What do Lenders look for?
Lenders look at many different things when a buyer applies for a loan. They will look at the proposed payment, the debt to income ratios, the borrower's savings ability, and of course your credit history.
The majority of lenders are automated now. This means that they put your information through a computer that will calculate you as a risk and spit out an answer within minutes. This includes the majority of on-line lenders, as well as larger banking institutions. You would be surprised on how many worth people get spit out, because the computer doesn't like their profile.
Manual underwriters can make human judgment calls. They can get a feel for your situation by the way that a lender packages your loan. The lenders who just throw you into the system to see if you stick often loose 50% of their business because they didn't take the time to present you in the best light.
Packaging a loan just right can make a big difference when it comes to you being approved or just cast aside. I know how to package a loan and present you in your best light.
Let's break apart the most important factor, your credit history.
Consumers with a good credit history, or "A" credit, will qualify for a loan with the lowest interest rate offered by the lender. Good credit does not mean you have a perfect credit history. If creditors could only make loans to consumers with perfect credit histories, they would not be able to make enough loans to stay in business. You have to be able to prove you have a good credit history, either through a credit report or through non-traditional means such as your own credit file.
A good credit rating will be based on several factors. The first is mortgage or rent payments. Some lenders go back only twelve months. The majority of the creditors go back twenty-four months. You should not have any late mortgage or rent payments in the past twenty-four months. Good past mortgage or rent payments equal GOOD CREDIT.
The second factor emerges from automobile or other secured loan payments. Most creditors consider your payment history on automobile loans to be as important as your rent or mortgage. You should not have any late auto payments in the past twelve to twenty-four months. On-time auto payments equal GOOD CREDIT.
Late payments do not mean paying after the due date. Late payments mean the creditor received your payment after it is considered late. Look at your statement or your lease agreement. It will tell you when your payment is late. Mortgage payments are usually considered late 15 days after the due date. Usually you are reported late to the credit bureaus 30 days after the due date.
Credit cards or unsecured loans generate good credit ratings. When it comes to credit card loans, creditors are much more forgiving. If you were 30 days late on making two of these payments, but not over 60 days late on any one credit card or unsecured loan in the past twelve months, this equals GOOD CREDIT.
If you have no outstanding debts such as collection accounts, charge-offs or judgments, you will likely have a good credit rating. Some creditors will overlook a collection account if you have a good excuse and evidence to go along with it. The statute of limitations can be a factor when dealing with collection accounts and charge-offs. Creditors can understand about medical collection accounts but unpaid judgments are usually an automatic loan turndown.
As long as your income is sufficient to service your monthly payments and you have four "GOOD CREDITS," then you are usually in the door for a standard mortgage--the front door of your new home.
You may have good credit even with a bankruptcy in your credit file. You must have a good reason why you filed bankruptcy. At least two years must have passed since your bankruptcy was discharged. You must have established at least three lines of credit since your discharge. These credit lines can be in the form of utility bills, gas cards, gym memberships or rental agreements. You cannot have any late payments whatsoever. You must have clean credit after a bankruptcy.
If, after you have obtained all three copies of your credit report, you feel that your credit history is questionable, set an appointment with a mortgage broker to review your credit reports. Nobody knows the mortgage business better than a qualified mortgage broker. Since I am one, and have worked with so many different levels of credit challenges, I can tell you what your chances really are. It is always good practice to consult with more than one mortgage broker to obtain different opinions. Unfortunately there is no Bar Association like an attorney to give you a recommendation, however you can check out a broker's license through the Department of Real Estate to see if they have had any lawsuits or disputes. The local Better Business Bureau contains information of that sort as well.
If you have the money and income, you can obtain a mortgage even with a bad credit file. The mortgage business is very competitive. Look around and you will see advertisements offering mortgages to consumers with bankruptcy, foreclosure, charge-offs or other detrimental backgrounds. With bad credit, you might have to pay extra for a mortgage. Do not pay any more than you have to. Just as no two bankruptcies are alike, no two mortgage applicants are alike. For example, the mortgage company will determine interest rates based on the time since discharge from bankruptcy, and credit history since discharge. After a bankruptcy discharge, you can have an "A" credit rating within two years.
If your credit report has negative information and you want to qualify for a mortgage, you could be better off just being patient. Patience can save you tens of thousands of dollars in finance charges. Each situation is different.
If you have 20%-30% of the purchase price for a down payment and have severe credit issues, you can get "B" or "C" paper loans. Typically these loans are a higher interest rate and can be refinanced after a few years. They are not the best, but if you are in this situation, it is obtainable.
For the rest of us in the real world, our options are to work on our credit and get our lives back on track. If you are thinking of using an agency such as Consumer Credit Counseling, don't forget. THEY DO NOT WORK FOR YOU, they work for the credit companies you're trying to negotiate with. Most people do not realize until too late that paying less than your monthly minimum required payment can mean that the company most likely will report lates on your credit history.
Most underwriters do not like the fact that you cannot make a minimum payment, and unless a good reason is given, they can decline you. FHA has more flexible guidelines when it comes to these services and you can get approved by showing proof of the agreement and making notations on your credit file. Getting the credit agencies to accept in writing a lower payment is tough. Do not agree to anything unless you get it in writing from the agencies that are being negotiated with.
Bankruptcies need time to season. You cannot file a bankruptcy and expect to get a home loan the next day. Usually it takes 2 full years after a bankruptcy to be considered. There are programs out there but they are higher rates, and higher stipulations. Again, sometimes patience may be your best bet.
Now if there are issues on your report that you want to dispute, or feel that you were never given the right opportunity, fight for it.
