Qualifying For Mortgage With Bad Credit And Late Payments

This Article On Qualifying For Mortgage With Bad Credit And Late Payments

Qualifying for mortgage with bad credit is ambiguous and can be wide-ranging.

• Many mortgage companies such as myself specialize in helping borrowers obtain mortgage with bad credit
• However, the key is prior to bad credit versus current bad credit
• Homebuyers who want to qualify for a mortgage loan can qualify for a mortgage with bad credit
• However, lenders want to see that the mortgage loan borrower has re-established credit since the period of bad credit

There are ways of Preparing To Qualify For Mortgage With Bad Credit.

• There are some do’s and don’ts when it comes to Preparing To Qualify For Mortgage With Bad Credit
• One of the first things home buyers want to do is hire a credit repair company when Preparing To Qualify For Mortgage With Bad Credit
• Mortgage Applicants do not need to hire credit repair companies when Preparing To Qualify For Mortgage With Bad Credit
• Often times than not, hiring credit repair companies will do more damage than good
• We will discuss this topic on this blog
• Credit Disputes during the mortgage process is forbidden
• Any credit disputes during the mortgage process will HALT the processing/underwriting of home loan
• All credit disputes need to be retracted prior to the mortgage process to proceed

Qualifying For Mortgage With Bad Credit: Home Buyers

HUD, The United States Department of Housing and Urban Development and the parent of the Federal Housing Administration, FHA, as well as Fannie Mae understand that consumers can go through periods of hard financial times.

• Both government and agency mortgage lending guidelines have their own requirements for home loans with bad credit

Lenders also do understand that consumers can go through periods of bad credit such as the following:

• when they encounter extenuating circumstances like losing their jobs
• shutting down their businesses
• going through a divorce, or medical reasons

If these extenuating circumstances happen, the chances are that they can not pay their bills and their credit suffers and credit scores will plummet.

Choosing Mortgage Lender With No Overlays

Not all lenders have the same mortgage guidelines when it comes to lending requirements on borrowers.

• Most lenders have overlays on government and conventional loans
• Mortgage Overlays are additional mortgage requirements that is above and beyond those of agency guidelines
• Example, FHA requires borrowers to have 580 credit scores
• However, if the home buyer goes to Fifth Third Bank, Harris Bank, Bank of America, Chase, they are going to be told “sorry, you do not qualify for FHA Loans. You need a 640 credit score.”
• Unfortunately, most loan officers will not say that they WILL qualify for FHA Loans with a 580 credit score but not with them
• Even though HUD Guidelines On Minimum Credit Score Requirements is 580 for 3.5% down payment home purchase FHA Home Loans, lenders can have higher credit score requirements
• Same with outstanding collections and charged off accounts
• FHA does not require to have borrowers pay outstanding collections and/or charged-off accounts to qualify for home loans
• However, most banks and other lenders may require outstanding collections and/or charged-off accounts be paid as part of their lender overlays
• Home Buyers need to keep in mind that not all mortgage companies and banks have the same credit and/or income requirements
• Just because a lender says no, that does not mean that another lender will not say yes
• Gustan Cho Associates Mortgage Group is a direct lender with no overlays on government and conventional loans
• Over 75% of our borrowers are folks who are stressing during the mortgage process or get a last-minute mortgage denial due to overlays
• We have zero overlays on government and conventional loans

We help all of our borrowers preparing to qualify for mortgage with bad credit.

How Do Lenders View Borrowers With Bad Credit

With mortgage lenders with no overlays like myself and my team, we just need to go off automated findings from the Automated Underwriting System (AUS).

• As long as borrowers get an approve/eligible per AUS findings and they can clear the stated conditions, Gustan Cho Associates will close their loans
• All loan programs allow outstanding collections and charged-off accounts
• Borrowers do not have to pay outstanding collections and charged-off accounts to qualify for owner occupant government and/or conventional loans

However, FHA Loans is the most popular loan program in the U.S. FHA is the laxest, lenient, and tolerant when it comes to outstanding collections, charge-offs, late payments, and late payments after housing event and/or bankruptcy.

How Long Does Bad Credit Report On Credit Reports

Unfortunately, bad credit and payment history on the credit report will stay on the consumer credit report for a period of 7 years from the date of last activity:

• Lenders, as well as other creditors, will see consumers had a credit problem in the past
• That is completely fine
• However, lenders, as well as HUD and Fannie Mae and/or Freddie Mac, have certain rules and guidelines on bad credit home loans
• It is okay to have gone through a period of bad credit
• However, they want to see consumers have recovered and have re-established credit

Lenders want to see a period of at least 12 months of timely payments on all of the monthly credit obligations.

