Qualifying For Mortgage With Recent Late Payments

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Qualifying For Mortgage With Recent Late Payments

This BLOG On Qualifying For Mortgage With Recent Late Payments Was UPDATED On May 13th, 2018

Home Buyers can qualify for a home loan with bad credit.

  • Bad credit has a broad definition
  • Bad credit can mean having the following:
    • prior bankruptcy
    • prior foreclosure
    • prior deed in lieu of foreclosure
    • short sale
    • charge off
    • collection accounts
    • tax liens
    • tax liens that have been paid off
    • judgments
    • judgments that have been paid off
    • late payments from years ago
    • recent late payments in past 12 months
    • late payments after bankruptcy and/or housing events
  • However, there are areas of bad credit that thoroughly reviews 
  • It is very possible to get a home loan with bad credit
  • However, lenders want to know reason of bad credit and whether it was a one time event or financial irresponsibility
    • Has borrower re-established themselves?
    • Has the borrower have the ability to repay the new housing payment without stress
    • Borrowers can have had prior bad credit
    • One of the things lenders look for is recent late payments in past 12 months
    • How recent were late payments to how many creditors

Review Of Overall Credit History

Overall credit history from credit report will be carefully reviewed and analyzed.

  • Borrowers with a ten year credit history case scenario:
    • mortgage underwriter will review payment patterns on overall credit history
    • For those seeking a home loan with bad credit, there has to have been a time where their credit went bad
    • Why did it go bad?
    • Why were they paying bills on time and all of a sudden cause credit to deteriorate? 
    • Was it a loss of a job? 
    • Was is the loss of your business? 
    • Was it a divorce?
    • Was it medical reasons?

Letter Of Explanation For Prior Bad Credit Will Be Required

As mentioned earlier, a mortgage underwriters will review overall credit history. They look at overall payment history and payment pattern and see when credit went bad.

  • Mortgage lenders understand that there are periods where consumers face extenuating circumstances
  • Examples of extenuating circumstances include the following:
    • such as a job loss
    • business loss
    • divorce
    • medical issues
    • personal issues where there credit deteriorates
  • The Great Recession of 2008 has ruined thousands, if not millions, of people and businesses
  • Many were forced into filing bankruptcy and lost their homes
  • If a person loses their job or business, they have no source of income to continue to pay their debt obligations
  • It is not a crime to fall behind on their debt to their creditors

Collection Accounts And Home Loans

Many folks could not take the dozens of daily harassment calls from credit collection agencies at all times of hours, 7 days a week with threatening phone calls that they were going to get sued.

  • Getting a new job was not easy due to the Great Recession of 2008
  • Whole industries got wiped out or nearly wiped out
  • Real estate agents, mortgage brokers, real estate investors, and those in the construction industry were hurt the most
  • They had the highest bankruptcy and foreclosure rates in the country
  • All of the top producing full time realtors and mortgage broker colleagues I know have either filed bankruptcy or went through a foreclosure, deed in lieu of foreclosure, or short sale
  • Many had to leave the field and find other lines of work
  • Some had to get two part time jobs just to make ends meet
  • I was a real estate investor with 7 apartment complexes, just under 3,000 residential units, with multiple homes
  • Lost it all and got into the mortgage business after the real estate and mortgage meltdown of 2008
  • Things were bad and the good old Golden days was not going to return

Changes In Mortgage Industry After Mortgage Meltdown Of 2008

The whole mortgage industry went through a major overhaul.

  • Mortgage loan originators were now expected to become licensed both on the federal level and state level
  • All of them had to take national and state exams
  • Had to go through federal and state background investigations as well as annual credit checks
  • Letters of explanations should address the extenuating circumstances and be accompanied by documents such as termination letters, tax returns showing the decline in income, or other documents
  • Mortgage underwriters do not go by sympathy but on facts
  • For example, if a mortgage broker working for a sub-prime lender
    • lender closed their doors
    • show documentation that the mortgage company went out of business
  • Thousands of mortgage companies and real estate companies shut their door due to the Great Recession of 2008

Re-Established Credit After Period Of Bad Credit

Home Buyers seeking a home loan with bad credit, lenders want to see they have re-established credit after period of bad credit.

  • Most mortgage lenders do not want to see any late payments or recent late payments after back on feet
  • Timely payment history in past 12 months is extremely important
  • Recent late payments will be a major negative
  • Most mortgage lenders do not want to see any recent late payments in the past 12 months
  • One or two recent late payments will not always be a deal breaker
  • Mortgage underwriters will want to see why borrowers had recent late payments in past 12 months
  • Multiple recent late payments in past 12 months will be a concern
  • May need to either do credit repair to have those recent late payments removed off credit report or may need to wait until the recent late payments have been seasoned

Recent Late Payments In Past 12 Months

Borrowers with recent late payments in the past 12 months may need to correct the recent late payments issues first.

  • Mortgage lenders like myself will just go off the findings of Fannie Mae’s or Freddie Mac’s Automated Underwriting System
  • Gustan Cho Associates Mortgage Group has no mortgage lender overlays on government and conventional loans
  • If the automated findings yields an approve/eligible with recent late payments, then we have no problem
  • But the Automated Underwriting System will recognize the recent late payments and may render an automated approval
  • In the event borrowers do not get an automated approved per DU FINDINGS and/or LP FINDINGS due to recent late payments, then we need to correct late payments on credit report
  • Need to see if we can get them corrected

Solutions To Getting The Recent Late Payments Removed Off Credit Report

One of the solutions in getting late payments removed off credit report is to contact creditor. See if they can remove the recent late payments off credit report on a one time mercy basis.

  • Consumers who have been timely with creditor and have always paid monthly payments on time, creditor may remove the recent late payments as a one time courtesy off credit report
  • If the customer service representative says no, politely ask to speak to a supervisor
  • Request to the supervisor for mercy and are applying for a mortgage
  • If they can remove the late payment off record for a one time basis and promise them you will never ever be late again
  • Many times this tactic works
  • I have seen credit repair consultants do magic such as removing late payments, collections, judgments, charge offs, bankruptcies, foreclosures, short sales, deed in lieu of foreclosures, and other derogatory credit items off a person’s credit report
  • Do not just go online and shop for any credit repair consultant
  • Make sure it is a referral and contact their previous clients
  • Get references on how the credit repair consultant did for them
  • I have had my own personal credit repaired and was extremely satisfied with my credit repair consultant
  • My credit repair consultant has help dozens of my mortgage applicants qualify for a mortgage loan

If everything else fails with recent late payments, then need to season the late payment history for 6 to 12 months and wait until it ages.

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