This BLOG On Shopping For Home Loan With Bad Credit And Low Credit Scores Was UPDATED And PUBLISHED On September 6th, 2019
Advice For Borrowers Shopping For Home Loan
There are so many mortgage regulations implemented by regulators with regards to advertising.
- Mortgage regulators want consumers to shop for the best mortgage rates and terms
- Shopping For Home Loan is what is recommended by mortgage regulators
- Commercial loans and residential loans are different
- Mortgage regulators do not have the tough strict mortgage regulations when it comes to commercial mortgage loan programs
- This is because they consider commercial real estate investors sophisticated investors
- However, there are so many mortgage regulations when it comes to residential mortgage loans by mortgage regulators
- It is often confusing and difficult to understand not just for consumers but for mortgage professionals as well
- Again, the main purpose for regulators implementing all of the mortgage regulations and guidelines is to encourage borrowers to shop for mortgage loans
In this article, we will discuss and cover Shopping For Home Loan With Bad Credit And Low Credit Scores.
Finding Direct Lenders With No Overlays
Shopping for a home loan is great if you are a mortgage loan borrower with over 740 FICO credit scores, 40% debt to income ratios, perfect credit payment history, no prior bad credit, no prior bankruptcies and/or foreclosures,
- Unfortunately, this is not how our world works
- Many hard-working Americans fell victim to the Great Recession of 2008
Many went through extenuating circumstances such as the following:
- loss of businesses and/or jobs
- went through divorce
- had medical issues
Or had other extenuating circumstances where it affected their flow of income where it has affected their credit scores.
How Do Lenders Underwrite Borrowers With Bad Credit
- Shopping For Home Loan for the best mortgage terms and rates is often not a choice for many homebuyers who have less than perfect credit
- Or those with high debt to income ratios
- Mortgage lenders will not just look at credit scores, but will also look at borrowers past credit payment history
- Lenders will also look at prior bad credit
- They want to see borrowers have re-established your credit and have been timely on all of your payments for the past 12 months
What good is it what the mortgage rates are if you do not even qualify for a home loan due to lower credit scores and/or prior poor credit.
Mortgage Regulations And Guidelines
The mortgage industry is extremely regulated.
- Regulators will set the maximum mortgage rates lenders can charge borrowers
- Quality Mortgage, QM, and high-cost mortgage rules are in full force
- It is impossible for residential mortgage lenders to gouge consumers on mortgage rates, costs, and fees
Shopping For Home Loan With Bad Credit
Shopping For Home Loan for consumers with low credit scores can be challenging.
- Most lenders have investor overlays which are additional guidelines that are set by the individual lender that is on top of the federal minimum mortgage lending guidelines
- For example, to qualify for an FHA Loan, HUD, the parent of FHA, has the minimum credit score requirements
- Borrowers need 580 credit scores to qualify for 3.5% down payment FHA Loans
- However, if the home buyer goes to a lender to get a pre-approval for an FHA Loan and credit scores are 580 FICO, they will be surprised on how many lenders will tell them they do not qualify
- This is because they do not meet their 640 FICO credit score lender overlays
How can a borrower go shopping for a mortgage with a 580 credit score when the lender tells you that they don’t even want you even if you meet the minimum FHA Guidelines On Minimum Credit Scores Required?
Do All Lenders Have Same Mortgage Guidelines On Government Loans?
Most borrowers who call me have been told that they do not qualify because they do not meet their mortgage lender overlays.
- Another common case scenario I get is FHA does not require borrowers to pay off outstanding unpaid collection accounts and charge offs to qualify
- However, most lenders require that all outstanding collection accounts and charge off accounts be paid off in full
- Most lenders require that a zero balance be reflected on their credit reports on outstanding collections and charged-off accounts
- This is not an FHA Guidelines
- It is the bank’s or mortgage lenders own overlays
- Overlays are additional requirements that are implemented by each individual mortgage lender that is above and beyond HUD’s mortgage lending guidelines
- Shopping For Home Loan is great
But most borrowers with prior bad credit or high debt to income ratios go shopping for a home loan not because to get the best mortgage rates or best mortgage terms but just to get qualified for a home loan.
Shopping For Home Loan With Unique Case Scenarios
Shopping For Home Loan is recommended by mortgage regulators:
- Borrowers can get the best rates and mortgage terms if they have high credit scores
- Unfortunately, most borrowers with bad credit and high debt to income ratios are limited in shopping for a home loan for best mortgage rates and terms
- Shopping For Home Loan for those with prior bad credit and higher debt to income ratios can be challenging
- However, if you are looking for a lender who has no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response
Or email us at email@example.com. My staff and I are available 7 days a week, evenings, weekends, and holidays to take your phone calls or inquiries via email to answer any and all of your questions.