Steps In Getting Mortgage Approval With Bad Credit Illinois

Steps in Getting Mortgage Approval with Bad Credit in Illinois (2025 Update)

Can You Get Approved for a Mortgage with Bad Credit?

Yes! If you have bad credit, you can still buy a home. Mortgage lenders like Gustan Cho Associates specialize in helping borrowers who don’t qualify with traditional banks. You have options even with bankruptcy, foreclosure, or low credit scores.

This guide will walk you through steps in getting mortgage approval with bad credit in Illinois, covering the latest 2025 updates and loan programs available.

Step 1: Check Your Credit Score and Understand Your Situation

The initial step to obtaining mortgage approval is to review your credit score. This score reflects how trustworthy you are when paying back borrowed funds. Lenders look at this score to see how risky it is to give you a loan. Here’s what you should know:

• FHA Loans: A credit score of 5000 is necessary for a 10% down payment, while a score of 580 is needed for a down payment of 3.5%.
• VA Loans: There is no minimum credit score requirement, although the majority of lenders favor scores of 580 or higher.
• USDA Loans: Requires 640+ for automated approval, but manual underwriting is available.
• Conventional Loans: Require 620+, but higher scores get better rates.
• Non-QM Loans: No set minimum, great for self-employed or credit-challenged borrowers.

TIP: Check your credit report for errors. Dispute any incorrect information to boost your score!

Steps in Getting Mortgage Approval: Improve Your Credit Score (If Needed)

If your credit score is below 580, you should improve it before you ask for a mortgage. Here are some easy steps to follow:

1. Pay down credit cards – Keep balances below 30% of your limit.
2. Make all payments on time – Late payments hurt your score.
3. Avoid new debt – Do not obtain new credit cards or loans before submitting your application.
4. Add new credit – If you have no credit, consider a secured credit card or credit builder loan.
5. Partner with a loan provider such as Gustan Cho Associates. – Some quick fixes may help qualify you faster.

Following these steps in getting mortgage approval can help you get a better chance to buy your home!

Step 3: Gather Your Mortgage Documents

To get your mortgage approved, you must show that you can repay the loan. This means you need to gather some important documents. Here are some things you should collect:

• Last 2 years of tax returns (if required)
• W-2s (or 1099s for self-employed borrowers)
• Recent pay stubs (last 30 days)
• Bank statements (last 2 months)
• Proof of down payment funds
• Debt & monthly payments (credit cards, loans, child support, etc.)

TIP: Self-employed borrowers can use bank statement loans to qualify without tax returns!

Step 4: Get Pre-Approved for a Mortgage

Getting pre-approved lets you know the price range of homes you can afford. It also enhances your position as a buyer when you make an offer. During the pre-approval process, lenders will:

• Check your credit score
• Review your income and debts
• Estimate your loan amount and interest rate

With Gustan Cho Associates, you can get pre-approved in minutes with no lender overlays, meaning we approve loans other lenders deny!

Step 5: Choose the Right Mortgage Loan

Even with bad credit, you have multiple loan options:

FHA Loans (Best for Low Credit Scores)

• Minimum credit score 500 (10% down) or 580+ (3.5% down)
• Allows higher debt-to-income (DTI) ratios
• Open collections & charge-offs are OK (with AUS approval)
• Best for first-time homebuyers or those recovering from past credit issues

VA Loans (Best for Veterans & Active Military)

• No minimum credit score
• $0 down payment required
• No private mortgage insurance (PMI)
• Flexible on DTI ratio and credit history

Non-QM Loans (Best for Self-Employed & Recent Credit Issues)

• There is no waiting period following a bankruptcy, foreclosure, or short sale.
• Bank statement loans (no tax returns needed)
• Higher DTI ratios allowed (up to 55%)
• No loan limits

Conventional Loans (Best for Higher Credit Scores)

• Minimum 620 credit score required
• Lower interest rates for higher scores
• Requires PMI if putting down less than 20%
• 3% down payment option for first-time buyers

TIP: Don’t assume you can’t qualify! Work with a lender that offers flexible underwriting.

Step 6: Mortgage Underwriting & Approval

Once you apply, your loan goes into underwriting, where the lender verifies your finances.

What underwriters check:

• Credit history – Late payments, collections, and past bankruptcies.
• Income & employment – Job stability and ability to repay.
• DTI ratio – Your monthly debts vs. your income.
• Assets – Savings, investments, and reserves.

If your application meets all guidelines, you’ll receive a clear to close and be ready to buy your home!

Special Cases: Getting a Mortgage with Bankruptcies, Foreclosures, or Judgments

• FHA Loans: 2-year wait after Chapter 7 bankruptcy, no waiting after Chapter 13 discharge.
• VA Loans: 2-year wait after foreclosure, no waiting after Chapter 13 discharge.
• Non-QM Loans: No waiting period after bankruptcy, foreclosure, or short sale!

TIP: If you have a judgment or tax lien, a payment plan may allow approval without full repayment.

