Mortgage With Bad Credit And Lower Credit Scores
This Article Is About Qualifying For A Mortgage With Bad Credit And Lower Credit Scores
Home Buyers do not need perfect credit to qualify for mortgages. Outstanding collections and charged-off accounts do not have to be paid off to qualify for mortgage loans. However, timely payments in the past 12 months are crucial to getting an approve/eligible per Automated Underwriting System Findings Approval
Home Buyers needing to get qualified for a home mortgage with bad credit and lower credit scores are not alone. Borrowers can get a mortgage with bad credit as long as they have been timely with all monthly credit obligations for the past 12 months. Just because borrowers had a period of prior bad credit does not make them a bad credit risk. Lenders who specialize in originating and approving mortgages 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. Homebuyers can qualify for a mortgage after bankruptcy and housing event. Government and Conventional Loans require a mandatory waiting period after bankruptcy and/or housing event. Gustan Cho Associates now offers non-QM loans which have no waiting period after a housing event and/or bankruptcy. Non-QM Loans do require a 10% to 20% down payment. The down payment requirements depend on borrowers’ credit scores.
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 homebuyers, especially first-time home buyers, just assume that they cannot get a mortgage with bad credit and open collections. Borrowers do not have to pay off outstanding collections and charged-off accounts to qualify for a mortgage. Borrowers can still qualify for a home loan with unsatisfied collections, medical collections, charge-offs, previous repossessions of autos, and previous late payments.
There are credit tradelines such as government loans that cannot be in default and need to be in good standing with a written payment agreement. The following debts need to be current and out of collections and in good standing:
- student loans
- government loans
- tax liens and outstanding government debts
- child support payments
Home Buyers seeking a mortgage with bad credit can qualify with lenders who specialize in bad credit mortgage loans.
Lenders That Specialize Mortgage With Bad Credit
Most first-time home buyers go to their local bank to qualify for a home loan. Not all lenders have the same mortgage requirements on FHA, VA, USDA, and Conventional Loans. Most lenders have lender overlays on government and conventional loans. Just because one lender says no on an FHA loan does not mean other lenders will not say yes. Mortgage companies will have lender overlays on credit scores, debt-to-income ratio, prior bad debt, manual underwriting, and other lending guidelines.
Understanding The Mortgage Process
Many first-time homebuyers do not realize how the lending business works. They often think that a bank is the only place to apply for a mortgage. Many borrowers who need a mortgage with bad credit end up getting turned down by their local banker. Unfortunately, many bankers do not tell them or advise them that they can qualify with other lenders who specialize in originating mortgages with bad credit There are many lenders, Gustan Cho Associates, who specialize in helping borrowers get a mortgage with bad credit. Just because borrowers do not qualify with a bank, credit union, or a particular mortgage banker does not mean they will not qualify for a mortgage with a different lender with no mortgage overlays.
Mortgage Lender Overlays
Many mortgage companies have lender overlays. Lender overlays are additional mortgage guidelines on top of what is required by HUD, VA, USDA, and/or Fannie Mae or Freddie Mac. For example, to qualify for a 3.5% down payment FHA loan, a 580 credit score is required. Most banks require a 640 credit score on FHA and VA loans. Having a 580 credit score may disqualify a borrower from a bank, credit union, or particular mortgage banker but there are lenders like myself with no overlays and can qualify borrowers with 580 credit scores all day long.
Same with conventional lenders. The minimum credit score required to qualify for a conventional mortgage loan per Fannie Mae and/or Freddie Mac Guidelines is 620 credit scores. Many lenders have lender overlays of 680 credit scores or higher on conventional loans. Gustan Cho Associates has a national reputation for not having lender overlays on government and conventional loans.
Mortgage With Bad Credit Underwriting Guidelines
Lenders who specialize in approving mortgages with bad credit with no mortgage overlays, normally follow Automated Underwriting System Findings and will just go off the AUS Report. Mortgage Underwriters need to feel secure and confident borrowers with bad credit will be making their mortgage payments timely and not default on their new mortgage. The mortgage underwriter will be first be reviewing the mortgage loan borrower’s credit, credit scores, and credit history.
Mortgage underwriters will analyze and review the following prior to determining if the loan applicant qualifies for a mortgage:
- The overall credit history will be looked at
- Are bills being paid on time?
- Periods of late payments?
- Credit scores will be evaluated to judge risk
- Prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale?
- Current on student loans?
- Current on child support?
- Any tax liens and/or judgments?
- Letters of explanation will be required for any derogatory items
- The mortgage underwriter wants to get an overall credit and financial profile to determine whether or not borrowers are suitable for a new mortgage loan
- Whether borrowers have the Ability To Repay Mortgage (QUALITY MORTGAGE)
The mortgage underwriter will determine if the borrower meets all of the agency mortgage guidelines as well as the mortgage company’s lender overlays prior to issuing a conditional and/or clear to close.
Ability To Repay And Afford Mortgage Payments?
Lenders go through an extensive mortgage underwriting process because they do not want borrowers to default on the new mortgage loan.
- Overall credit history shows patterns and habits on paying bills on time
- Good credit scores show that consumers are financially responsible
Periods of bad credit shows that something happened during the bad credit period such as the following:
- job loss
- business loss
- medical issues
- death in the family
- timely payment in the past 24 months
- amount of debt
- credit utilization ratio
- qualified income and debt to income ratio: No matter how financially responsible, if the borrower has limited or no income, it will be difficult to afford and make mortgage payments
- That is why job, longevity in a job, and qualified income, as well as income history, is important
- Can have the best credit in the world but without documented income, borrowers will not qualify for a mortgage
Borrowers with consistent income but have bruised bad credit can qualify for home loans as long as they have re-established themselves and have been timely with all of their monthly payments for the past 12 months.
Qualifying For A Mortgage With Bad Credit
Having bad credit is like going through a hangover. It will get better over time. The 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 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 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.
Borrowers who need to qualify for a mortgage with bad credit and lower credit scores with a mortgage company with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151. Text us for a faster response. Or email us at [email protected]