First-Time Home Buyers With Bad Credit Mortgage Loans
Many first-time home buyers with bad credit are under the following impression they need high credit scores and a 20% down payment to qualify for a mortgage. This is not true. FHA and USDA require 580 credit scores. The Veterans Administration has no minimum credit score requirement on VA loans. Fannie Mae and Freddie Mac require 620 on Conventional loans.
Many homebuyers believe you cannot have outstanding collection and charged-off accounts. Outstanding collections and charged-off accounts do not have to be paid to qualify for home loans. You do not need a 20% down payment to buy a house. HUD, the parent of FHA, requires a 580 credit score to qualify for a 3.5% down payment FHA home purchase loan.
VA and USDA loans do not require a down payment and offer 100% financing. Conventional loans require a 3% to 5% down payment. You do not need to have been in the same job for the past two years. You can have gaps in employment and qualify for government and conventional loans. This article will discuss how first-time home buyers can qualify for a mortgage with bad credit.
How To Start The Mortgage Application Process
The first step for first-time home buyers with bad credit should be to consult a mortgage lender. Not all lenders have the same mortgage requirements. Most lenders have overlays. First-time home buyers with bad credit should consult with a lender with no lender overlays. Non-Qm Mortgage Brokers have zero overlays on government and conventional loans.
- Home buyers need to feel comfortable with their loan officer
- They should also consult with a real estate agent
- Decide what area they want to purchase their home
- Not all mortgage lenders have the same lending requirements
- Most mortgage lenders have mortgage lender overlays
- Overlays are additional lending guidelines on top of FHA, VA, USDA, Fannie Mae, Freddie Mac
- There are lenders with no mortgage overlays
Non-Qm Mortgage Brokers have zero overlays on government and conventional loans.
Mortgage Pre-Qualification And Pre-Approval Process
The mortgage loan originator will go over the following:
- Income
- Credit
- Credit report
- Credit scores
The loan officer reviews monthly debts to determine the maximum borrower can afford. Just because a mortgage loan originator gives a maximum monthly payment cap does not mean that borrowers can comfortably afford the housing expenses. That figure is a number that borrowers cannot surpass for qualification purposes. The mortgage loan originator will then analyze the application and credit report to see if a borrower qualifies for a mortgage loan. Many mortgage loan originators will have the first-time home buyers prep program. They will counsel and guide mortgage loan applicants with bad credit.
FHA Loans For First-Time Home Buyers With Bad Credit
FHA loans are the most popular home loan program in the U.S. HUD, the parent of FHA, sets guidelines on FHA loans. FHA loans have more lenient credit and debt-to-income requirements than Conventional loans. HUD guidelines is lenient over other mortgage loan programs.
Need current verifiable income, which is likely to continue for the next three years—the maximum credit score of 580 scores to qualify for a 3.5% down payment FHA loan. For credit scores between 500 and 579, borrowers need a 10% down payment. 43% is the maximum debt-to-income ratio for scores under 620. For credit scores of 620 or higher, the debt-to-income ratios can be capped at 46.9% front end and 56.9% back end.
Borrowers cannot work under any late payments in the past six months. Most lenders have not allowed any late payments in the past 12 months. Mortgage applicants can also not have bank overdrafts in the past 12 months.
Timely Payments In The Past 12 Months Versus Prior Bad Credit
Home Buyers can have prior bad credit that is over a year old, including the following:
- Unpaid collections
- Charge offs
- Late payments
- Bankruptcy
- Foreclosure
- Deed-in-lieu of foreclosure
- Short sale
Mortgage Guidelines on Outstanding Judgments and Tax-Liens
Judgments and tax liens:
- Borrowers do not have to pay outstanding judgments and tax liens
- Need written payment agreement with judgment credit or IRS on tax liens
- Three months seasoning of making payments is required
- Need to provide lender three months’ canceled checks
- Or bank statements showing proof of at least three months of seasoning
Waiting Period For VA and FHA Loans After Bankruptcy and Housing Event
The Veterans Administration and Housing and Urban Development have similar mortgage guidelines on waiting periods to qualify after bankruptcy or housing event on VA and FHA loans. There are mandatory waiting periods after the following:
Bankruptcy
There is a two-year waiting period after the Chapter 7 Bankruptcy discharge date to qualify for VA and FHA loans. Borrowers can qualify one year into a Chapter 13 Bankruptcy Repayment Plan on VA and FHA loans. There is no waiting period after the Chapter 13 Bankruptcy discharge date on VA and FHA loans.
FHA and VA Loans After Foreclosure
The three-year waiting period after the recorded date of foreclosure on FHA loans. The two-year waiting period after foreclosure on VA loans.
FHA and VA Loans After Short Sale
There is a three-year waiting period after a short sale date to qualify for FHA loans. There is a two-year waiting period after the short sale to qualify for VA loans.
FHA and VA Loans After Deed-in-Lieu of Foreclosure
There is a three-year waiting period after the recorded date of deed-in-lieu of foreclosure on FHA loans. There is a two-year waiting period after a deed-in-lieu of foreclosure on VA loans.
First-time home buyers with bad credit must have judgments or tax liens paid off or have a payment agreement with at least three months of timely payments. Provide three months of canceled checks.
Two Important Factors For First-Time Home Buyers With Bad Credit
Income and credit are the two most important factors determining mortgage loan approval. Home buyers with income but bad credit can qualify for mortgage approval, but the key question is when.
If credit is bad and you have had multiple recent late payments, the option may be to wait at least six months for payment history. Or they might need to boost credit scores by adding positive credit, such as getting a few secured credit cards.
Those with excellent credit but no reportable income will have a problem qualifying for home loans. Mortgage lenders require qualified, documented income. The reason is that they need to know that they can be able to make the minimum required mortgage payment. Cash income does not count, and all income must be qualified. Income needs to be verified by the Internal Revenue Service
Borrowers With Strong Income But Bad Credit
Mortgage Borrowers with qualified income but terrible credit and recent late payments can enroll in our First-time home buyers with bad credit prep program with Non-Qm Mortgage Brokers Mortgage Group. We help all of our first-time home buyers With bad credit qualify for one of our mortgage loan programs.
Get Qualified and Pre-Approved For a Mortgage With Bad Credit
Any first-time home buyers with bad credit can use our free first-time home buyers with bad credit prep program. The first-time home buyers with bad credit prep programs were created for those who have income with bad credit. We prepare first-time home buyers with bad credit to qualify for a mortgage loan. With our first-time home buyers with bad credit programs, the mortgage loan borrower will be advised on the following:
- How to repair their credit
- Improve their credit scores.
- Manage their finances to prepare them to become first-time home buyers with bad credit.
For those who just had a bankruptcy discharge or had a recent foreclosure, deed-in-lieu of foreclosure, or short sale, the time is now to start re-establishing credit. Borrowers who need to qualify for a mortgage with bad credit with a direct lender with no overlays on government and conventional loans, please get in touch with Non-Qm Mortgage Brokers at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.
