Qualifying For Home Loans With Recent Late Payment On Mortgage

This BLOG On Qualifying For Home Loans With Recent Late Payment On Mortgage Was UPDATED On May 8th, 2019

The main factors in qualifying for a mortgage loan is credit scores, income, liabilities, and assets.

• There are minimum credit score requirements to qualify for a mortgage loan
• For FHA, home buyers can qualify for an FHA loan with credit scores as low as 500
• If credit scores fall between 500 and 579 credit scores, buyers are required to put 10% down payment is required under HUD 4000.1 FHA Handbook Guidelines
• If credit scores are 580 or higher, buyers can qualify for an FHA loan with 3.5% down payment
• Anyone with a credit score of under 620, the debt to income ratio cannot exceed 43% to get an approve/eligible per Automated Underwriting System Approval
• If the credit score is 620 debt to income ratio caps can go as high as 46.9% front end debt to income ratio and 56.9% back end debt to income ratio to get AUS Approval
• FHA 203k Loan programs require credit scores of at least 580 unless the lender has overlays
• Conventional loan programs require debt to income ratios of 620
• Condotel financing and non-warrantable condominium loans require minimum credit scores of 680
• Jumbo mortgages also require minimum credit scores of 680
• Jumbo mortgage  programs that only require 10% down payment require credit scores of 740
• Gustan Cho Associates Mortgage Group offers non-qm jumbo loans with 620 credit scores and no income tax returns required

Debt To Income Ratio Mortgage Guidelines

Debt to income ratios are another important factor in qualifying for a mortgage:

• We discussed FHA debt to income ratio requirements earlier
• For conventional loans, the maximum debt to income ratios allowed is 59% DTI
• For VA Loans, there is no debt to income ratio requirements
• Debt to income ratio requirements can be as high as 60% DTI
• This is the case as long as borrowers can get an automated approval per the Automated Underwriting System
• For USDA Loans, the maximum front end debt to income ratios are capped at 29% and the back end debt to income ratios are capped at 41%
• Jumbo mortgage loans debt to income ratios are normally capped at 43%
• Some Jumbo Mortgage Lenders may go up as high as 45% debt to income ratios
• Condotel mortgage loans and Non-Warrantable condominium loan programs require a maximum debt to income ratio cap of 40% DTI

Can I Qualify For Mortgage With Bad Credit?

Borrowers can qualify for a mortgage with prior bad credit. However, need to have re-established credit and no late payments in the past 12 months.

• Lenders really frown upon late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
• Bad credit mortgage loans? 
• What are bad credit mortgage loans? 
• What is a home loan with bad credit?

Home Buyers can qualify for a mortgage with bad credit. Outstanding collections and charged off accounts do not have to be paid to qualify for home loans. However, timely payments in the past 12 months are crucial.

Credit History Of Borrower

Lenders will view overall credit history. Mortgage lenders do understand periods of derogatory credit and late payment history due to periods of extenuating circumstances. Periods of unemployment, business loss, medical circumstances, divorce, or other extenuating circumstances often creates a financial strain on consumers.

• However, lenders want to see borrowers been timely with all of the payments, especially mortgage payments,  in the past 12 months
• One or two late payments may be understandable
• Any late payments in the past 12 months are viewed negatively by mortgage underwriters
• Borrowers can qualify for mortgages with the unpaid collection and charged off accounts and still qualify for a mortgage
• Borrowers can have late payment history for two years due to being unemployed
• As long as they have re-established credit and no late payment history for the past 12 months, they can qualify for a home loan

Late Payments In Past 12 Months

Recent late payment on mortgage payments can be a deal killer.

• Homeowners who currently sold a home and paid off the mortgage balance but had late payments on mortgage payments may have an issue
• Even though homeowner paid off the outstanding mortgage loan balance, new lenders want to see past 12 months mortgage payment history
• Many home buyers do not understand why it should be a problem if the mortgage is paid off
• The fact of the matter is that it is a major problem
• One 30 days late payment in the past 12 months on a past mortgage payment can be alright
• But multiple late payments on mortgage payments will most likely disqualify chances of a new mortgage
• Late payment on mortgage payments may need to get seasoned for 12 months to get an automated underwriting system approval

Verification Of Mortgage: VOM

Homeowners who sold the current home and are purchasing a new home, current mortgage loan payment history will be reflected on a credit report.

• If current mortgage payments reflect timely payments on the credit report, the new lender will request verification of mortgage, also referred to as a VOM
• If mortgage payment history is not reflected on credit reports, the new lender will request verification of mortgage even though the loan balance is paid off
• A credit supplement will need to be done by the new lender if mortgage payment history is not on credit report
• Need to provide proof of past 12 months mortgage payments via providing them with canceled checks
• The new mortgage lender will consult with a third party credit vendor to reflect timely payments on the credit report
• The third party credit vendor will contact the previous mortgage lender and ask for verification of mortgage.
• Need to be timely on the past 12 months mortgage payments even with zero balance due to selling home
• Homeowners not been timely with mortgage payments prior to selling home and paying off the mortgage balance will have an issue
• To be eligible for a new mortgage loan, borrowers need to prove they have been timely with prior mortgage payments for the past 12 months
• Some lenders may accept a one time 30-day late payment in the past 12 months
• But homeowners who have been delinquent consistently on mortgage payments may not be eligible for a new loan until there has been a 12-month seasoning since last late payment on a mortgage