Mortgage Approval With Bad Credit And Late Payments

Mortgage Approval With Bad Credit And Late Payments

This BLOG On Mortgage Approval With Bad Credit And Late Payments Was UPDATED On January 7th, 2018

Many consumers have had a period in their lives.

  • Mortgage Borrowers need to meet minimum credit score requirements and debt to income ratio requirements to qualify for particular mortgage programs
  • However, just because borrowers meet credit score and DTI requirements does not mean that automatically qualify for mortgages
  • Mortgage Underwriters will thoroughly review borrowers credit report and payment history
  • Special emphasis will be focused in the payment patterns of the past 12 months
  • Also, most lenders will not want borrowers to have any late payments after bankruptcy and/or foreclosure
  • Late payments in the past 12 months is not a deal killer
  • Also, late payments after bankruptcy and/or housing event is not a deal killer either

The Gustan Cho Team at USA Mortgage are direct lenders with no overlays on government and/or conventional loans.

How To Get Mortgage Approval With Bad Credit

Times of bad credit due to the following types of extenuating circumstances:

  • Unemployment
  • Loss of business
  • Medical reasons
  • Divorce
  • Death in the family

Extenuating circumstances often stops the flow of household income streams. This interruption of income affects consumers from paying their buill on time which affects their credit scores. Some folks were forced to file bankruptcy while others had to lose their homes through foreclosure due to extenuating circumstances.

Mortgage lenders understand that people go through financial problems and everyone who had a period of bad credit can qualify for a mortgage approval with bad credit.  I specialize in helping home buyers get mortgage approval with bad credit.  Unfortunately, not every person can get a mortgage approval with bad credit which I will explain on this blog.

How Can I Get A Mortgage Approval With Bad Credit?

Mortgage applicants who were victim to the real estate and financial collapse of 2008 and lost their job or business, chances are that credit scores have suffered because they could not pay their bills on time.

  • Chances are they fell behind and may have late payments, charge offs, or even judgments
  • Some might have bankruptcy and/or foreclosure while others just let the bad debt linger, hoping the collection agencies will not force a wage or bank account garnishment or take the matter to court for a judgment

Those with prior bad credit can get mortgage approval with bad credit. Late Payments after bankruptcy and foreclosure is not a deal killer. Not all lenders have the same mortgage guidelines. Just because a borrower does not qualify for a FHA Loan with one bank does not mean they do not qualify with another lender. Most mortgage lenders have overlays. If denied at one lender due to their overlays, please contact us at The Gustan Cho Team at USA Mortgage. We are direct lenders with ZERO OVERLAYS on government and conventional loans. Over 75% of our borrowers at Gustan Cho Associates are folks who either gotten denied or could not qualify at other lenders due to their lender overlays.

Qualifying Home Loan With Bad Credit

If this is the case and borrowers are now fully employed and financial situation has stabilized, borrowers can qualify for a mortgage loan.

  • Borrowers can get a mortgage approval with bad credit
  • Borrowers do not have to pay off old bad debt or charge offs
  • Judgments is a separate matter and I will discuss on how to qualify for a mortgage loan with a judgement later and on later mortgage blogs
  • One of the most important things that will secure a mortgage approval with bad credit is that the mortgage lender wants to see re-established credit for at least one year
  • No late payment history nor overdrafts in the past year
  • No late payments after bankruptcy and/or housing event

Minimum Credit Scores Needed To Qualify For Mortgage Approval With Bad Credit

Mortgage Borrowers who have credit scores between 530 FICO and 579 FICO, need a 10% down payment to qualify for a FHA Loans.

  • If your credit scores are between 580 FICO and 619 FICO,  the minimum down payment required is 3.5%
  • Maximum debt to income ratios are capped at 43% DTI for borrowers with under 620 credit scores
  • Borrowers with credit scores above 620 FICO, minimum down payment is 3.5% but the debt to income ratio caps goes up to 56.9% back end and front end DTI is capped at 46.9% to get approve/eligible per AUS

Multiple Recent Late Payments

Mortgage Borrowers who qualify with the credit score requirements but have a habit of recent late payments, there will be issues. Mortgage lenders will require detailed letters of explanation as of why they have recent late payments.

  • Mortgage Borrowers payment history is a reflection on how financially responsible they are
  • Most mortgage lenders want to see timely payments in the past 12 months
  • It will be difficult to get an approve/eligible per Automated Underwriting System (AUS) with multiple late payments in the past 12 months

Mortgage Lender Overlays Versus Mortgage Guidelines

Many mortgage lenders have what is called mortgage lender overlays.

There are two types of mortgage guidelines:

  1. Government And Fannie/Freddie Mortgage Guidelines
  2. Lender Overlays

All mortgage lenders require that borrowers meet federal mortgage guidelines. However, every lender can have their own lender overlays. Lender Overlays are mortgage lending requirements that are above and beyond those of minimum federal mortgage guidelines:

  • Mortgage lender overlays are additional mortgage qualification requirements that a mortgage lender adds to the minimum FHA VA, USDA,  or Fannie Mae/Freddie Mac guidelines
  • For example, borrowers can qualify for a 3.5% down payment mortgage loan with bad credit with a credit score of 580 
  • However, a mortgage lender may require a minimum credit score of 640 in order for them to do the mortgage loan
  • The higher credit score required is call lender overlays on credit scores

Typical Lender Overlays By Mortgage Lenders

Lenders can have overlays on almost everything.

Here are common mortgage lender overlays:

  • Overlays on credit scores
  • Overlays on collections and debt to income ratios
  • Overlays on debt to income ratios
  • Overlays on gift funds
  • Overlays on verification of rent
  • Overlays on late payment after bankruptcy and/or after a housing event (foreclosure, deed in lieu of foreclosure, short sale)

The Gustan Cho Team at USA Mortgage are direct lenders with no mortgage overlays on government and conventional loans. Home Buyers who need to qualify for FHA, VA, USDA, Conventional Loans with a lender with no mortgage overlays can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

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