How To Fix Bad Credit To Qualify For A Home Mortgage

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This ARTICLE On How To Fix Bad Credit To Qualify For A Home Mortgage Was PUBLISHED On July 30th, 2020

How To Fix Bad Credit To Qualify For A Home Mortgage For Homebuyers And Homeowners:

  • Mortgage borrowers can have prior bad credit and qualify for a mortgage
  • This holds true as long as they have been timely for the past 12 months
  • Lenders fully understand borrowers may have extenuating circumstances in the past
  • However, lenders want to see borrowers have re-established themselves
  • Timely payments in the past 12 months are crucial
  • FHA and VA loans allow manual underwriting
  • On manual underwriting, borrowers need to have been timely for the past 24 months
  • Borrowers can qualify for a  mortgage after bankruptcy and/or foreclosure
  • However, to get a mortgage approval, borrowers cannot have any late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • Lenders also want to see re-established credit after bankruptcy and/or foreclosure

In this article, we will discuss and cover How To Fix Bad Credit To Qualify For A Home Mortgage.

How To Fix Bad Credit Versus Timely Payments

Lenders allow prior bad credit to qualify for a home mortgage.

  • Therefore, credit repair is not needed
  • Credit repair is a waste of time and money if the reason is to qualify for a mortgage
  • Credit repair can do more damage than good if it is being done to qualify for a home loan
  • You cannot have credit disputes during the mortgage process
  • All derogatory credit disputes need to be retracted before the mortgage process can start
  • By credit repair, we are talking about doing a credit dispute to remove negative items
  • An older collection and/or charged-off account that is over two years old has little to no impact on your credit scores
  • Borrowers can qualify for a home mortgage after bankruptcy and/or a housing event
  • However, there are minimum waiting period requirements after bankruptcy and/or foreclosure
  • The waiting period requirement depends on the particular loan program

The most important factor when qualifying for a mortgage is to have been timely in the past 12 months. Preferably, timely in the past 24 months.

How To Fix Bad Credit: The Importance Of Credit Scores And Payment History When Applying For A Home Mortgage

Credit scores and payment history are the two most important factors lenders rely on when making a mortgage approval decision.

  • Good payment history and high credit scores determine the person’s financial responsibility and stability
  • Higher credit scores mean less risk for lenders
  • Lower risk for lenders means lower mortgage rates
  • Mortgage programs have a minimum credit score requirement
  • Lower credit score borrowers will get higher mortgage rates

Borrowers with under 600 FICO may also need to pay discount points.

How To Fix Bad Credit: Credit Scores Explained

There are three major credit reporting agencies: Experian, Equifax, Transunion.

  • Each consumer has a credit score from each of the three major credit bureaus
  • Each credit bureaus has its own way of rating consumers
  • The credit bureaus will take many factors into consideration prior to rendering a consumer’s credit scores
  • Mortgage lenders will use the middle credit score of a borrower as the determining credit score to qualify borrowers and quote rates and terms

Credit Scores range between a low of 350 to a high of 850.

How Credit Scores Are Rated

Below is the credit score ranges and its rating:

  • Credit Score of 720 or higher is rated as excellent
  • Credit Scores between 680 to 719 is rated as a good credit score
  • Credit Scores between 620 to 679 is rated as a fair credit score
  • Credit Scores under 619 is rated as a poor credit score

How To Fix Bad Credit By Having A Mix Of Credit Tradelines

Credit scores range from a low of 350 to a high of 850. Credit scores are based on 5 factors:

  1. Consumer payment history
  2. Balance and/or amount owed versus credit limit
  3. The longevity of the credit tradelines
  4. Mix of credit
  5. New accounts and credit inquiries

35% of the scores are derived by consumer credit history:

  • Timely payments and no missed payments
  • 30 day late payments will plummet your credit scores
  • Outstanding collections and charged-off accounts will impact your credit scores

30% of your credit scores are based on the amount owed:

  • The balance of your credit card versus the credit card limit is called the credit utilization ratio
  • To maximize your credit scores, keep your credit utilization ratios under 10%

15% of your credit scores are based on the longevity of the credit tradelines:

  • The longer you had your credit card and/or revolving accounts, the better it is for your credit scores

10% of your credit scores are based on the variety of credit you have:

  • You should have varied types of credit and not just one type
  • Have credit cards, auto loan, installment loans, home loans, personal loans

10% of your credit scores are based on new credit and credit inquiries:

  • New credit accounts and new credit inquiries only have a 10% factor on your credit scores

Qualifying For A Home Mortgage With A Lender With No Overlays

Credit scores vary from month to month. The best way to maintain great credit and high credit scores is to make sure you pay your monthly payments on time. Keep all of your credit card balances below 10% of its credit limit. Having three to five credit cards will maximize your credit scores. If you have lower credit scores or bad credit, try getting three to five secured credit cards with a $500 credit limit for maximum optimization. If you do not have a car loan, get an installment loan through Credit Builder Loan Program like www.self.inc. Gustan Cho Associates is a five-star national mortgage company licensed in multiple states with no lender overlays. For more information about maximizing your credit to qualify for a home mortgage or to qualify for a mortgage, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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