about credit underwriting guidelines. A separate section on Credit Repair goes into
detail on how to get your report, what credit scores are based on,
correcting errors and improving scores.
Here we are going to talk
about facts, your credit history as you believe it to be today, and the credit
guidelines that apply to each situation.
Would you rate your credit: Good, Fair, Poor, or Excellent?
Do you know your credit score from all three major repositories:
Equifax, TransUnion, and Experian?
Have you been more than 30 days late on your rent or mortgage?
Have you been more than 30 days late on your car payment?
Have you been more than 30 days late on your credit cards?
Do you have any collections, judgments, or liens?
Do you have any bankruptcies, foreclosures or repossessions?
Do you have student loans?
Do you have any debts from a previous marriage?
Do you have four lines of credit that are at least 2 years old?
The following Video Explains what is NOT calculated in your credit score:
Most mortgages on the market today are credit score driven with the
exception of FHA credit guidelines (one of the best loan programs on the market for
people with minor issues that lower scores) and a very few non-conforming
loans. Credit scores range from 300 to 850. A rule of thumb: The
higher your score, less risk, lower interest and less down payment
required. Lower scores could require a larger down payment and could
have higher interest.
Credit scores are just one factor but here is the basic break down
for loan qualification:
A score of 640 and above will normally get you into a conventional conforming
loan. The lowest rates available (Fannie Mae and Freddie Mac) however, require a score of 720 and above.
These rates are 1% above the 10 year T-Bill.
In the non-conforming market credit scores will determine your
interest rate. You may be in this market for many reasons, not just
score. It could be because; your loan amount exceeds conventional
guidelines (jumbo), the house does not qualify, no down payment,
high debt ratios, credit history issues, or you could be self employed
and don't show enough income to qualify.
Credit scores above 680 will get you the best rates in the non-conforming market
which is 1 to 2 points higher than the conforming market, depending
on the type of loan you are getting.
Scores from 580 to 639 could put you as much as 3 to 4 points higher
If your score is below 620 you will need at least 25% down and
the rate will be 4 or more points higher.
Your payment history contributes about 35% towards your overall
credit score but history is also a credit guideline factor on it's own.
Underwriters look at the last 7 years and if there are no Glaring
issues such as bankruptcies or collections or judgments they are
most concerned with the last two years. This is what the underwriters
are looking for:
Mortgage and Rent History
This has to be your number one priority. If you have been more than
30 days late on your rent or mortgage in the last 12 months you
will not qualify for a Fannie Mae, Freddie Mac, or FHA/VA loan.
Again, there are sometimes exceptions. If you have a very high score,
lots of assets, and a legitimate excuse. If you can't get a waiver
for a late mortgage payment there are still loans available to you
in the non-conforming market. The interest rate will depend on how
many times you have been late.
Car payment and installment loans
Your credit history should reflect no 60 day late payments and no more
than one 30 day late to get a conforming mortgage. The non-conforming
mortgages allow these and again the rate depends on how many late payments
you have had.
Revolving accounts or credit cards
You must not have any 60 day "lates" and no more than
two 30 day "lates" for a conforming loan. Non-conforming
loans do allow them and again the rate is dependant on the number.
Collections, Judgments, and Liens
Fannie Mae, Freddie Mac, FHA and VA require that all be paid in
full and they prefer that they be at least two years old. FHA will
sometimes make an exception on the length of time or if they are
on a current payment plan in which case all other things must be
good. Typically, the non-conforming market does not care if they
are paid off or not as long as they do not impact title. Some non-conforming
lenders want them paid off if they are over a certain amount. This
market is a maze of guidelines and they differ from one mortgage lender to
another. This is another reason why you always want to use a mortgage broker.
Fannie Mae and Freddie require 4 years from discharge date. FHA
only requires 2 years and a good excuse, and reestablished credit.
Actually, you can Qualify for an FHA loan if you are still in chapter
13 (for at least a year) have been paying on time through the courts,
and you get court approval which does happen often!
Non conforming lender requirements vary quite a bit. As a general
rule they do want to see reestablished credit unless you are putting
20% down. There are some lenders that will lend with one day out
of discharge. Your credit score is very important on these programs.
Again, you need a broker to sort out the details for you. Guess
what, that's free, and no obligation. They will look at your entire
portfolio and if they can't get you in something now, they will
counsel you on the steps you need to take to get in a loan later.
Be sure you seek out a broker that has ALL the products on the market
Generally, a foreclosure of your primary residence must be at least
three years old and have been caused by circumstances out of your
control: such as, death of the primary wage earner, layoff, or long
term serious illness. Non-conforming lenders do vary but will normally
require a substantial down payment if it is less than 3 years old.
The guidelines on this are about the same as a foreclosure except
that it cannot have a deficiency balance for a conforming loan.
The non-conforming market doesn't care about the balance if it is
more than three years old and again, their credit guidelines vary from
one lender to another.
Defaulted student loans will haunt you for the rest of your life.
Unless they are re-affirmed or paid off you will never get a conforming
mortgage. However, the non-conforming market generally does not care
about them at all except in extreme cases to the tune of $50k or
more. Remember that even if your student loans are in deferment a payment is
calculated and included in your debt to income ratio. Most lenders will use one percent of
the balance. This has just come about in the last two years.
Be careful here. The conforming market could care less about
your divorce agreement with respect to your debt. If you signed,
you are still accountable. FHA will sometimes provide a wavier if you
can show the divorce decree that states it is the other parties
responsibility and all other things are good. (these debts will
also affect your debt to income unless you can prove the other party
is paying with 12 months cancelled checks.) The non-conforming lenders
will normally except the divorce decree.
Generally this term refers to how many trade lines you have, how
long you have had them and their amounts. Most lenders want to see
at least a two years history and at least 4 trade lines. Some require
one of those trade lines to have had a balance over a certain dollar
amount ($5,000). In the non-conforming market these requirements
vary between lenders.
You can see how poor credit will cost you a lot of money in higher
interest. It is important to take care of your credit and monitor it
often as it sometimes contains errors.
If you would like more detail about FHA credit considerations the following site will explain it all.
fha-mortgageunderwriters.com click here