Mortgage With Outstanding Bad Credit

This BLOG On Mortgage With Outstanding Bad Credit Versus Bankruptcy Was UPDATED On January 26th, 2019

Home Buyers can qualify for a mortgage with outstanding bad credit.

  • Many lenders will require borrowers to pay off outstanding collections and charge off accounts to qualify for FHA, VA, and Conventional Loans
  • We will discuss FHA Loans on this blog
  • This is because FHA Home Loans is the has the most lenient mortgage guidelines when it comes to qualifying for a mortgage with outstanding bad credit
  •  The U.S. Department of Housing and Urban Development (HUD) is the parent of FHA
  • FHA Guidelines On Collection Accounts does not require that homebuyers pay off outstanding collections and charge off accounts to qualify for FHA Loans
  • Many mortgage loan applicants are under the belief that they need to file bankruptcy in order to qualify for a mortgage
  • This is because they were told by many banks and mortgage companies that they need to pay outstanding collections and charge off accounts off in order to qualify for FHA Loans
  • FHA does not require it but lenders with overlays can require their own requirements that are above and beyond those of HUD Guidelines

These additional mortgage guidelines by individual lenders are called mortgage lender overlays.

What Is Bankruptcy?

Bankruptcy is a great option for those who are overwhelmed with debt.

  • Consumers should weigh the pros and cons of filing bankruptcy and see if there are any other alternatives to filing bankruptcy
  • Consumers who have older aged debts and the creditors are leaving them alone may want to do some research
  • See if the statute of limitations period of older debts has passed or are close to the statute of limitation period expiring
  • Check state laws and see what the statute of limitations are for older debts
  • Some states may be five years, while other states might be longer
  • Judgments are the worst credit derogatory item a consumer may have
  • It may be wise to do some due diligence on whether bankruptcy is right
  • There are many times when bankruptcy is not necessary for qualifying for a mortgage with outstanding bad credit
  • Lenders will lend mortgage with outstanding bad credit

All lenders want to see is timely payments in the past 12 months.

Debt Settlement Alternative To Bankruptcy

Consumers who re-established themselves and have a stable income and some assets may want to settle and negotiate with creditors instead of filing bankruptcy. Debt Settlement is not a form of bankruptcy like many lenders label. Many lenders consider debt settlement worse than bankruptcy and have overlays in a two to three year waiting period after debt settlement. However, Gustan Cho Associates is a national lender with no overlays on government and conventional loans and does not consider debt settlement a form of bankruptcy.

  • Depending on the number of debts a consumer has, they may want to do debt settlement
  • They can negotiate on a percentage on the balance they owe with a creditor either paying them in a lump sum or payments
  • Many times creditors or collection agencies will settle for 20 or 30 percent on the face value of debt
  • This will relieve a large percentage of balance and stop collection proceedings
  • Same with judgments
  • People with outstanding unsatisfied judgment, or judgments, can negotiate with the judgment creditor about a settlement on pennies on the dollar
  • Tell the judgment creditor what their plans are
  • Implying that they are planning on filing bankruptcy due to the unsatisfied judgments
  • A creditor, collection agency, and judgment creditor’s worst nightmare is a bankruptcy

Bankruptcy will wipe out all debts and any outstanding judgments so the likelihood of them settling is good.

Hiring Debt Settlement Company To Qualify For Mortgage With Outstanding Bad Credit

There are professional debt settlement companies. They will charge somewhere between 20 to 50% of the debts they save consumers. So debt settlement companies are not cheap.

  • Whatever a debt settlement company can do for the consumer, they can do it themselves
  • It is just a matter of being focused, organized, and making sure whatever payment plan or debt they settle, that they go through with it

Before giving any creditor or credit collector a dime, make sure to have everything in writing.

Judgments, Wage Garnishments, And Assets Seizure When Qualifying Mortgage With Outstanding Bad Credit

Those who have multiple larger judgments and the judgment creditors are not willing to negotiate in giving a substantial face value judgment reduction, bankruptcy may be an option. Home Buyers can qualify for a mortgage with outstanding bad credit and judgments. Borrowers need a written payment agreement with judgment creditor and payment history of three months to qualify for FHA Loans with outstanding judgment. Borrowers can also qualify for FHA Loans with outstanding judgments and pay off the judgment at or prior to the closing of their home loan.

