Mortgage Approval With Bad Credit and Late Payments

Mortgage Approval With Bad Credit and Late Payments

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers mortgage approval with bad credit and late payments. Many consumers have had a period in their lives. Borrowers must meet minimum credit score 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 they automatically qualify for mortgages.

Mortgage underwriters will thoroughly review the borrower’s credit reports and payment history. Special emphasis will be placed on the payment patterns of the past 12 months.

Also, most lenders will not want borrowers to have any late payments after bankruptcy or foreclosure. Late payments in the past 12 months are not a deal-killer. Also, late payments after bankruptcy or housing events are not a deal-killer either. Gustan Cho Associates are lenders with no overlays on government or conventional loans.

Understand Your Credit Score

Different lenders have different criteria for what is considered “bad credit.” Understand your credit score and where you stand. A larger down payment may offset the risk for lenders, making them more willing to work with you. Having a co-signer with a better credit score or applying jointly with a partner may improve your chances. If there are reasons for bad credit, such as medical issues or job loss, provide a written explanation to accompany your application. Speak With Our Loan Officer for Credit Score Loans

Show Stable Employment and Income

A steady job history and reliable income can strengthen your mortgage application. Consider government-backed loans. FHA (Federal Housing Administration) loans, VA (Veterans Affairs) loans, and USDA (U.S. Department of Agriculture) loans may have more lenient credit requirements.

Different lenders have different criteria, so it’s essential to shop around and explore various options.

Some lenders specialize in working with individuals with less-than-perfect credit. Keep in mind that these loans may come with higher interest rates.  Reducing outstanding debts can improve your debt-to-income ratio, making you a more attractive borrower.

How To Get Mortgage Approval With Bad Credit

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Speak with a mortgage broker or loan officer specializing in helping individuals with bad credit. They can provide guidance based on your specific situation. 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 stop the flow of household income streams. This interruption of income prevents consumers from paying their bills on time, which affects their credit scores. Some folks were forced to file bankruptcy; others lost their homes through foreclosure due to extenuating circumstances.

Finding a Lender That Specializes With Bad Credit Mortgages

Mortgage lenders understand that people go through financial problems, and everyone who has had a period of bad credit can qualify for mortgage approval with bad credit.  Remember, while securing a mortgage with bad credit is possible, it often comes with higher interest rates and less favorable terms.

Some sellers may offer lease-to-own arrangements, giving you time to improve your credit before obtaining a mortgage.

The team at Gustan Cho Associates specializes in helping home buyers get mortgage approval with bad credit.  Improving your credit over time can open up better options for you in the future. Additionally, seeking advice from a financial advisor or mortgage professional can provide personalized guidance based on your circumstances. Unfortunately, not every person can get mortgage approval with bad credit, which we will explain in this blog.

Get Help To Find A Lender For Bad Credit Mortgage Loans

How Can I Get a Mortgage Approval With Bad Credit?

Mortgage applicants who were victims of the real estate and financial collapse of 2008 and lost their jobs or businesses 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 borrowers might be in bankruptcy or foreclosure.

Other borrowers 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 judgment.

Those with prior bad credit can get mortgage approval with bad credit. Late payments after bankruptcy and foreclosure are not always deal-killers. Not all lenders have the same mortgage guidelines. Just because a borrower does not qualify for an FHA loan with one bank does not mean they do not qualify with another lender.

Mortgage Agency Guidelines Versus Lender Overlays

Most mortgage lenders have overlays. If denied at one lender due to their overlays, please contact us at Gustan Cho Associates. Getting mortgage approval with bad credit can be challenging, but it’s not impossible.

Gustan Cho Associates are mortgage lenders with zero overlays on government and conventional loans. We are licensed in 48 states including Washington, DC, Puerto Rico, and the U.S. Virgin Islands.

There are some steps you can consider to improve your chances. Obtain a copy of your credit report from the major credit bureaus (Equifax, Experian, and TransUnion). Review the report for errors or inaccuracies and dispute any discrepancies. Over 80% of our borrowers at Gustan Cho Associates were denied or could not qualify at other lenders due to their lender overlays.

Qualifying For a Mortgage With Bad Credit

How Finding A Lender That Specialized With Bad Credit MortgagesIf this is the case and borrowers are fully employed, and the financial situation has stabilized, borrowers can qualify for a mortgage loan. Borrowers can get mortgage approval with bad credit. Borrowers do not have to pay off old bad debts or charge-offs.

Judgments are a separate matter, and I will discuss how to qualify for a mortgage loan with a judgment later and on later mortgage blogs.

One of the most important things about securing 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 or overdrafts in the past year. No late payments after bankruptcy or housing events.

Qualify For A Mortgage With Bad Credit Score, Click Here

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

Borrowers with credit scores between 500 and 579 FICO need a 10% down payment to qualify for an FHA loan. 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 620 credit scores. For borrowers with credit scores above 620 FICO, the minimum down payment is 3.5%, but the debt-to-income ratio goes up to 56.9% at the back end. Front-end DTI is capped at 46.9% to get approve/eligible per AUS.

Multiple Recent Late Payments

There will be issues for borrowers who meet the credit score requirements but have a habit of recent late payments. Lenders will require detailed letters of explanation as to why they have recently made late payments. Borrowers’ payment history is a reflection of how financially responsible they are. Most 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.

Lender Overlays Versus Mortgage Guidelines

Many mortgage lenders have what are called lender overlays. There are two types of mortgage guidelines.

  1. Government and Fannie or Freddie mortgage guidelines
  2. Lender overlays

All lenders require that borrowers meet federal mortgage guidelines. However, every lender can have their lender overlays.

Lender Overlays Explained

Overlays are mortgage lending requirements that are above and beyond those of minimum federal mortgage guidelines.

Lender overlays are additional mortgage qualification requirements that a mortgage lender adds to the minimum FHA VA, USDA,  or Fannie Mae or Freddie Mac guidelines.

For example, borrowers can qualify for a 3.5% down payment mortgage loan with bad credit and a credit score of 580. However, a lender may require a minimum credit score of 640 to do the mortgage loan. The higher credit score required is called a lender overlay on credit scores.

Typical Overlays By Lenders

Lenders can have overlays on almost everything. In this section, we will cover the common mortgage lender overlays. Overlays on credit scores. Overlays on collections and debt-to-income ratios. Overlays on debt-to-income ratios. Lenders overlay on gift funds.

Lenders can have overlays on the verification of rent, and overlays on late payment after bankruptcy or after a housing event (foreclosure, deed-in-lieu of foreclosure, short sale)

Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Homebuyers who need to qualify for FHA, VA, USDA, or conventional loans with a lender with no overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are available evenings, weekends, and holidays seven days a week.

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One Comment

  1. I did my due diligence and built up my credit to get into the range of their “minimum requirement”. with the assistance of a credit expert Alex Carlucci of Gustan Cho Associates to helped me fixed my credit. He helped me pay off my CC debt and improved my scores to 780 in a couple of days Applied, got approved, Took less than a week for the whole process, with funds directly sent to my checking. Like to thank Alex Carlucci of Gustan Cho Associates.

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