Step 7: Closing on Your Home

The last step in getting your mortgage approved is closing. Here’s what to expect:

• Final loan approval
• Review & sign documents
• Pay closing costs (unless rolled into the loan)
• Receive your keys!

This is the exciting part: you finally get to move into your new place!

Why Choose Gustan Cho Associates?

Many lenders deny loans due to strict overlays. We don’t have overlays! We specialize in helping borrowers with:

• Bad credit (500+ FICO OK)
• No income tax returns (bank statement loans)
• High DTI (up to 55%)
• Recent bankruptcies & foreclosures

Ready to buy a home? Get pre-approved today! Call 800-900-8569 or email gcho@gustancho.com for expert guidance.

Final Thoughts: Getting Mortgage Approval in Illinois

Even with bad credit, you can get a mortgage if you follow these steps in getting mortgage approval:

1. Check your credit & fix any issues
2. Gather documents & improve your financials
3. Get pre-approved (even with bad credit!)
4. Choose the right loan program
5. Work with a lender who specializes in bad credit loans

Don’t let poor credit prevent you from becoming a homeowner. Contact Gustan Cho Associates today for a free consultation and start your path to owning a home in Illinois!

Frequently Asked Questions About the Steps in Getting Mortgage Approval:

Q: Can I Get a Mortgage if I have Bad Credit?

A: Yes! Even if you have bad credit, bankruptcy, or a foreclosure, you can still qualify for a mortgage. Some loan programs like FHA, VA, and Non-QM loans help people with low credit scores. Following the steps in getting mortgage approval can increase your chances.

Q: What’s the Minimum Credit Score Needed to Buy a Home?

A: It depends on the loan type:

• FHA Loans: 500 (10% down) or 580+ (3.5% down)
• VA Loans: No minimum credit score (most lenders prefer 580+)
• USDA Loans: 640+ recommended
• Conventional Loans: 620+ required for most lenders
• Non-QM Loans: No strict minimum, best for self-employed and credit-challenged buyers

Q: What Steps Can I Take to Boost My Credit Score Before Applying for a Mortgage?

A: Here are some simple methods to enhance your score:

• Paying down credit card balances (keep them below 30% of your limit)
• Making all payments on time
• Avoiding new loans or credit applications
• Adding positive credit (secured credit card or credit builder loan)

Following these steps in getting mortgage approval can help you qualify for better loan terms!

Q: What Documents do I Need for Mortgage Approval?

A: Lenders will ask for:

• Tax returns (last 2 years)
• W-2s or 1099s (for self-employed borrowers)
• Recent pay stubs (last 30 days)
• Bank statements (last 2 months)
• Proof of down payment funds
• Debt & monthly payment records

Q: How do I Get Pre-Approved for a Mortgage?

A: Obtaining pre-approval gives you an insight into the price range of homes you can afford. Lenders will:

• Check your credit score
• Review your income and debts
• Estimate your loan amount and interest rate
• With Gustan Cho Associates, you can get pre-approved in minutes with no lender overlays, meaning we approve loans others deny.

Q: What Loan Options are Available for Buyers with Bad Credit?

A: Even with bad credit, you have choices:

• FHA Loans: Best for low credit scores, only 3.5% down with 580+ score
• VA Loans: No credit score requirement & zero down payment
• Non-QM Loans: Great for self-employed borrowers, no waiting period after bankruptcy
• Bank Statement Loans: No tax returns needed, perfect for 1099 workers

Q: Can I Get a Mortgage After Bankruptcy or Foreclosure?

A: Yes! Here’s the waiting period for each loan type:

• FHA Loans: 2 years after Chapter 7, no wait after Chapter 13 discharge
• VA Loans: 2 years after foreclosure, no wait after Chapter 13 discharge
• Non-QM Loans: No waiting period!

Q: What Happens During the Mortgage Underwriting Process?

A: Underwriting is when the lender reviews your finances to make sure you qualify. They check:

• Credit history (late payments, collections, past bankruptcies)
• Income & job stability (proof of consistent earnings)
• Debt-to-income ratio (DTI) (monthly debts vs. income)
• If your application fulfills all the requirements set by the lender, you will receive the approval to finalize your home loan.

Q: What should I Expect on Closing Day?

A: Closing is the final step in getting mortgage approval before you get the keys to your new home! On closing day, you will:

• Sign final loan documents
• Pay any remaining closing costs (unless rolled into your loan)
• Receive the keys to your new home!

Q: How can Gustan Cho Associates Help Me Get Approved?

A: Unlike other lenders, we don’t have overlays. We approve loans that others won’t, even for borrowers with:

• Credit scores as low as 500
• High debt-to-income (DTI) ratios
• Recent bankruptcies or foreclosures
• No income tax returns (bank statement loans)
• Ready to buy a home? Call 800-900-8569 or email gcho@gustancho.com to get started today!

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This blog about the “Steps In Getting Mortgage Approval With Bad Credit Illinois” was updated on March 19th, 2025