Some people are planners by nature, I am not but planning ahead to qualify for a mortgage is a life occurrence that planning is best. I have two sisters and as far as traits are concerned I am somewhere in the middle of them. One had a very successful business for over 30 years right after some college, I wouldn’t say she is a planner like me but the other is definitely a planner. She is an Administrator by nature. Everything and everyone has its place. I on the other hand promoted through the ranks of corporate America. Given the differences here we all had one thing in common besides our parents. We planned on becoming homeowners and made necessary decisions to position ourselves to qualify for a mortgage. One time wasn’t good enough for me I lived through the process at least 7 times. The saying “Failure to plan does not constitute an emergency on my part” is fitting regarding the mortgage application process.
This is probably the best question one can ask to begin preparing to qualify for a mortgage. Proper planning is not overnight, week or even a month and takes patience. Everyone who has documented income can qualify for a mortgage. Even if life has taken some big curves and you have bad credit this should not deter you in pursuit of homeownership, which normally means you must qualify for a mortgage. Notice I mention life takes some curves and with the Mortgage and Real Estate meltdown and economic recession of 2008 millions of hard working Americans were negatively impacted. I read a statistic 6 of 10 Americans suffered some sort of impact such as loss of their businesses, loss of jobs, loss of pensions, loss of all the equity they had in their homes, filed for bankruptcy and millions had to endure foreclosure and/or short sale. The entire mortgage industry went through a complete over haul, new laws and regulations were made and passed and implemented relatively fast considering our Congress is notoriously slow. Entire mortgage sectors were eliminated, sub prime lenders went out of business and the sub-prime market went extinct. A Mortgage Loan Originator now has to go through pre-licensing requirements and both federal and state testing and intensive federal and state criminal background checks and credit checks for an individual to originate mortgage loans to the public. The days of no documentation loans and stated income loans are long gone. To qualify for a mortgage now you must have documented income. For the self-employed it may take several months to qualify as well as those who have poor credit. Self employed individuals need to have positive and qualifying income to qualify for a mortgage loan. (This is the planning to qualify for a mortgage part). Borrowers with bad credit need at least 12 months on time payments on all of their monthly debt obligations. However, hold on ! Don’t stop planning it takes time and discipline, just meeting the minimum FHA guidelines and credit score is not sufficient. For example FHA current minimum FICO score with only 3.5% down payment is 580, (most lenders are more stringent and require 620) does not guarantee you will qualify for a mortgage loan. Mortgage lenders will review your overall payment history on your credit report. FHA minimum guidelines even allow a borrower NOT to pay off older collection accounts and charge off accounts and it is acceptable to have prior bad credit, collections, charge off, judgements, bankruptcy, and foreclosure but Mortgage lenders want to see re-established credit and no late payments for the past 12 months.
Many people who have just had a bankruptcy and a foreclosure do not even want to think about re-establishing their credit, I have been there personally and can unequivocally say this is the wrong approach and attitude. Grab your boot straps and pull yourself up and realize even if your pride is bruised you have a new beginning. When you begin to re-establish your bruised pride is replaced with confidence and feelings of accomplishment. It is never too late to start preparing to qualify for a mortgage, the sooner the better. To qualify for a mortgage takes some time if you just had a bankruptcy or foreclosure or you have went through periods of bad credit due to a loss of job, loss of business, divorce or medical issues. LIFE HAPPENS, now lets plan ! Do not hang your head, do not be discouraged with poor credit scores. Your credit will recover it is not terminal and permanent and will even recover on its own as time passes even if you do nothing. However, there are ways to expedite good credit, it will take some time and patience. The Larry Stepp Team at The Money Store has seen countless consumers get their credit scores over 700 after a bankruptcy or foreclosure or periods of bad credit.
