Borrowers Shopping For Mortgage With Bad Credit

Shopping for mortgage with bad credit can get quite challenging. There are so many mortgage lending regulations to protect the consumer. Mortgage regulators keep on creating and implementing new mortgage regulations and mortgage disclosures year after year geared to protect mortgage loan borrowers. Mortgage regulators strongly recommend that mortgage loan borrowers shop for mortgage and mortgage rates. Shopping for mortgage is highly recommended and prime borrowers are able to shop for mortgage rates and terms from multiple banks and mortgage lenders. A prime mortgage loan borrower is someone who has credit scores of 740 FICO or higher, has great credit and payment history, no bankruptcies and/or foreclosures, has 20% or more funds to put down towards their home purchase, and has low debt to income ratios, normally under 40% debt to income ratios. Unfortunately, the world does not revolve around prime borrowers and many mortgage loan applicants do have low credit scores, bad credit, prior bankruptcies and foreclosures, higher debt to income ratios, outstanding collection accounts, and other financial and/or credit issues. Shopping for mortgage with bad credit is somewhat limited for mortgage loan borrowers with the above credit and financial issues.

Shopping For Best Mortgage Rates

As mentioned in the previous paragraph, prime mortgage loan borrowers do have the benefit of shopping for the best mortgage rates. Prime borrowers are mortgage loan borrowers with over 740 FICO credit scores, have 20% or more down payment to put down on a home purchase, have lower debt to income ratios, and have near perfect credit with timely payment history. The biggest factor in getting the best possible mortgage rates are the mortgage loan applicant’s credit scores. To get the best possible mortgage rates, the borrower needs a credit score higher than 740 FICO. Shopping for mortgage with bad credit, especially lower credit scores, will be challenging. Most folks shopping for mortgage with bad credit normally do not have much say so on the mortgage rates because there are only limited amount of mortgage lenders that specialize in home loans with bad credit. A mortgage loan borrower with credit scores under 600 FICO will be lucky to get a mortgage loan approval and not have too much choice in getting the best mortgage rates.

Finding The Right Lender When Shopping For Mortgage With Bad Credit

Not all mortgage lenders have the same mortgage lending requirements so just because you are told you do not qualify by a particular lender when shopping for mortgage with bad credit does not mean you will not qualify for a mortgage with another mortgage lender. All banks and mortgage lenders need to follow the minimum federal minimum lending requirements, which are called mortgage lending guidelines . However, mortgage lenders are not required just to go off the minimum federal mortgage lending guidelines. Banks and mortgage lenders can set their own lending guidelines that surpass the minimum lending guidelines which are called mortgage lender overlays . The best way to explain mortgage lender overlays is to use an example case study. To qualify for a 3.5% down payment FHA home purchase loan, the minimum mortgage lending guidelines on credit score requirements set by the Federal Housing Administration is 580 FICO. However, most banks and mortgage companies require that the mortgage loan applicant have a 640 FICO credit score or higher. This higher lending requirement is called a mortgage lender overlay. I am a mortgage lender with no mortgage lender overlay and many of my mortgage borrowers are folks who got denied by mortgage lender after mortgage lender due to their mortgage lender overlay requirements. Another example of mortgage lender overlays is overlays on debt to income ratios. Many of my borrowers may have excellent credit, however, they get denied by various banks and mortgage companies because those lenders have mortgage lender overlays on debt to income ratios. The maximum debt to income ratios permitted by FHA is 56.9% DTI. However, most mortgage lenders will have debt to income ratio overlays on FHA Loans that cap them at 45% debt to income ratios. Other examples of common mortgage lender overlays are outstanding collection accounts. FHA does not require mortgage loan borrowers to pay off old collection accounts, however, many banks and mortgage companies will not approve a mortgage loan applicant with outstanding collection accounts. They require all collection accounts to have been paid and reported satisfied on their credit report.

If you are shopping for mortgage with bad credit and are told that you do not qualify due to that mortgage lender’s overlays, please contact Gustan Cho Associates at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. We do not have any mortgage lender overlays and just go off the federal minimum mortgage lending guidelines.

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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