Mortgage With Bad Credit


Do You Need Mortgage With Bad Credit?

If you need a home mortgage with bad credit, you are not alone.  You can get a mortgage with bad credit as long as you have been timely with your monthly credit obligations for the past 12 months.  Just because you have had a period of prior bad credit does not make you a bad credit risk and mortgage lenders who specialize with originating and approving mortgage with bad credit realize this.  There are many reasons why people had periods of bad credit especially after the financial, credit, and real estate collapse of 2008.

Home Loan After Bankruptcy And Foreclosure

Bankruptcies and foreclosure rates have soared to historical highs.  Every American knows of someone who has either filed bankruptcy and/or had a foreclosure.  Over half of my mortgage loan borrowers have had a prior bankruptcy, foreclosure, deed in lieu of foreclosure or short sale.  Many home buyers, especially first time home buyers, just assume that they cannot get a mortgage with bad credit and open collections.  You do not have to pay off your old collections in order to qualify for a mortgage with bad credit.  You can still get a residential mortgage loan with open unsatisfied collections, medical collections, charge offs, previous repossessions of autos, and previous late payments.  There are things that you need to be current such as student loans, government loans, and child support payments.  However,  if you are seeking a mortgage with bad credit, everything can be worked out.

Mortgage Lenders

Most first time home buyers go to their local bank to qualify for a residential mortgage loan.  Many first time home buyers do not realize how the mortgage lending business works and think that a bank is the only place to apply for a mortgage loan and think that a mortgage company is a brick and mortar shop.  Many mortgage borrowers who need a mortgage with bad credit end up getting turned down by their local banker and unfortunately, many bankers do not tell them or advise them that they can qualify with a mortgage broker who specializes in originating mortgage with bad credit.   There are many mortgage lenders, like myself, who specialize in helping mortgage loan borrowers get a mortgage with bad credit.  Just because you do not qualify with a bank, credit union, or a particular mortgage banker does not mean you will not qualify for a mortgage loan.

Mortgage Lender Overlays

Many mortgage lenders have mortgage lender overlays.  Mortgage lender overlays are additional mortgage lending guidelines on top of what is required by HUD and/or Fannie Mae or Freddie Mac.  For example, to qualify for a 3.5% down payment FHA mortgage loan, a mortgage loan borrower needs a 580 FICO credit score minimum per FHA guidelines but a bank may require that their mortgage loan applicants have a minimum of a 640 FICO credit score.  Having a 580 FICO credit score may disqualify a mortgage loan borrower from a bank, credit union, or particular mortgage banker but there may be hundreds of mortgage brokers that cater to home buyers with credit scores down to 580 FICO.  Same with conventional mortgage lenders.  The minimum credit score required to qualify for a conventional mortgage loan per Fannie Mae and/or Freddie Mac Guidelines is 620 FICO credit scores.  However, many conventional mortgage lenders have mortgage lender overlays of 680 FICO credit scores or higher.  Again, there are mortgage lenders, like myself, that have wholesale conventional mortgage lenders with no mortgage lender overlays on conventional loans.

Bad Credit Mortgage Lenders Underwriting Guidelines

Bad credit mortgage lenders, lenders who specialize in approving mortgage with bad credit, normally look at several factors when underwriting an applicant seeking a mortgage with bad credit.  The main goal here is that the bad credit mortgage lender needs to feel secure and confident that the mortgage loan borrower with bad credit will be making their mortgage payments timely and not default on their mortgage loan.

Mortgage Underwriter

The mortgage underwriter will be first be reviewing the mortgage loan borrower’s credit, credit scores, and credit history. The overall credit history will be looked at.  Are you paying your bills on time?  Did you have periods of late payments?  Credit scores will be evaluated to judge risk.  Do you have a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale?  Are you current on your student loans?  Are you current on your child support?  Do you have any tax liens and/or judgments?  Letters of explanations will be required for any derogatory items.  The mortgage underwriter wants to get an overall credit and financial profile of you to determine whether or not you are suitable for a new mortgage loan and whether you can afford to pay your new mortgage loan in a timely manner.

Can You Afford Your Mortgage Payments?

Mortgage lenders go through an extensive mortgage underwriting process because they do not want you to default on your mortgage loan.  Your overall credit history shows your habits on paying your bills on time.  Good credit scores shows that you are financially responsible.  Periods of bad credit shows that something happened during the bad credit period such as a job loss, business loss, divorce, medical issues, or a death in the family.  No matter how financially responsible you are, if you have limited income or no income, how can you afford to make your mortgage payments?  That is why your job, longevity in your job, and your income as well as your income history is important.  You can have the best credit in the world but if you cannot document income, you will not get a mortgage.  If you have solid consistent income but have bruised bad credit, you can qualify for a mortgage loan.

Bad Credit Is Not Forever

Having bad credit is like going through a hangover.  It will get better over time.  Majority of hard working consumers do go through periods of financial distress where the end result is their credit suffering.  One late payment made because of a slip up will probably drop your credit scores by 50 or more points.  However, this drop of 50 points is a temporary drop and their credit scores will go back up after a year or so.  Those who have had a period of bad credit or had a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale and have super low credit scores should start re-establishing their credit as soon as possible by getting 3 to 5 secured credit cards with $500 credit limits.

Gustan Cho

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