Posts Tagged ‘minimum credit score requirements’

Waiting Periods After Derogatory Credit Items – Bankruptcies

October 30, 2017

In the last post, we looked at how lending guidelines require specific waiting periods for different types of “derogatory items” on a borrower’s credit report.  Then we zeroed in on waiting periods following a property foreclosure.  In this post, we will cover the waiting periods required after bankruptcy filings.  As with foreclosures, the different mortgage types specify different waiting periods.  The waiting periods also vary by the type of bankruptcy filed – Chapter 7 or Chapter 13.

Let’s start with Chapter 7 – the required waiting periods are as follows:

  • FHA – 2 years from the discharge date
  • VA – 2 years from the discharge date
  • Conventional – 4 years from the discharge or dismissal date
  • Jumbo – 7 years from the discharge date

The waiting period calculations get a bit more complicated with Chapter 13 bankruptcy filings.  The Chapter 13 waiting periods are as follows:

  • FHA – 1 year from the start of the payout period, as long as the borrower has made all required payments on time.
  • VA – 2 years from the discharge date, or if the Chapter 13 is in repayment, the Trustee must document satisfactory payment history for 12 months of the payout period and the court must give permission to enter into a mortgage transaction
  • Conventional – 2 years from the discharge date or 4 years from the dismissal date
  • Jumbo – 7 years from the discharge date.

So ultimately the good news here is that you don’t have to wait “forever” to apply for a new mortgage after a bankruptcy – unless of course you want a jumbo loan.  (7 years is a long time to wait.)  As always, FHA and VA loans are more “forgiving” of past credit problems.

Do you or someone you know have a bankruptcy in your past and now want to buy a home?  It may be possible to make it happen.  Be sure to work with a lender who will ask detailed questions and help coach you to the best option for your specific situation.  I’ve recently closed loans for multiple clients “bouncing back” after a bankruptcy.  It brings joy to close that loan and help my clients reach another financial milestone following their struggles.  Call me at Dunwoody Mortgage and let’s determine the best option for you or whomever you know with a past bankruptcy.

 

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Mortgage life after a derogatory credit event

February 14, 2017

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An unforeseen event takes place… a medical event, job loss, divorce, death of a spouse… before you know it, bills are piling up and they never seem to end. Eventually this buildup could result in a bankruptcy, foreclosure, short sale… a major derogatory credit event. Once it is over, will you ever be able to buy a home again?

The answer is yes. During the housing boom, someone could apply for a loan the day after completing a bankruptcy. Let’s just say guidelines are different now, but not insurmountable. Most people assume there is a 7-year wait after something as big as a bankruptcy or foreclosure. That is true if you are looking to qualify for a Jumbo loan (any loan amount over $424,100). On the other hand, if you are looking to buy a home for say $350,000 with the minimum down payment, is it still a 7-year wait?

No, definitely not.

This post will focus on conventional loans. Next time, we’ll discuss government loans.

What are the waiting periods? Using today’s guidelines*:

  • Chapter 7 bankruptcy: requires a 4-year wait
  • Chapter 13 bankruptcy: requires a 2-year wait from the discharge date, but 4 years from the dismissal date if the Chapter 13 bankruptcy application isn’t accepted by the courts
  • Multiple bankruptcy filings: 5-year wait
  • Foreclosure: 7 years unless the home was included in a bankruptcy filing. In that case, it drops from 7 to 4 years
  • Other: There is a 4-year wait for a deed-in-lieu of foreclosure, short sale, or the sale of a home during the foreclosure process

*Those are Fannie Mae guidelines. Technically, Freddie Mac does not have minimum waiting period. Underwriting goes by the Automated Underwriting Services findings from Freddie Mac. That said, the “findings” often mirror the guidelines of Fannie Mae. 

In only one of these instances is there a 7-year waiting period. That would be if there was a foreclosure on a home that was not included in a bankruptcy. In every other situation, one could be ready to purchase a home much sooner than 7 years. Government loans are much more forgiving, but conventional loans are to be used in situations where a borrower doesn’t qualify for a VA or FHA loan (more on that next week). Also, the maximum loan amounts on FHA loans are lower than conventional loans, so the purchase price could also play into determining which loan program to use.

Have you filed a bankruptcy, but want to own a home again? You don’t have to wait seven years. If you have re-established credit to a qualifying score, buying a home can come sooner than you think. Unsure of your situation? Purchasing a home in Georgia? If yes to both, contact me today. We can start the prequalification process and see how quickly we can get you into a new home.