Qualifying For Mortgage With Bad Credit: Bankruptcy And Foreclosure

Homebuyers qualifying for mortgage with bad credit after a bankruptcy and/or foreclosure, need to realize that lenders do not want to see any late payments after bankruptcy or foreclosure. All lenders want to see re-established credit.

• Many times consumers who filed bankruptcy do not want to deal with credit anymore
• They want only to deal with cash
• This is not good
• Lenders want to see re-established credit after a consumer had a prior bankruptcy
• Secured credit cards are the best way of getting credit re-established
• By adding positive credit after a bankruptcy and/or foreclosure will speed up boosting credit scores
• There are many cases where consumers with a prior bankruptcy or foreclosure have credit scores of over 700 one year later
• This is because they have gotten 3 to 5 secured credit cards
• The longer credit history is with secured credit cards, the stronger credit profile will be

As bankruptcy and foreclosure ages, it will have a lesser impact on credit scores.

Check: Can You Qualifying For Mortgage With Bad Credit

What If I Have Recent Late Payments On My Credit Report

As mentioned above, mortgage lenders want to see timely payment history in the past 12 months.  Consumers with one or two late payments in the past 12 months and have a good explanation, then it is possible to get qualified for a mortgage loan.  However, those with numerous late payments in the past 12 months and currently are late with monthly payments may need to wait until they have a 12 month on-time payment history.

Getting Automated Underwriting System Approval

Here is the key to getting an approve/eligible per Automated Underwriting System:

• Borrowers can have outstanding collections and/or charged-off accounts
• Borrowers do not have to pay outstanding collections and/or charged-off accounts to qualify for mortgage home loans
• However, the key to getting an approve/eligible per AUS, timely payments in the past 12 months is crucial
• One or two late payments in the past 12 months is not a deal killer and often times AUS will render an approve/eligible
• Multiple late payments in the past 12 months will trigger an automated mortgage denial
• AUS will not pick up credit disputes
• Credit disputes will halt the mortgage process

Once credit disputes get retracted, it will lower borrower’s credit scores.

Preparing To Qualify For Mortgage With Bad Credit: Credit Scores Versus Credit Payment History

Just because home buyers meet the minimum credit score requirements does not mean they automatically qualify for a mortgage.

• A borrower can have 640 credit scores but may not get automated underwriting system approval with multiple late payments in the past 12 months
• Late Payments after housing event and/or bankruptcy is considered really bad by both AUS and lenders
• Most lenders will NOT approve any borrowers with any late payments after bankruptcy and/or housing event
• However, AUS will not always deny a late payment after bankruptcy and/or housing event
• Borrowers with late payments after bankruptcy and/or foreclosure should add 5 new credit tradelines and keep those on time for at least a year or longer to offset the negative late payments after bankruptcy and/or housing event
• Adding three to five credit tradelines after periods of bad credit is extremely important

Make sure to keep credit card balances to lower than 10% credit utilization ratio of the credit limit.

Preparing To Qualify For Mortgage With Bad Credit: Credit Repair Can Do Mortgage Damage Than Good

Credit Repair often does more damage than good when Preparing To Qualify For Mortgage With Bad Credit.

• Disputing derogatory credit tradelines can often backfire and devastate borrowers credit scores
• What happens when consumers dispute derogatory credit tradelines such as late payments is that credit bureaus will negate the negative factor of the derogatory tradeline from the credit bureaus credit scoring formula
• Credit Disputes will increase credit scores because the scoring formula will treat the negative tradeline as it does not exist while credit bureaus are investigating
• When consumers retract credit disputes, the credit scoring formula will trigger the negative scoring formula back to consumer credit report and treat it like a brand new negative tradeline
• This, in turn, will lower consumer credit scores
• I have seen consumer credit score drops of over 80 points or more by retracting credit disputes

Contact us at Gustan Cho Associates Mortgage Group prior to starting any credit repair regiment.

About Us At Gustan Cho Associates

Gustan Cho Associates Mortgage Group are direct lenders with no overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders because of their lender overlays. We can help borrowers with less than perfect credit or credit issues in preparing to qualify for mortgage with bad credit. Contact us or text us for faster response at 800-900-8569. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.