Mortgage With Low Credit Scores And Bad Credit Guidelines


This BLOG On Mortgage With Low Credit Scores And Bad Credit Guidelines Was UPDATED And PUBLISHED On October 6th, 2019

Mortgage With Low Credit Scores
Gustan Cho Associates Mortgage Group

Credit scores and income are two of the most important factors in qualifying for a mortgage.  Borrowers can qualify for Mortgage With Low Credit Scores and bad credit. Consumers can have low credit scores and qualify for a home loan as long as they can document qualified income.  However, consumers can have the highest credit scores possible but without documented income, they will not be able to qualify for a mortgage.

  • Income documentation is the most important factor for a home buyer to be able to qualify for a residential mortgage
  • Credit scores, credit, and credit history is an extremely important factor as well
  • There are minimum credit scores required in order to qualify for particular mortgage loan programs
  • To qualify for 3.5% down payment home purchase FHA Loan borrower needs at least a 580 Credit Score
  • To get an approve/eligible per automated underwriting system (AUS) borrowers need timely payment history for the past 12 months
  • There are no minimum credit score requirements to qualify for VA Loans with Gustan Cho Associates
  • Borrowers can qualify for Mortgage With Low Credit Scores
  • Many lenders may require higher credit scores due to their lender overlays
  • For Conventional Loans, 620 credit scores are required

What Are The Minimum Credit Score Requirements

What Are The Minimum Credit Score Requirements

The United States Department of Housing and Urban Development, commonly referred to as HUD, is the parent of the Federal Housing Administration, often referred to as FHA.

  • FHA is a government agency that insures lenders if homeowners default on their FHA Loans
  • Lenders need to follow FHA lending guidelines for HUD to insure FHA Loans
  • Part of FHA lending guidelines are minimum credit scores, DTI, and other guidelines borrowers need to meet
  • FHA requires a minimum of 580 credit scores with 3.5% down payment. 
  • For home buyers seeking to purchase a home who have credit scores under 580, a 10% down payment is required
  • Minimum credit scores required to be eligible for an FHA insured mortgage loan is 500
  • Borrowers who have credit scores between 500 and 579 mortgage underwriters will require compensating factors such as the following:
    • reserves
    • verification of rent
    • a longer term on the job
    • other positive factors
  • Qualifying For Mortgage With Low Credit Scores is very simple
  • Credit scores often fluctuate and an experienced loan officer has ways of manipulating credit scores to benefit borrowers and maximize it.

Minimum Credit Scores For Conventional Loans

What are Minimum Credit Scores For Conventional Loans

Home buyers seeking a conventional mortgage loan, a minimum credit score of 620 is required.

  • Fannie Mae and Freddie Mac are the two giant government sponsored enterprises that make up the rules and regulations when it comes to conventional loans
  • Conventional loans are extremely credit score sensitive
  • The higher the credit scores are the lower the mortgage rates are
  • To get the best par mortgage rates, borrowers will need a 740 credit score
  • A home buyer is eligible for a conventional mortgage loan with a 620 credit score
  • However, their mortgage rates will be on the higher end due to the lower credit score

Mortgage With Low Credit Scores Versus Bad Credit

What is Mortgage With Low Credit Scores Versus Bad Credit

There are many factors where a consumer with a lower credit score can boost up their credit scores in a matter of a short time.

  • Those home buyers with low credit scores who do not meet the bare minimum credit score requirements can easily boost up their credit scores with the help of a loan originator
  • There is the FICO Analyzer where a loan officer will input data from the borrower’s credit report
  • It will state what actions the borrower needs to take to boost up their credit
  • Most time, just by paying down credit cards will boost the borrower’s credit scores substantially
  • Other times may be disputing a medical collection account or paying off an outstanding collection or charge off
  • Some folks have very low credit scores because they have no active credit tradelines
  • Can solve this by getting a few secured credit cards with at least a $500 credit limit
  • Each secured credit card can boost a person’s credit scores by at least 20 or more FICO points

Late Payments And Impact On Credit Scores

What is Late Payments And Impact On Credit Scores

One recent late payment can plummet a person’s credit scores by at least 50 points or more.

  • Make sure to make all monthly minimum payments on time
  • Multiple late payments in the past 12 months will plummet one’s credit scores by more than 100 points
  • A recent late payment on the credit report, contact the creditor and see if they can give one-time forgiveness and take off the late payment
  • Many times consumers with late payments with perfect payment history, the creditor will do that as a one-time courtesy

Paying Off Collection Accounts

What is Paying Off Collection Accounts

Do not pay off any old unsatisfied collection accounts with credit balances unless the creditor is willing to delete the derogatory item off the credit report.

  • This is called pay for delete
  • Negotiate with the collection agency whereby paying off the unpaid collection account balance if they will remove the negative collection account off credit reports
  • If the collection agency is not willing to delete the negative item off a credit report, then leave it alone
  • Can get mortgage approval with unpaid collection accounts with balances
  • Medical collections are normally ignored by mortgage companies
  • Unpaid collection accounts that are medical accounts are normally exempt and ignored by mortgage underwriters

High Credit Card Balances And Impact On Credit Scores

What are High Credit Card Balances And Impact On Credit Scores

Too much debt on revolving accounts is another reason why consumers may have lower credit scores.  Consumers with credit cards, make sure not exceed more than 10% of the available credit limit.  Having credit balance close to credit limit will definitely plummet credit scores temporarily until consumers reduce their credit balance.

Related> How to get mortgage with bad credit

Related> Mortgage with 580 credit score

Related> Qualifying for mortgage with under 580 FICO credit scores

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