An individual just went through a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, or went through a period of bad credit and have many collection accounts and charge offs, DO NOT BE discouraged. Do not attempt to pay off your old outstanding collection accounts or charge off accounts because to qualify for a mortgage (FHA) you do not need to pay them off because for a FHA Loan with a FHA mortgage lender who has no FHA Lender Overlays like myself at The Gustan Cho Associates Team. Many Lenders and banks will advise you need to pay off unpaid collection accounts or charge off accounts but before you pay them off do your homework. Look up resources, call or email The Larry Stepp Team at The Money Store or Gustan Cho Associates for answers to your questions. We can direct you to a good source. Currently FHA does not require you to pay any outstanding collection accounts or charge off accounts to qualify for a FHA Loan. In fact by paying off your outstanding collections or charge offs, you will lower your FICO credit scores because it will re-activate the old collection account as a newer collection account and reset the statue of limitations. To qualify for a mortgage after periods of bad credit is to re-establish your credit by getting a new credit by getting three to five secured credit cards. Secured credit cards are the best and fastest way of re-establishing your credit. The higher the credit limit secured credit card you get, the better. Do not waste time getting a $200 to $300 secured credit card. Try for at least a $500 secured credit card, preferably a $1000 limit secured credit card. If you would like to maximize it, get at least three secured credit cards. When your secured credit card ages, your credit scores will begin to climb up and your credit profile will be stronger. Be sure you always make the minimum payment due every month on-time, NEVER be over 30 days late or the secured credit card company will report to the three major credit reporting agencies.
To qualify for a mortgage all loan programs have a minimum credit score requirement with exception of one, we will review that in a minute. To qualify for a FHA insured mortgage with a 3.5% down payment a borrower needs a 580 FICO credit score. To qualify for conventional loans, Fannie Mae and Freddie Mac require a minimum 620 FICO score. Most USDA mortgage lenders will require a minimum 640 FICO score. VA does not have a minimum FICO score requirement and it is up to a VA mortgage lender but most likely a borrower will need a 580 FICO credit score to qualify for a mortgage under the VA Loan program. Most VA mortgage lenders do have overlays and will not accept any borrower with less than a 620 FICO credit score. To reiterate, just meeting the minimum credit scores does not automatically guarantee a borrower to qualify for a mortgage loan in any loan program you are best suited for. Mortgage underwriters will also look at the borrowers payment history. A borrower can meet the minimum FICO credit score with a poor credit payment history. As stated earlier lenders do not want to see any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale nearly all mortgage lenders will want to see a timely payment history for at least the last 12 months on all debt obligations.
A credit trade line is when a borrower has a creditor account with at least a 12 month payment history. Most mortgage lenders like to see at least 3 credit trade lines. Not having any credit trade lines is not a deal killer, but there are many mortgage lenders that do require at least three credit trade lines for at least 12 months and some may go back as much as a 24 months seasoning requirement on credit trade lines.
Pay your rent with a bank check. One of the most important compensating factors that a borrower can have is verification of rent. A borrower than can prove rent payments is huge. Verification of rent is when the mortgage borrower can prove he or she has been paying their rent payments with a bank check for the last 12 months. Unfortunately many renters will pay their rent with cash and get a receipt. However this cannot be used as rental verification. Use a bank check or wire the funds from your bank into your landlord’s account. If the borrower is renting from a registered property management company the borrower can get a letter from the property manager company manager stating the borrower made timely rent payments for the past 12 months and the property manager has to sign a Verification of Rent form (VOR) provided by the mortgage lender. FHA borrowers with credit scores higher than 620 FICO will not have to concern themselves with a VOR. However the Automated Underwriting System will most likely request a VOR for FHA borrowers with FICO scores less than 620. If manual underwriting is utilized all FHA loans will require a VOR. If you are a renter and want to qualify for a mortgage and become a homeowner in the near future make your rental payments with a check and make sure your rent payments are made on time to your landlord.
The Larry Steep Team at Gustan Cho Associates can be reached 7 days a week, holidays and weekends.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com
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