Tips In Preparing To Qualify For Mortgage

Preparing To Qualify For Mortgage Explained

One of the most common inquiries I get is when potential home buyers ask on advice in preparing to qualify for mortgage. Preparing to qualify for mortgage takes time and patience. Everyone who has documented income can qualify for a mortgage. Having bad credit should not deter you in preparing to qualify for mortgage. Millions of hard working folks were impacted by the Great Recession of 2008 where they lost their businesses, they lost their jobs, they lost their pensions, they lost all of the equity they had in their homes, they filed for bankruptcy, and millions of homeowners had to go through a foreclosure and/or short sale. The whole mortgage industry went through major changes and new laws and regulations were launched and implemented. Entire mortgage sectors were eliminated. All sub-prime lenders went out of business and the sub-prime market went extinct overnight. Mortgage loan originators had to go through new pre-licensing requirements and both federal and state testing and intensive federal and state criminal background checks and credit checks in order for them to be able to originate mortgage loans to the public. Days of no doc loans and stated income loans were long gone. Now, you need documented income in order to qualify for a mortgage loan. It may take some time in preparing to qualify for mortgage for individuals who are self employed or those who have poor credit. Self employed individuals need to have positive and qualifying income in order to qualify for a mortgage loan. Borrowers with poor credit need at least 12 months on time payments on all of their monthly debt obligations. Just meeting the minimum credit score to qualify for FHA Loan is not sufficient. Just because you meet the minimum credit scores does not guarantee you that you will get qualified for a mortgage loan. Mortgage lenders will look at your overall payment history on your credit report. It is okay not to pay off your older collection accounts and charge off accounts and it is okay to have prior bad credit, collections, charge offs, judgments, bankruptcy, and foreclosure, however, mortgage lenders want to see re-established credit and no payments for the past 12 months at least.

When Should I Prepare To Qualify For A Home Loan

It is never too late to start preparing to qualify for mortgage. Even if you just went through a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Many folks who just had a bankruptcy and foreclosure don’t even want to think about re-establishing their credit and most don’t even want to even think about credit. However, this is the wrong approach to take and will end up hurting you at the end. It takes time preparing to qualify for mortgage if you just had a bankruptcy or foreclosure or you just went through periods of bad credit due to loss of business, loss of job, divorce, or medical issues. However, don’t be discouraged with your credit scores are poor or your credit is very bad because poor credit is like a hangover. It will recover on its own as time passes even if you do nothing. There are ways of expediting getting good credit, however, it does take some time and patience. I have seen countless of consumers who gotten their credit scores over 700 FICO after bankruptcy or foreclosure and periods of bad credit.

Start Re-Establishing Your Credit

If you just went through a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, or went through period of bad credit where you have multiple collection accounts and charge offs, don’t get discouraged. Do not attempt to pay off your old outstanding collection accounts or charge off accounts because you do not need to pay off outstanding collection accounts and charge off accounts to qualify for a FHA Loan with a FHA mortgage lender who has no FHA Lender Overlays like myself. FHA does not require you to pay any outstanding collection accounts or charge off accounts to qualify for a FHA Loan. If you are told that you need to pay off your outstanding unpaid collection accounts or charge off accounts by a bank or lender you visit, contact me and I will do your loan. By paying off your outstanding collections or charge offs, you are going to lower your credit scores because it will re-activate the old collection account as a newer collection account and will reset the statute of limitations. The most important thing you need to do to kick start preparing to qualify for mortgage after periods of bad credit is to re-establish your credit by getting new credit by getting three to five secured credit cards. Secured credit cards are the best and fastest way of re-establishing your credit. The higher the credit limit secured credit card you get, the better. Do not waste your time in getting a $200 to $300 secured credit card. Get yourself at least a $500 secured credit card, preferably a $1,000 credit limit secured credit card. Get yourself at least three secured credit card for maximum optimization. As your secured credit card ages, your credit scores will gradually improve and your credit profile will get stronger. Always make the minimum payment due every month on your secured credit card because if you are ever 30 days or more late, the secured credit card company will definitely report you late on the three major credit reporting agencies.

Credit Scores And Credit Payment History

Keep in mind that all mortgage loan programs have a minimum credit score requirement. To qualify for a 3.5% down payment FHA insured mortgage loan, a FHA borrower needs a 580 FICO credit score. To qualify for conventional loans, Fannie Mae and Freddie Mac both require a 620 minimum credit scores. Most USDA mortgage lenders will require 640 credit scores. VA does not have a minimum credit score requirements and it is up to a VA mortgage lender. To be safe, you would most likely need a 580 credit score to qualify for a VA Loan. Most VA mortgage lenders do have lender overlays on VA Loans where many will not accept any borrowers that have at least a 620 FICO credit score.

Just meeting the minimum credit scores does not automatically guarantee you a mortgage loan in the particular mortgage program you qualify for. Mortgage underwriters will also look at the borrower’s payment history. You can meet the minimum credit scores with a lousy credit payment history. Most mortgage lenders do not want to see any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Almost all mortgage lenders will want to see timely payments for at least the past 12 months on all of the borrower’s debt obligations.

Credit trade lines are extremely important. A credit trade line is when a borrower has a creditor account with at least a 12 month payment history. Most mortgage lenders like to see at least 3 credit trade lines. Not having any credit trade lines is not a deal killer, but there are many mortgage lenders that do require at least three credit trade lines for at least 12 months and some may go back as much as a 24 months seasoning requirement on credit trade lines.

Verification Of Rent

One of the most important compensating factors that a borrower can have is verification of rent. Verification of rent is when a mortgage borrower can prove that he or she has been paying their rent payments with a bank check for the past 12 months. Unfortunately, many renters do not pay their monthly rental payments with a bank check and will pay cash and get a cash receipt by the landlord. Unfortunately, this will not work and cannot be used as rental verification. Make sure that you pay your rental payments with a bank check or wire the funds from your bank account to your landlord’s account. If you are renting from a registered property management company, you can just get a letter from the property management company property manager stating that you were timely for the past 12 months and the property manager has to sign a VOR, verification of rent form provided by the mortgage lender.  FHA borrowers with credit scores of higher than 620 FICO will not have to worry about verification of rent . However,  the Automated Underwriting System will most likely request verification of rent for FHA borrowers who have credit scores of under 620 FICO. All manual underwriting FHA Loans do require verification of rent. If you are a renter who plan on becoming a homeowner in the near future, make sure that you make your rental payments with a check and make sure that you are not late on your rent payments to your landlord.

If you are preparing to qualify for mortgage, contact 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 phone calls and respond to your email inquiry. I will help you get qualified for a home loan and work with you in getting you qualified if you do not quite qualify yet.

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.

Comments are closed.