Buying A House With Credit Issues

Buying A House With Credit Issues And Bad Credit

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss buying a house with credit issues and bad credit. A common theme and phrase in American financial discussions today involve the economic downturn and the bursting of the housing bubble that launched the Great Recession of 2008. Almost every American was affected by the crisis and is still recovering today.

Recovery and Reestablishing After Periods of Economic Downturn

Recovery and Reestablishing After Periods of Economic Downturn

Many people are on the road to recovery and want to purchase a home but refrain from even applying thinking that there is no way they would ever qualify for a loan. Well, there is Great News HUD, the parent of FHA, and Fannie Mae have loosened up some of their requirements. It used to be that one had to wait four years after a bankruptcy discharge, foreclosure, or short sale to qualify for a home loan. The waiting period has been reduced from four years to two years. In this article, we will discuss and cover Buying A House With Credit Issues And Bad Credit.

FHA Loan Low Credit Score

An FHA loan is the most common home loan for a primary residential dwelling. An FHA loan requires a lower down payment and interest rates because the loan is insured. The requirements to qualify for an FHA loan include a credit score of 580, stable income for two years, a down payment, and verifiable rent payments for one year. If your credit score is less than 620, you will need to provide verification of rent. A borrower should have re-established credit.

Rebuilding Credit With Different Types of Credit Tradelines

Ideally, you should have several revolving credit tradelines. Secured credit cards are great for re-establishing your credit history and increasing your credit score. Under FHA Guidelines home buyers can qualify for an FHA Loan with credit scores under 580 FICO. However, the borrower needs a 10% down payment. Gustan Cho Associates does offer FHA Loans for borrowers with credit scores under 580 FICO. We can also help borrowers boost credit scores to 580 so they can qualify for a 3.5% down payment FHA loan. We qualify borrowers with credit scores of under 580 FICO as long as they get an approve/eligible per Automated Underwriting System.

Debt-To-Income Ratio

Debt-To-Income Ratio

Buying A House With Credit Issues can have an impact on debt to income ratios. Front end debt-to-income ratio is the number of monthly housing payments including, mortgage, interest, insurance, and taxes. You would take the amount of the total PITI payment and divide it by the gross monthly income.

Gross Income Before Taxes Is Used By Mortgage Underwriters

What is gross monthly income? It is income before any deductions. Back end debt to income ratio is your PITI (house payment) plus all other debt, not including health care premiums, gym memberships, utility bills, etc. It is usually everything that shows up on credit reports such as auto payments, credit cards, and student loans. You take the entire monthly debt load and divide it by gross monthly income to get the back-end ratio. Automated underwriting system (AUS) approvals require debt to income ratio for those with a credit score of 620 and up at 56.9% back end and 46.9% front end. If the credit score is less than 620, your debt-to-income ratio is 43% back end, with no front end debt-to-income calculation.

Qualifying For FHA Loan With Collections

Borrowers can qualify for an FHA loan with unpaid collections. There are three categories of collections. There are non-medical, medical, and charge-offs. If the aggregate amount of non-medical collections is $2,000 5% of that debt is used in the debt-to-income calculation. For example, if total non-medical collections are $10,000, the monthly debt load will be increased by 5% of the $10,000 which is $500. Judgments and tax liens must be paid at closing.

Can I Qualify For an FHA Loan if I Have Unpaid Collection Accounts?

Can I Qualify For an FHA Loan if I Have Unpaid Collection Accounts?

Borrowers can still qualify for FHA loans with outstanding collection accounts and tax liens. This holds true as long as borrowers have written payment agreements. Need have made at least three monthly payments. You need to provide the underwriter with three months of canceled checks. You cannot pre-pay the three months of payments upfront. It needs to be seasoned for at least three months. Charge-offs and medical collections are disregarded and exempt in the calculations of debt to income ratios. Borrowers can qualify for FHA Loans with outstanding charge-off accounts and medical collection accounts without having to pay for them.

Buying A House With Credit Issues: The Path To Home Ownership

If you are planning to buy a house in the next 12 months there are steps that you can take to simplify the process. You want to make sure that all rent payments you make are via check. This makes it easier to verify. You should keep a copy of all of the canceled checks. You want to file your tax returns and make sure that your tax returns reflect all of your income. You should have your W2s available for the past two years. Additionally, you will need two months of bank statements. Make sure you pay all of your bills on time. You don’t want any late payments showing up on the credit report.

Yes Buying A House With Credit Issues Is Possible

If you are looking to buy a home or even considering it call us 7 days a week and we can answer any questions that you have. The team at Gustan Cho Associates is a team of highly reputable mortgage loan originators who can help get you on the path to homeownership.

In Conclusion on Buying A House With Credit Issues

In Conclusion on Buying A House With Credit Issues

This article on Buying A House With Credit Issues was written by Mike Gracz of Gustan Cho Associates. Mike Gracz is an associate contributing editor and writer for Gustan Cho Associates. Michael is also a producing licensed mortgage loan originator and helps countless borrowers nationally, especially in the state of California. Mike has An MBA and a Master’s Degree in Accountancy. He has over 20 years of experience in individual and business taxation, business startups, business plans, and tax debt negotiation and settlement. Michael Gracz has led government audits of large global and national corporations. Mike Gracz of Gustan Cho Associates can help you with any type of residential finance or refinance option you are considering.

  • FHA loans with no overlays
  • FHA 203k loans
  • USDA loans with no overlays
  • VA loans with no overlays
  • Refinance
  • Cash-out refinance
  • Reverse Mortgages
  • NON-QM Loans
  • We have no overlays on government and conventional loans and are licensed in multiple states
  • Gustan Cho Associates has a national reputation for closing loans in 21 days.

Massimo Ressa’s goal is to make sure, you, the customer, are satisfied. That is the number one priority is to make sure you are getting the best advice on what options are available to you. Gustan Cho Associates is available 7 days a week, on evenings,  weekends, and holidays. Call or text us at 800-900-8569 or email us at gcho@gustancho.com.

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