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Credit Score Basics for Home Buyers

February 9, 2017

A recent survey reported that 2.7 times more first time home buyers than repeat buyers believe they must improve their credit scores before buying a house.  First let’s dispel credit score myths.  A home buyer can possibly win mortgage approval with a credit score as low as 620.  If your score is 620 or higher, you can possibly win loan approval.

If your score is less than 620, you need to work to improve it before you can qualify.  If your score is 620 or higher, you may want to take steps to increase your score as better scores tend to lower mortgage costs.  Note that I am not a credit score repair specialist, but here are some basic, fundamental tips to improve your credit score:

Pay down your credit card balances:  You get the best score on each credit card account when your balance is less than 1/3 of that account’s credit limit.  Your score drops when your balance is more than 1/3 of the limit.  And your score drops even further if your score is more than ½ of the credit limit. 

Pay your bills on time:  Late payments lower your score.  The later the payment, the more your score is penalized.

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Time heals all wounds:  The more time that has elapsed since your last late payment, the less those late payments will affect your current score.  Some credit issues have mandatory waiting periods.  For example, if your credit report shows a bankruptcy, 2 years must elapse before you can obtain a FHA mortgage, and 3 years must elapse before you can qualify for a conventional mortgage. 

Resolve account disputes now:  Mortgage underwriters hate account disputes.  If you have disputes on credit accounts, go ahead and resolve them prior to applying for a mortgage.

Be aware of collections accounts:  Note that I didn’t say to pay them off.  Sometimes, paying off a collection account will actually lower your credit score.  If you want to buy a home in the next 12 months or so, it may be best to just know about the collections accounts – you may have to deal with them as part of your mortgage process.  In some cases, we require the borrower to bring enough cash to close and to pay off collections account balances as part of the mortgage closing process.

If you want to buy a house in Georgia, get a good idea of your credit score and your monthly debt payments.  Then call me to discuss your loan options.  I’ll invest time coaching you on the best ways to help you win loan approval. 

More mortgage questions?  Check out our home buyer educational videos.

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Educating First Time Home Buyers

February 2, 2017

A recently published survey of 2016 home buyers shows that first time buyers (“FTBs) comprised a larger percentage (35%) of all home buyers than in 2015 (32%).  FTBs face greater challenges than buyers who have previously purchased homes.  In addition to the uncertainty and stress in making such a major financial decision for the first time, FTBs face additional financial challenges, some real and some more perceived.  For example:

  • 2.7 times more FTBs than repeat buyers believe they must improve their credit scores before buying a home.   
  • 2.9 times more FTBs than repeat buyers expect a home purchase delay due to their current lease terms.   
  • 3 times more FTBs than repeat buyers say they lack enough money for a down payment.

In short, first time buyers need significant education, advice and support.  In future blog posts, we will address each of the above challenges in more detail.  For now, let’s take a quick look at some ways Dunwoody Mortgage Services (“DMS”) helps to educate home buyers.

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The DMS staff has created a series of home buyer education videos published on our website:  http://dunwoodymortgage.net/custompage-view.aspx?id=9.  These videos are concise and to the point, each covering a key mortgage process topic, such as cash to close, monthly payments, mortgage insurance, and more. 

We encourage our clients to plan early – last year I closed a loan for I client with whom I had been talking for 2 years.  My boss’ record is 7 years.  In short, we will take the time to listen, to coach, and to help our clients plan for a future home purchase.  And sometimes, it may take a few years to save enough money, to improve credit scores, or to meet tax return guidelines for self-employment.  Helping our clients plan for mortgage success is something the DMS staff enjoys doing.  

Also, we coach our clients to plan a home purchase that best fits their financial situation.  Oftentimes, a home buyer can qualify for a mortgage payment that is so high, they would have to change their lifestyle to live with the payment.  Such high payments can lead to significant financial stress – we call that being “house poor.”  We consult with our clients about how a mortgage payment will fit into their budget and lifestyle.  We encourage discipline and budgeting, with the goal of helping the client buy a home that they love, and that they can comfortably afford.

Know a first time home buyer who needs financial coaching and counsel?  Tell them about us here at Dunwoody Mortgage — we will invest a lot of time in them, so their first home investment will be successful, and with minimal stress. 

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Credit Reports and Qualifying for a Mortgage #3

October 19, 2016

In prior posts we reviewed the credit score and public record components of a credit report.  But even with a qualifying score and a clean public record history, that doesn’t mean you are in the clear.  There are other credit report factors that can create underwriting hurdles which we must overcome.  Here are some other details we consider…

The credit report shows a history of open and closed credit accounts.  Data shown for each account includes:

  • Current account balance.
  • Account credit limit.
  • Account type – credit card, mortgage, student loan, auto loan, etc.
  • Account status – open, closed, collections, etc.
  • Minimum payment – these are important because they are included in the client’s (let’s call her Mindy) debt to income ratio.  If the total of all monthly payments is too high, Mindy might not qualify for the loan desired.
  • Late payment history – late payments are categorized as follows — 30 day lates are not good; 60 day lates are bad, and 90 day lates are really bad.  The report shows the dates of the most recent late payments.

