Re-Establishing Credit To Qualify For Mortgage With Secured Credit Cards
This Article Is About Re-Establishing Credit To Qualify For Mortgage With Secured Credit Cards
Qualifying for a home loan is not as difficult as many people think. Most homebuyers think that they need a large down payment and good credit in order to qualify for a mortgage loan. Lenders do realize that many folks may have gone through periods of hardship due to the following:
- Loss of business
- Loss of employment
- Gap or gaps of employment
- Medical Issues
- Were victims of the Great Recession of 2008
- Other extenuating circumstances
FHA And VA Mortgages For Home Buyers
The best loan programs for homebuyers who had prior credit issues are FHA and VA Loans. Unfortunately, not everyone can qualify for VA Loans. VA Home Loans are restricted to veterans of the U.S. Military with a valid Certificate Of Eligibility. You do not have to pay outstanding collections and charge off accounts to qualify for FHA Loans. However, lenders do want to see re-established credit to qualify for a mortgage by borrowers.
Ways Of Re-Establishing Credit To Qualify For Mortgage
In order to establish good credit to get good mortgage rates and interest rates on terms of credit cards, automobile loans, and other installment loans, you need a good credit history. If you have no credit history at all, it is easy to reestablish your credit. Opening a bank account is the simplest and safest way to manage your finances. By opening a savings account or a checking account, consumers can build good credit by saving money and earning interest. Easily paying bills and tracking expenses on time. Responsible use of a checking account or an Automatic Teller Machine (ATM) card will reflect favorably in the credit report. If you had prior bad credit, opening a bank account would be a great way of re-establishing credit. If consumers have services in their name (telephone, gas, and electric), make sure to pay them in full and on time. Pay any loans and credit accounts on time each month. At least pay the minimum, if there is one. This will be another way of reestablishing credit.
Tips On Re-Establishing Credit To Qualify For Mortgage After Bankruptcy & Foreclosure
Re-establishing credit to qualify for a mortgage after bankruptcy and/or foreclosure can be done. The best way of re-establishing credit after bankruptcy or foreclosure is by getting 3 secured credit cards with $500 credit limits. Each secured credit card can boost credit scores by 30 points. So 3 credit cards with $10 balances can substantially increase one’s credit scores. Applying for credit cards and using it responsibly can help build a good credit history. Borrowers who have been denied credit cards in the past may want to investigate getting secured credit cards. They deposit a pre-determined amount of money in with the credit card provider. The secured card can be used the same way as a regular unsecured credit card with the same convenience and payment flexibility. Gasoline companies and retail stores also offer their own credit cards.
FHA Loans With Bad Credit
Borrowers can qualify for FHA Loans with bad credit. However, lenders want to see that borrowers have re-established their credit. Borrowers do not have to pay off outstanding collections and charge offs to qualify for FHA Loans. Here are the basic FHA Loan Requirements:
- Minimum 580 Credit Scores
- Outstanding Collections and Charged Off Accounts do not have to be paid to qualify for FHA Loans
- 3.5% down payment
- Borrowers can qualify for FHA Loans two years after Chapter 7 Bankruptcy discharged date
- Borrowers can qualify for FHA Loans three years after a deed in lieu of foreclosure, short sale, and/or foreclosure
- Lenders want to see re-established credit after bankruptcy and/or foreclosure
Credit Disputes During Mortgage Application Process
A loan officer should not issue a pre-approval letter to borrowers if they have credit disputes during the mortgage application process. Here are FHA Guidelines On Credit Disputes:
- HUD does not allow credit disputes on any non-medical collection accounts with aggregate outstanding balances of $1,000 or more
- Credit disputes on a non-medical collection account less than $1,000 on one’s credit report and zero balance disputes are allowed
- Credit disputes on medical collection accounts with outstanding balances are exempt and can be disputed
Credit disputes on charge off accounts are not allowed. Must be retracted to for the mortgage process to proceed under HUD Guidelines
Re-Establishing Credit To Qualify For Mortgage With Collections And Charge Off Accounts
HUD does not require outstanding and collection accounts with outstanding balances to be paid off. Many lenders require collections and charge off accounts to be paid off in order for borrowers to qualify for FHA Loans. This is not a HUD Guidelines but a lender overlay on the individual lender. If a lender requires borrowers to have collections and/or charge offs to be paid, contact us at Gustan Cho Associates. We do not have any FHA Lender Overlays and will just go off HUD Guidelines On Collections and Charge Off Accounts.
Re-Establishing Credit To Qualify For Mortgage With Non-Medical Collections
There is one rule with non-medical collections. If borrowers have non-medical collections with over $2,000 aggregate outstanding balance, HUD requires the following:
- the underwriter to take 5% of the outstanding balance of all collections
- use it in the calculations of the borrower’s debt to income ratio
Borrowers do not have to pay this amount:
- it is rather just used for qualifying income and used as a monthly debt
If the 5% of the outstanding non-medical collection account will go over the maximum debt to income ratio requirements to qualify for an FHA Loan, borrowers can enter into a written payment agreement with the creditor. Whatever the monthly payment is agreed upon, that number will be used in lieu of the 5%
Borrowers needing to qualify for a mortgage with a direct lender with no overlays on government and conventional loans can contact us at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evening, weekend, and holidays.