Tips In Preparing Credit For Mortgage

This Article On Preparing Credit For Mortgage Was Written By Gustan Cho NMLS 873293 

Preparing Credit For Mortgage is one of the first things any home buyer needs to do prior to shopping for a home. If you are planning in buying a home in the near future, you should do consult with a mortgage lender and see if you qualify and if you do not qualify, you need to find out why and see what you need to do in order to qualify. Preparing Credit For Mortgage may take some time. How long? It may take 30 days or six months. Each individual case is different and the best way to find out is to consult with a loan officer. Here is what will get accomplished by consulting with your loan officer:

  • Your loan officer will run a tri-merger credit report on you and find out what your credit scores are and your credit history
  • Just because you meet the minimum credit scores and debt to income ratio requirements does not mean that you will qualify for a mortgage
  • Late payments after bankruptcy and foreclosure are deal killers. Lenders do not want to see any late payments after bankruptcy and/or foreclosure no matter how small the monthly payment is
  • Lat payment in the past 12 months are viewed very unfavorably
  • Mortgage late payments in past 12 months are normally deal killers
  • You cannot have any credit disputes on non-medical collection accounts and charge off accounts
  • Judgments and tax liens either needs to be paid off or needs a written payment agreement with the judgment creditor and/or Internal Revenue Service and three timely payments need to have been made. You cannot pre-pay the three months of payments upfront.

Barriers Where It Can Affect Mortgage Approval

There are barriers that will delay your mortgage approval but preparing credit ready for mortgage is recommended by waiting the waiting period after your bankruptcy and/or foreclosure. Preparing credit for mortgage should get started as soon as you can after periods of derogatory credit, bankruptcy, or foreclosure and you should start re-establishing your credit and credit score . Here are barriers where it will affect your mortgage approval:

  • Qualifying For FHA Mortgage After Bankruptcy – To qualify for government and/or Fannie Mae/Freddie Mac mortgages, there are mandatory waiting periods. For FHA Loans, there is a two year waiting period after a Chapter 7 Bankruptcy discharged date. Borrowers who filed Chapter 13 Bankruptcy can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy repayment plan with the approval of the Chapter 13 Bankruptcy Trustee. There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date. However, it will be a manual underwrite if the borrower did not pass a two year waiting period after the Chapter 13 Bankruptcy discharged date.
  • Qualifying For Conventional Mortgage After Bankruptcy – There is a four year waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date.
  • There is a two year waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy dismissal date.
  • There is a four year waiting period after a Chapter 7 Bankruptcy discharged date if you have a mortgage part of your Chapter 7 Bankruptcy discharge.
  • The deed can be recorded at a later date after the bankruptcy discharged date and it has no bearing on the four year waiting period after the discharged date of the Chapter 7 Bankruptcy.
  • However, the deed does have to be out of the borrowers name.
  • A Chapter 7  Bankruptcy Discharge will stay on your credit report for a period of 10 years.
  • Not only is your Chapter 7 Bankruptcy on your credit report but also all of the discharged debts will remain on your credit report as well.
  • After a bankruptcy, you should be getting your credit ready for mortgage as soon as you can by re-establishing your credit by getting several secured credit cards.
  • Qualifying For Mortgage After Foreclosure And Short Sale Short sales and Foreclosures both have mandatory waiting period after short sales, deed in lieu of foreclosure, and foreclosure to qualify for government loans as well as Fannie Mae/Freddie Mac Mortgages.
  • Government Loans are FHA Loans, VA Loans, and USDA Loans. Government Loans are guaranteed and insured by the government.
  • For example, FHA Loans are guaranteed by the Federal Housing Administration, VA Loans is guaranteed by the United States Department of Veteran Affairs, and USDA Loans are guaranteed by the United States Department of Agriculture Rural Development.
  • There is a three year waiting period after a foreclosure, deed in lieu of foreclosure, and short sale to qualify for a FHA Loan.
  • There is a four year waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure and short sale.
  • There is a seven year waiting period to qualify for a Conventional Loan after a regular foreclosure.
  • There is a two year waiting period to qualify for a VA Loan after a short sale, foreclosure, and deed in lieu of foreclosure.
  • There is a three year waiting period to qualify for a USDA Loan after a foreclosure, deed in lieu of foreclosure, short sale.

Monitoring Your Credit Report

Preparing credit for mortgage should be started as soon as you are re-established financially where you can religiously meet the minimum monthly debt payments no matter what. Do not take on more debt than you can handle. Preparing credit for mortgage does take time and it is a process.  Thoroughly review your credit report and look special lookout to the following:

  • Unpaid Judgments On Credit Report – You cannot get a mortgage approval with judgments on your credit report.
  • Preparing credit for mortgage when you have a judgment does take time so make sure you plan well ahead in trying to fix your judgment prior to applying for mortgage.  
  • A judgment can easily be deleted off your credit report, however, the fact of the matter is that your lender will find out about the judgment because all lenders do a third party credit search through Data Verify and/or Lexis Nexis.
  • All lenders will do a third party national public records search on all borrowers during the mortgage process.
  • All outstanding judgments needs a written payment plan or needs to be paid off.
  • Outstanding Collections and Charge Offs – Credit Repair Does Work , however, credit repair does take time.
  • If you are at least one year out in preparing credit for mortgage, then I highly recommend credit repair and see if you can get the outstanding collections and charge offs deleted off your credit report.
  • However, if you are going to be applying for a mortgage in the near short term, do not go through credit repair.
  • Credit Disputes – You cannot have credit disputes on outstanding collections that are non-medical collection accounts that have aggregate outstanding balance of over $1,000.
  • Credit disputes will halt the mortgage process and will need to be retracted before the mortgage process can proceed.
  • Credit Card Balances – About two months before applying for mortgage application, preparing credit for mortgage needs to be really in fast track and make sure that all of your credit card balances are below 10% of your credit limit.
  • Maxed out credit cards are one of the biggest reasons for low credit scores.
  • Once you pay down your maxed out credit cards, your credit scores will go right back up.
  • The higher the utilization rate with revolving credit card debt will plummet  your credit scores.
  • Contact Credit Card Companies For Increase Of Your Credit Card Limit – If you have had your credit cards for over a year and you have a perfect payment record with no late payments, contact your credit card company and ask them for an increase of your credit limit. This extra available credit will boost your credit scores.
  • Pay All Of Your Monthly Debt Payments On Time – One late payment will plummet your credit scores over 80 FICO points.
  • Remember that most mortgage lenders will not approve a borrower with any late payments after bankruptcy or foreclosure. Late payments in the past 12 months is a definite no go on a mortgage approval.

Finding A Creative Lender

CrossCountry Mortgage NMLS 3029 is a five star national mortgage banking firm licensed in 50 states and well known by many for its 21 day closing on most of their home loans. CrossCountry Mortgage NMLS 3029 is also known by many due to its no lender overlays on government and Conventional Loan Programs.

If you had late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, or late payments in the past 12 months and were told by lenders that you do not qualify, please do not give up. Call me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your call or inquiry. Looking forward to speaking to you and working with you.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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