If Mindy’s late payments were made more than 2 or 3 years ago and she has been consistently making on-time payments since then, it likely will not cause loan denial.  However, if Mindy’s late payments occurred after a bankruptcy, then underwriting may deny the loan.  I’ve had this happen where the underwriter said no to a client with a bankruptcy in 2010 followed by two 30-day late payments in 2012.

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  • Account disputes – if Mindy has officially disputed an account, it will show on her report.  Underwriters do not like account disputes.  This is especially true for FHA mortgages when a disputed account balance exceeds $1,000.  In some cases, the dispute can lead to loan denial.  I’ve had clients who had to go through a multi-week process to get a dispute removed from their credit before we could win loan approval.  I search for the word “dispute” on all credit reports.
  • Collections accounts – when an account has a collections status, this can cause loan denial.  This is especially true for FHA mortgages.  If the total outstanding amount of all collections accounts exceeds $1,000, underwriters will not approve an FHA loan until the balances are paid in full.  I had a client with 3 collections accounts earlier this year.  The client had plenty of cash, so we simply included the payoff of all collections accounts at the closing of her home purchase.

Once again, there is much more to a credit report than the score.  If you know someone who wants to buy a home in Georgia, don’t let them get mislead by a lender in a hurry.  Refer them to Dunwoody Mortgage, we will invest enough time up front to give everyone great confidence that the mortgage will actually close.

 

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Credit Reports and Qualifying for a Mortgage #2

October 12, 2016

The last post covered the credit score component of a credit report.  But remember, there is much more to a mortgage credit report than just the score.  After looking at a client’s credit score, I next review any public record filed against the client (let’s call him “Matt”) in a court of law.  These include liens, judgements, foreclosures, and bankruptcies.  How do these items affect Matt’s ability to win loan approval?

  • Liens – A tax lien is a big red flag. The IRS doesn’t play around when it comes to collecting money you owe them.  And lenders don’t want to get in line behind the IRS when it comes to collecting payments.  If Matt has a tax lien, he will likely need to pay it off before we can win loan approval.  We may be able to win loan approval if Matt has a tax lien, but it will take some extra work.
  • Bankruptcies – Bankruptcies stay on a credit report for 7 years.  Matt cannot obtain a conventional loan for 4 years following the bankruptcy discharge date (the date when Matt was officially released from personal liability for debts included in the bankruptcy).  For FHA loans, the waiting period is 2 years after the bankruptcy discharge date.  There are some differences in how we treat Chapter 13 vs. Chapter 7 or 11 bankruptcies.
  • Foreclosures – Foreclosures also stay on a credit report for 7 years.  It is possible to win loan approval even with a foreclosure.  For conventional loans, a 7 year waiting period is required.  For FHA loans a 3 year waiting period is required.  And note that the clock starts when the foreclosing bank sells the old house to someone else.  Not when the bank first takes the house.
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Gavel with money background

  • Short Sales – Once again, short sales stay on the report for 7 years. A short sale occurs when a loan servicer agrees to the sale of a property by the borrower to a third-party for less than the outstanding mortgage balance.  Waiting periods are 4 years for a conventional loans and 2 years for FHA loans.
  • Legal Judgments – Outstanding legal judgements must be paid off prior to or at closing.  Note that we can include payment of Matt’s legal judgments as part of the closing itself.

There is much more to a credit report than just the score.  When a lender pulls your report and quickly says “you qualify,” he or she might be doing you a disservice.  You want a lender who will take some time to look closely at your report, and deal with any potential issues up front.  If you plan to buy a home in Georgia and expect your lender to invest time in the details, call Dunwoody Mortgage Services.  We will help you avoid surprises.

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Credit Reports and Qualifying for a Mortgage #1

October 5, 2016

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This news may shock you – mortgage underwriters actually look at a borrower’s credit report.  Notice I said, credit report, not credit score.  The score is only one component of the full report.

When we pull a credit report, the first thing we do review is the credit score.  If the score doesn’t qualify, there’s no need to spend time on the report details.  My lending guidelines state that minimum qualifying credit scores for my clients are:

  • 620 for FHA and VA loans.
  • 620 for conventional loans.

