Mortgage With Bad Credit And Lower Credit Scores
Mortgage With Bad Credit And Lower Credit Scores
This BLOG On Mortgage With Bad Credit And Lower Credit Scores Was UPDATED On April 1st, 2018
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 is crucial to get an approve/eligible per Automated Underwriting System Findings Approval
Home Buyers needing to get qualified for home mortgage with bad credit and lower credit scores, they are not alone:
- Home Buyers 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 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. Home buyers can qualify for mortgage after bankruptcy and housing event. Government and Conventional Loans require a mandatory waiting period after bankruptcy and/or housing event. The Gustan Cho Team now offers non-qm loans which has no waiting period after housing event and/or bankruptcy. Non-QM Loans does require 10% to 20% down payment. The down payment requirements depends 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 home buyers, especially first time home buyers, just assume that they cannot get a mortgage with bad credit and open collections
- FHA Borrowers do not have to pay off outstanding collections and charged off account in to qualify for mortgage
- Borrowers can still qualify for home loan with unsatisfied collections, medical collections, charge offs, previous repossessions of autos, and previous late payments
- There are things needed to be current and out of collections such as the following:
- student loans
- government loans
- child support payments
- Home Buyers seeking a mortgage with bad credit can qualify with lenders who specialize in bad credit mortgage loans such as myself
Types Of Mortgage Lenders
Most first time home buyers go to their local bank to qualify for 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 lenders says no on a FHA Loans does not mean another lenders will not say yes.
- Many first time home buyers 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 specializes in originating mortgage with bad credit
- There are many mortgage lenders, like myself, 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 mortgage with a different lender with no mortgage overlays
Mortgage Lender Overlays
Many mortgage lenders have mortgage lender overlays.
- Mortgage 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
- However most banks require 640 credit score
- Having a 580 credit score may disqualify 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 mortgage 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
- However, many conventional mortgage lenders have mortgage lender overlays of 680 credit scores or higher
- Again, lenders, like myself, have no mortgage lender overlays on government and conventional loans
Mortgage Underwriting Guidelines
Lenders who specialize in approving mortgage 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.
- 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 explanations will be required for any derogatory items
- The mortgage underwriter wants to get an overall credit and financial profile to determine whether or not borrower are suitable for a new mortgage loan
- Whether borrowers have the Ability To Repay Mortgage (QUALITY MORTGAGE)
Ability To Repay And Afford Mortgage Payments?
Mortgage lenders go through an extensive mortgage underwriting process because they do not want borrowers to default on new mortgage loan.
- Overall credit history shows patterns and habits on paying bills on time
- Good credit scores shows 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
- No matter how financially responsible with limited income or no income it will be difficult to afford and make mortgage payments
- That is why job, longevity in job, and 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 mortgage
- Borrowers with consistent income but have bruised bad credit can qualify for home loans
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 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 mortgage with bad credit and lower credit scores with a direct lender with no mortgage overlays please contact us at The Gustan Cho Team at 262-716-8151. Text us for faster response.