Mortgage lenders are in the business of originating mortgage loans. The more mortgage loans they originate, the more money they make. Mortgage lenders want to make as many mortgage loans as possible. However, they need to make sure that the mortgage loans they originate and fund are good mortgage loans and do not default. Mortgage lenders need to follow strict FHA and/or Fannie Mae mortgage lending guidelines in order for them to be able to re-sell the mortgage loans they originate to the secondary market. If they make any mistake in not following the standard FHA and/or Fannie Mae guidelines, it may mean that they need to be stuck with holding the mortgage loan and not being able to sell them on the secondary marketplace.
Ideal Mortgage Loan Borrower
The ideal mortgage loan borrower for every mortgage lender is a borrower who has high credit, great stable income, excellent payment history, no late payments, no bankruptcies, no foreclosures, no deed in lieu of foreclosures, no short sales, low debt to income ratios, consistent employment, rental verification, sufficient reserves, lower loan to value, and compensating factors. Unfortunately, this is most likely not the case and those with the above credit and financial profile can go anywhere and can bank they will get an instant mortgage loan approval. For those mortgage loan borrowers seeking a home loan with bad credit, there are things that mortgage lenders look for.
How Mortgage Lenders View Credit History
We will discuss credit scores in the next paragraph and discuss credit history. Mortgage lenders do not just look at a mortgage loan borrower’s credit scores. Mortgage underwriters will review the mortgage loan borrower’s overall credit history. You can get a home loan with bad credit but your credit history will be reviewed and analyzed on the period of bad credit you had. For example, if you had a ten year credit history and had great credit for the first 7 years but lost your job on the 8th year, your credit scores might have plummeted on the 8th and 9th year but on your 10th year, your credit may have started to get re-established. This is honorable and understandable. On year 8 or year 9, you may have filed bankruptcy, had a foreclosure or deed in lieu of foreclosure, or even had a short sale but on year 10, you might have gotten 3 to 5 secured credit cards and had a perfect on time payment history. This is very important. What mortgage lenders will look on this case scenario is that you had stellar credit for the first 7 years of your life and the two years, 8th year and 9th year, the reason for your bad credit was due to a loss of job, loss of business, sickness, or divorce and due to these extenuating circumstances, your credit went to HELL but after you got new employment, you began to re-establish your credit by establishing new credit either by getting secured credit cards or adding other positive credit.
Credit After Bankruptcy And Foreclosure
Many mortgage lenders do not want to see any late payments after a mortgage loan applicant has filed bankruptcy and/or had a foreclosure. Late payments after a bankruptcy and/or short sale is an automatic denial for most mortgage lenders. Mortgage lenders want to see re-established credit after a bankruptcy and/or foreclosure.
Verification of rent is extremely important and carries a lot of weight. Verification of rent is only proven by providing the mortgage lender 12 months of cancelled checks paybable to the landlord. Cash payments and a receipt by the landlord cannot be used to prove rental verification. If you are renting from a registered property management company, a letter from the property management manager is sufficient. Make sure if you are renting, you pay your monthly rent payments with a check.
No Bank Overdrafts In Past 12 Month
One of the worst things mortgage lenders do not like to see is overdrafts in bank statements in the past 12 months. Bank overdrafts is viewed by mortgage lenders as financial irresponsibility and mortgage loan applicants can get denied for a residential mortgage loan with bank overdrafts in their bank statements.