Mortgage credit scores are different from consumer credit scores people get from websites like credit karma.  Issues pertaining to past mortgages carry more weight on a mortgage score than a consumer score.  So your mortgage score may differ significantly from a consumer score given to you by a credit card company or a website.  I’ve had clients with mortgage scores higher than their consumer scores and other clients with scores less than their consumer scores.  You never know for sure until you actually pull the mortgage report.

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We look at scores from all three credit bureaus – Equifax, Experion, and Transunion.  We are required to use the borrower’s middle score for loan qualification.  And if there are multiple borrowers, then the lowest middle score is the score we use to qualify the application.  When I pull a report, if the score is less than 620, the client and I will discuss ways that they can improve their score, which may be simply waiting for their score to rise while they pay their bills on time, or contacting a credit counselor who might be able to help improve their score.

Regardless of how good the score is, I will look carefully at additional report details.  Sometimes these details can cause some underwriting questions or challenges, even if the score qualifies.  It’s usuaully best to deal with any credit questions proactively.

Home buyers deserve to know as early as possible whether they can realistically win loan approval.  There’s no need for them to waste their time or a Realtor’s time searching for a home when they cannot qualify for a mortgage.

We will review other key credit report details in future blog posts.  But for now, if you know someone looking to buy a home in Georgia, and this person may have a few “skeletons” in their “credit closet,” (hey Halloween is approaching!), refer them to me.  I’ll take the time to look at all the details, giving them the level of service they truly deserve.


 

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Home Buying Preparations – Credit

January 12, 2016

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Last time we looked at income when qualifying to buy a home. This time, let’s talk about credit.

I know what most of us hear on the news… need “perfect” credit to buy a home. Well, that just isn’t true. Not only can a buyer qualify to purchase a home with an average credit score (around 660-680), what if I told you someone with a below average credit score could buy a home.

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Yes, it is true.

That brings us to a great question. What is the minimum credit score when buying a home? That depends on the loan program.

  • Conventional Loan – minimum credit score is 620
  • FHA Loan – minimum credit score is 640
  • VA Loan – minimum credit score is 620

Now the next question would shift to the interest rate. The common assumption is that a low credit score will really impact the interest rate. Well, again, that depends on the loan program. Would you believe it if I told you:

  • a buyer with a 640 credit score with only a 3.5% down payment could qualify for an FHA loan with a rate under 4%
  • a buyer with a 620 credit score with no down payment could qualify for a VA loan with a rate under 4%
  • a buyer with a 620 credit score with a 5% down payment could qualify for a conventional loan with a rate in the mid 3’s

Last year I qualified a buyer with a 624 credit score for a 15 year fixed conventional loan at a rate of 3.375%. Why? While a 30 year fixed rate loan has a dramatically higher interest rate with a low credit score, the same interest rate increase does not apply to FHA loans, VA loans or 15 and 10 year conventional loans.

Don’t let anyone make you think a bad credit score means a high interest rate. There are ways around a lower credit score so long as the middle credit score is over 620.

Looking to buy a home, but afraid you will get hosed on the interest rate due to a lower credit score? That may not be the case. Contact me today to get started on your new home loan for properties in the state of Georgia.

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So How Much Money Do You Make?

September 24, 2015

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It pretty much goes without saying that everyone needs an income and most people need a job to qualify for a mortgage.  “No duh, Sherlock, right?”

Some people can qualify for a mortgage if they have an income and no job.  For example, retirees who have income from Social Security and retirement assets can use income from these sources to qualify without a job.

But the majority of us must be employed and earning a regular paycheck to qualify.  So here are some important income questions underwriting will want to consider when you apply for a mortgage.  #1:  What is your income?

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#2:  How do you earn your income?  Your answer to that question dramatically impacts your ability to qualify for a mortgage and the documentation you must provide to verify that income.  It also affects how we calculate the monthly income that we enter on your mortgage application.

Below is a quick summary of different income earning methods we frequently see in the mortgage world.  In future posts, we will review in more detail how underwriting verifies each different method of earning your wages.

  1. Salary income
  2. Commission income
  3. Hourly income
  4. Bonus and overtime income
  5. Part time job, second job, and multiple job income
  6. Self-employment income
  7. Rental income
  8. Child support, alimony, maintenance income
  9. Asset based income
  10. Social security / survivor and dependent benefit income
  11. Tip income

Not sure whether your income will qualify for a mortgage on your Georgia dream home?  No worries, just give a call to Dunwoody Mortgage Services.  We will ask you the right questions to make sure that your eligible income is recorded correctly for underwriting.  Give me a call or send me an email to start the process.  We will make sure that we do this right the first time!

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You Can Do It!! Part 3

July 27, 2015

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Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

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As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

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