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BAD CREDIT MORTGAGE TIPS
Your credit may be damaged with financial setbacks, but you may still get a mortgage for a home purchase. You could still choose to refinance, or cash out Equity from your present home. Even if you have charge-offs, collections, a history of foreclosure and bankruptcy, or tax liens on your credit report you may still find a loan. As long as you can meet the specific guidelines for loan approval by a lender specializing in damaged credit borrowing, that is all that matters. The lending industry uses standards to assess your credit risk. If you have sufficient income, impeccable credit, and the required down payment; you are considered an 'A+' borrower. Usually a quality 'A+' borrower can walk into any lender and get a mortgage loan, if the property checks out. About the only reason an A+ borrower would be denied a loan is if they have over extended themselves with too many properties. If a borrower has minor deficiencies, he may still be considered an 'A' borrower, as long as the other areas can compensate for these weakness. For example, a borrower that exceeds the required monthly debt-to-income ratios (28% housing debt and 36% combined debt) could offer a large
down payment.
Even when a Bank turns down a borrower, Mortgage Brokers can often
find a mortgage that will fit your needs. Depending on how tarnished or battered ones credit history has been, lenders will place borrowers into the following credit
categories:
A-minus credit:
This rating demands a good report for at least 24 months. Many lenders will also excuse modest credit blemishes if a reasonable explanation is provided (i.e. job
transition, medical problems). Being 30-60 days late on one credit
card payment is an acceptable blemish beyond the last two years. Sometimes a single Charge-off, or
collection account of minor amount (e.g. less than in all)
are acceptable. The lender usually disregards Medical bills,
including hospitalization and clinic visits because of billing delay problems. The borrower can have no more than two 30 days late payments, or one 60 days late payment on revolving or installment credit.
B credit:
This rating demands a clean report for the last 18 months: Up to four 30 days
late , or up to two 60 late days payments are allowed on revolving
and installment debt. If the credit ding is an isolated incident, a
90 days late payment is allowed within the last 12 months.
Charge-offs, or collection accounts, which are isolated,
insignificant, and less than $1,000 in all, are acceptable. However,
outstanding collection accounts less than four years old must be
paid. Bankruptcy or foreclosure that had been discharged or settled
previous to the 18 month time frame is allowed.
C credit:
This rating permits a good report for the last 12 months: No more than six 30
days late payments, three 60 days late payments, or two 90 days late
payments are allowed on revolving or installment credit. Open
collections accounts and charge-offs may not exceed ,000 and must
be paid in full. Bankruptcy or foreclosure that had been discharged
or settled prior to the last 12 months is acceptable.
D credit:
This rating shows sporadic disregard for timely payment or credit standing.
Open collections accounts, charge-offs, and judgments must be paid through loan proceeds. All Bankruptcies and Foreclosures must be discharged prior to the last six months. Present Mortgage payments cannot be longer than 90 days
past due. Occasionally, an experienced Broker can find you a loan the day after
a Bankruptcy is discharged ,depending on the present mortgage outlook, so do not give up.
The above are general industry criteria that were designed to judge
the credit worthiness of a borrower's loan application. There are no hard-and fast rules separating the borrower on the border line between one credit
category and another. Also, there is wide spectrum of programs
between one lender to the next. All depend on the degree of
subjectivity involved in underwriting and how much each lender wants
to commit their funds.
Sometimes down payment requirements may be reduced.
Typical lenders who are in the (Less than Perfect) Mortgage Market usually
lend only up to 80% of the appraised value of the home. The
borrower often has to have 20% equity or come up with a 20% down
payment for a purchase. Extensive shopping may uncover a company
that will lend a greater percentage. There are lenders that are presently offering up to 125% of the market value in some instances.
How about income? A-minus and B-credit borrowers are often allowed
to spend 50% of their income to pay for combined monthly debt
(compared to the standard 36% guideline used for A credit borrowers), while (D rated) borrowers can be allowed to 60%. As for proof of income, some lenders require tax returns, W-2s, or pay stubs, or may require up to 6-month bank statements to verify income activity. Some lenders charge a higher interest for self employed person who simply give a stated amount income. They use bank statements to prove their credit worthiness.
Borrowers with less-than-perfect credit histories can expect
to pay higher than market interest rates for their home loan.
But if buying a home or refinancing your equity is the goal, there are plenty of
lenders out there to shop around to get the appropriate financing. If you are having trouble finding a lender that caters to borrowers with less than perfect
credit, you might want to consult with a mortgage broker. Since
brokers typically deal with a multitude of lenders, they might know
of lenders that make such loans.
PHONE: 252-268-6629
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"SECRETS TO HOME BUYING " SAVE THOUSANDS OF DOLLARS
by: Jeffrey Lovett
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