Qualifying For A Mortgage Loan
Mortgage lenders do not just lend a home loan to anyone. The mortgage loan applicant needs to qualify for a mortgage loan. Banks, credit unions, mortgage companies, and mortgage lenders are not in the business of owning real estate. They are in the business of lending money and want your home as collateral. They want to make sure that you can repay the mortgage loan and make the payments in a timely manner. They want to be secure that you are able and responsible to pay your mortgage loan payments timely as well as your taxes, insurance and make sure that the mortgage loan payments will not cause financial stress where you need to make payment arrangements in the future.
Mortgage Lender’s Requirements To Qualify For A Mortgage Loan
Mortgage lenders require minimum down payments depending on the mortgage loan program you qualify for . For conventional loans, there is a 5% minimum down payment requirement. For FHA loans, the minimum down payment required to qualify for a mortgage loan is 3.5%.
Mortgage lenders require a two year employment history and you need to be able to document your full time income. Most mortgage lenders like to see two years of continuous employment history. Gaps in employments are allowed as long as you have a good letter of explanation of why you were a job hopper or had periods of unemployment.
There are minimum credit score requirements. For example, if you want to qualify for conventional mortgage loan with a 5% down payment, the minimum credit score required is 620 FICO credit score. To qualify for a 3.5% down payment FHA loan, the minimum credit score required is 580 FICO credit score. If your credit scores fall between 530 FICO and 579 FICO, the minimum down payment required is 10% down payment. VA Loans and USDA Loans do not have minimum down payment requirements and offer 100% down payment. 580 FICO credit scores for VA Loans and 640 FICO credit scores for USDA Loans. HomePath mortgage loans require a minimum 660 FICO credit score. Jumbo mortgages require a minimum credit score of 700 FICO. Condotel and non-warrantable condo loans require a minimum credit score of 680 FICO.
Credit Criteria To Qualify For A Mortgage Loan
Besides qualifying with minimum credit scores, mortgage lenders have other credit guidelines. There are mandatory waiting guidelines after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. For FHA loans, there is a mandatory two year waiting period after bankruptcy to qualify for a FHA loan. The waiting period starts from the date of the bankruptcy discharge. There is a four year waiting period after bankruptcy to qualify for a conventional loan. There is a three year waiting period to qualify for a FHA loan after foreclosure and/or deed in lieu of foreclosure. The three year waiting period starts from the recorded date of the foreclosure and/or deed in lieu of foreclosure reflected on the recorder of deeds office and not the date the foreclosure or deed in lieu of foreclosure was initiated. There is a three year waiting period after a short sale. The waiting period clock starts from the date of the short sale reflected on the HUD’s settlement statement.
There is a 7 year waiting period after a foreclosure to qualify for a conventional loan. The 7 year waiting period clock starts from the recorded date of the foreclosure that is reflected on public records. There is a four year waiting period after a deed in lieu of foreclosure or short sale to qualify for a conventional loan with 5% down payment. If you had a foreclosure included as part of your bankruptcy, the waiting period is four years from your bankruptcy discharge date for you to qualify for a conventional mortgage loan.
Qualifying For A Mortgage Loan With Bad Credit
Mortgage lenders understands that people go through periods of financial hardship and that bad credit is the result when people do go through hardship. You can qualify for a mortgage loan with prior bad credit, however, you cannot have recent bad credit. You need to have good on time payment history at least for the past 12 months. Recent late payments will most likely disqualify your from qualifying for a mortgage loan. Your credit report will be reviewed and your overall credit history will be evaluated. If you had a 10 year credit history had had perfect credit your first 7 years but had a streak of bad credit on years 8 and year 9 but on year 10 you have recovered and re-established your credit, you are in good shape. However, if you had a habit of paying your debts late throughout the whole ten year of your credit history and even had recent late payments, collections, and charge offs, you need to re-establish your credit for the next 12 months in order for you to qualify for a mortgage loan.