget and keep all payments on time. Just one 30-day late payment can lower your score around 100 points!! We do understand life happens and we are here to help. We even have a full slate NON-QM mortgage products to offer our clients. These loan programs are specifically designed to help potential mortgage borrowers with recent derogatory credit events. You may buy a home just one day after a foreclosure with a NON-QM mortgage product. We are the NON-QM lending experts. For more information on this topic, please call the Gustan Cho Associates today.

The information in this article will help you understand the impact on your credit score. A derogatory credit event is something that most Americans try to avoid, but still are very common. Entering a foreclosure is a tough decision for any individual or family, but sometimes it is the only option. For clarification on any information provided in this article, please call Mike Gracz at 630-659-7644 or email [email protected]. We are available seven days a week to help with your mortgage needs!

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