Preparing To Qualify For Mortgage With Bad Credit

This BLOG On Preparing To Qualify For Mortgage With Bad Credit Was PUBLISHED On July 20th, 2020

Preparing To Qualify For Mortgage With Bad Credit
Gustan Cho Associates Mortgage Group

There are ways of Preparing To Qualify For Mortgage With Bad Credit.

  • There are some do’s and don’ts when it comes to Preparing To Qualify For Mortgage With Bad Credit
  • One of the first things home buyers want to do is hire a credit repair company when Preparing To Qualify For Mortgage With Bad Credit
  • Mortgage Applicants do not need to hire credit repair companies when Preparing To Qualify For Mortgage With Bad Credit
  • Often times than not, hiring credit repair companies will do more damage than good
  • We will discuss this topic on this blog
  • Credit Disputes during the mortgage process is forbidden
  • Any credit disputes during the mortgage process will HALT the processing/underwriting of home loan
  • All credit disputes need to be retracted prior to the mortgage process to proceed

In this article, we will discuss and cover Preparing To Qualify For Mortgage With Bad Credit.

Choosing Mortgage Lender With No Overlays

Not all lenders have the same mortgage guidelines when it comes to lending requirements on borrowers.

  • Most lenders have overlays on government and conventional loans
  • Mortgage Overlays are additional mortgage requirements that is above and beyond those of agency guidelines
  • Example, FHA requires borrowers to have 580 credit scores
  • However, if the home buyer goes to Fifth Third Bank, Harris Bank, Bank of America, Chase, they are going to be told “sorry, you do not qualify for FHA Loans. You need a 640 credit score.”
  • Unfortunately, most loan officers will not say that they WILL qualify for FHA Loans with a 580 credit score but not with them
  • Even though HUD Guidelines On Minimum Credit Score Requirements is 580 for 3.5% down payment home purchase FHA Home Loans, lenders can have higher credit score requirements
  • Same with outstanding collections and charged off accounts
  • FHA does not require to have borrowers pay outstanding collections and/or charged-off accounts to qualify for home loans
  • However, most banks and other lenders may require outstanding collections and/or charged-off accounts be paid as part of their lender overlays
  • Home Buyers need to keep in mind that not all mortgage companies and banks have the same credit and/or income requirements
  • Just because a lender says no, that does not mean that another lender will not say yes
  • Gustan Cho Associates Mortgage Group is a direct lender with no overlays on government and conventional loans
  • Over 75% of our borrowers are folks who are stressing during the mortgage process or get a last-minute mortgage denial due to overlays
  • We have zero overlays on government and conventional loans

We help all of our borrowers preparing to qualify for mortgage with bad credit.

How Do Lenders View Borrowers With Bad Credit

With mortgage lenders with no overlays like myself and my team, we just need to go off automated findings from the Automated Underwriting System (AUS).

  • As long as borrowers get an approve/eligible per AUS findings and they can clear the stated conditions, GCA Mortgage Group will close their loans
  • All loan programs allow outstanding collections and charged-off accounts
  • Borrowers do not have to pay outstanding collections and charged-off accounts to qualify for owner occupant government and/or conventional loans

However, FHA Loans is the most popular loan program in the U.S. FHA is the laxest, lenient, and tolerant when it comes to outstanding collections, charge-offs, late payments, and late payments after housing event and/or bankruptcy.

Getting Automated Underwriting System Approval

Which means getting automatic approval for the Underwriting system

Here is the key to getting an approve/eligible per Automated Underwriting System:

  • Borrowers can have outstanding collections and/or charged-off accounts
  • Borrowers do not have to pay outstanding collections and/or charged-off accounts to qualify for mortgage home loans
  • However, the key to getting an approve/eligible per AUS, timely payments in the past 12 months is crucial
  • One or two late payments in the past 12 months is not a deal killer and often times AUS will render an approve/eligible
  • Multiple late payments in the past 12 months will trigger an automated mortgage denial
  • AUS will not pick up credit disputes
  • Credit disputes will halt the mortgage process

Once credit disputes get retracted, it will lower borrower’s credit scores.

Preparing To Qualify For Mortgage With Bad Credit: Credit Scores Versus Credit Payment History

Just because home buyers meet the minimum credit score requirements does not mean they automatically qualify for a mortgage.

  • A borrower can have 640 credit scores but may not get automated underwriting system approval with multiple late payments in the past 12 months
  • Late Payments after housing event and/or bankruptcy is considered really bad by both AUS and lenders
  • Most lenders will NOT approve any borrowers with any late payments after bankruptcy and/or housing event
  • However, AUS will not always deny a late payment after bankruptcy and/or housing event
  • Borrowers with late payments after bankruptcy and/or foreclosure should add 5 new credit tradelines and keep those on time for at least a year or longer to offset the negative late payments after bankruptcy and/or housing event
  • Adding three to five credit tradelines after periods of bad credit is extremely important

Make sure to keep credit card balances to lower than 10% credit utilization ratio of the credit limit.

Preparing To Qualify For Mortgage With Bad Credit: Credit Repair Can Do Mortgage Damage Than Good

Credit Repair often does more damage than good when Preparing To Qualify For Mortgage With Bad Credit.

  • Disputing derogatory credit tradelines can often backfire and devastate borrowers credit scores
  • What happens when consumers dispute derogatory credit tradelines such as late payments is that credit bureaus will negate the negative factor of the derogatory tradeline from the credit bureaus credit scoring formula
  • Credit Disputes will increase credit scores because the scoring formula will treat the negative tradeline as it does not exist while credit bureaus are investigating
  • When consumers retract credit disputes, the credit scoring formula will trigger the negative scoring formula back to consumer credit report and treat it like a brand new negative tradeline
  • This, in turn, will lower consumer credit scores
  • I have seen consumer credit score drops of over 80 points or more by retracting credit disputes

Contact us at Gustan Cho Associates Mortgage Group prior to starting any credit repair regiment.

About Us At GCA Mortgage Group

More About Us At GCA Mortgage Group

Gustan Cho Associates Mortgage Group are direct lenders with no overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders because of their lender overlays. We can help borrowers with less than perfect credit or credit issues in preparing to qualify for mortgage with bad credit. Contact us or text us for faster response at 262-716-8151. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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