  • A judgment is the worst derogatory item consumers can possibly have on the credit report
  • Judgment is like cancer
  • A judgment is normally good for ten years
  • However, a judgment creditor can renew the judgment for an additional 10 years once the judgment expires
  • To be considered judgment proof, judgment debtors need to have little or no income and do not have any assets
  • A judgment cannot go after debtor if they have no assets
  • However, once a judgment creditor finds out that they are making good money and have assets, they can come out of hibernation

Judgment creditors can come to enforce judgments by garnishing wages, seizing bank accounts and placing liens on the property and other assets.

Not Do Anything And Let The Statute Of Limitations Run Out

The final option and another alternative to filing bankruptcy are to do absolutely nothing and let the statute of limitations run out.

  • Consumers who have a bunch of charged-offs and unsatisfied debts that are older than 3 years old and debt collectors are leaving them alone, may want to take chances and do absolutely nothing and let the statute of limitations run out
  • Depending on state laws, the most statutes of limitations on unsecured debts is 5 years from the date of last activity
  • Some states are 6 years
  • The older debts are the harder it is for the debt collector to collect on it and the less impact it has on credit scores
  • Remember that derogatory information is deleted from credit report 7 years after the date of the last activity
  • Also, home buyers do not have to pay off old unsatisfied debts or collection accounts to qualify for a residential mortgage loan
  • Borrowers can qualify for a residential mortgage loan with open collections, charge offs, and older late payment histories

As long as borrowers have been timely in the past twelve months on their payments, they should get an approve/eligible per Automated Underwriting System.

Pros And Cons In Qualifying For Mortgage With Outstanding Bad Credit Or After Bankruptcy

Before filing Chapter 7 and/or Chapter 13 Bankruptcy to qualify for a mortgage with outstanding bad credit, consult with several lenders.

More times than not, borrowers can qualify for a mortgage with outstanding bad credit such as the following:

Outstanding Collections:

  • Unpaid Collection Accounts do not have to be paid

Outstanding Charge Off Accounts:

  • Unpaid Charge Off Accounts do not have to be paid
  • Late Payments
  • Borrowers can have late payments but not in the past 12 months

Judgments And Tax Liens:

  • Borrowers can have outstanding judgments and tax liens
  • However, written payment agreement is required and three months payments need to be made to the judgment creditor and/or Internal Revenue Service

Qualifying For Mortgage After Bankruptcy

There is a mandatory waiting period to qualify for government and conventional loans after Chapter 7 Bankruptcy and Chapter 13 Bankruptcy:

  • Two years waiting period after Chapter 7 Bankruptcy to qualify for FHA, VA, USDA Loans
  • Four year waiting period after Chapter 7 Bankruptcy to qualify for Conventional Loans
  • Borrowers can qualify for FHA and VA Loans one year into a Chapter 13 Bankruptcy Repayment Plan
  • There is no waiting period to qualify for VA and FHA Home Loans after Chapter 13 Bankruptcy discharge date
  • Two year waiting period after Chapter 13 Bankruptcy discharge date to qualify for Conventional Loans
  • Four year waiting period after Chapter 13 dismissal date to qualify for Conventional Loans

Home Buyers or homeowners who need to qualify for government and/or conventional mortgage with outstanding bad credit with a national lender with no overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.

Gustan Cho NMLS 873293 is the National Managing Director of NEXA Mortgage, LLC dba as Gustan Cho Associates NMLS 1657322. Gustan Cho and his team of loan officers are licensed in multiple states. Over 75% of the borrowers of Gustan Cho Associates (Gustan Cho Associates) are folks who could not qualify at other lenders due their lender overlays on government and conventional loans. Many mortgage borrowers and real estate professionals do not realize a mortgage company like Gustan Cho Associates exists. We have a national reputation of being a one-stop mortgage company due to not just being a mortgage company with no lender overlays but also offering dozens of non-QM and alternative financing loan programs. Any non-QM mortgage loan program available in the market will be offered by the team at Gustan Cho Associates. Our team of support and licensed personnel is available 7 days a week, evenings, weekends, and holidays.

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