While lenders would love to see perfect credit, they realize that few prospective borrowers can meet such a standard. That's a good thing for lenders -- otherwise no one would be able to make loans.
If not perfect credit, how about "Good" credit? Lenders generally allow some slack in credit activities. Within the past 12 months a typical borrower may be allowed to have the following credit "dings" and still qualify for a mortgage with the usual interest rates and terms:
While interpretation of credit and risk can very from lender to lender, there are guidelines which most lenders focus on set by Fannie Mae in the secondary market as indicators of good credit. These are particularly important if the borrowers is only using a small down payment since the lender's risk is higher.
In reviewing the borrower's credit over the past 24 months the lender showed an "intent to have good credit" in the following categories:
In all categories, all late payments must be explained.
Contrary to popular belief, good credit does not have to mean perfect credit. But it must not contain any adverse or derogatory information such as collection, judgments, or recent bankruptcies.
No. Lenders do not expect individuals to be debt free -- though that is certainly helpful.
What lenders do expect is that prospective borrowers will have debt that is within their means -- not too much in total.
Probably. There are two issues to consider.
First, lenders like to see 2 years of good credit after a bankruptcy is resolved. However, there are instances where lenders will finance with a year of good credit. This is where HRE's rent-to-own program works best. You can lease one of our houses with the option to buy and have a fixed price to pay within a one year period. Some of your rent payments would be credited towards your down payment, so you'd be building equity as you live in the house as a tenant. You have a one year right to buy the house and you can exercise that right at anytime during the 12 month period. If the value of the house increases above your option price, you benefit. If you make improvements that also increase the value, you benefit. The lease option method of purchasing a home is a one sided arrangement. You have all of the control because the seller can not sell or option their house to anyone other than you during your 1 year option period. However, if you decide not to exercise your option, you're not obligated to do so. This is the best of both worlds for anyone not prepared to make a purchase immediately.
Second, lenders want to know why you had gone bankrupt. There is a substantial difference between a bankruptcy that is caused by reckless financial habits and simple financial disaster -- a car wreck, medical expense, the plant closed after 30 years, the town was under water for 3 weeks -- in otherwords, not every bankruptcy is a bi-product of financial negligence.
While borrowers can typically obtain a mortgage after 2 years of good credit after a bankruptcy, lenders usually want 3 years of good credit after a foreclosure.
However, that 3 year period is sometimes modified if the foreclosure is a result of events beyond the borrowers control -- illness, death in the family, major accident, etc.
If something other than the prime residence is involved in the foreclosure -- for example, an investment property or vacation home -- then lenders are likely not to allow any waiver of the 3 year qualification period.
Here at HRE, Inc, we occasionally have rent-to-own properties with longer than a one year period. Please click on the "Buyer Information Form", fill out the information requested, and submit this information to us immediately. We will analyze your situation and respond to you in a timely manner.
Generally, yes. However, under some loan programs, if you have 6 to 10 remaining car payments and if you have generally good credit, your auto debt will not be counted against you. The logic is that the loan will paid off not long after you move into the house.
Generally no, but because credit reports generally deal with payments that are least 30 days late. However, be aware that being late may cause you to violate loan and credit agreements, such as mortgage contracts. While many creditors have a grace period during which late fees are not assessed, a late payment is still, well, late!
Question: We anticipate buying a house at the end of next year. We are interested in the $100,000 range. I have excellent credit and make $23,000 a year. My fiancé is divorced and was forced to file for bankruptcy. He makes $26,000 a year. Should we apply for the mortgage together, or what other alternatives would you suggest?
Answer: Even though you don't state what your down payment will be, it's unlikely that your income alone will allow you to qualify for the size home you want to buy. Using your fiancé's income will more than double what you could afford monthly.
But the $64,000 question will be how long ago was the bankruptcy, and why did it occur? Many lenders will take a strong look at a loan applicant if the bankruptcy is more than 2 years old and the circumstances surrounding the bankruptcy are taken care of and are unlikely to re-occur.
It is suggested that you call several lenders with "What If?" questions, and see which way they will lean. If it appears that it would be best to qualify for a loan on your loan, try using an adjustable rate mortgage with a low introductory or "teaser" rate. This could help you leverage into more payment (and therefore more house) than you could thru a higher fixed rate loan.
Don't start house hunting until you are pre-qualified. As a last straw, you may need to scale down the house value you are seeking to swing the financing.
In general, a bankruptcy can remain on your credit report for 10 years and a late or missing payment may be retained for 7 years.
It is believed that unpaid judgments can remain on a credit report forever as long as they are "current" items. Once paid they seem to fall into the 7 year category.
More complex are items that have been "charged off" or "not paid as agreed". It is not clear on how such items can be removed from a credit report as they appear to be outstanding disputes. If part of a bankruptcy, however, perhaps they had been voided by the bankruptcy action and thus, one could argue, they have been resolved. Speak with credit bureaus for details.
Under the Fair Credit Reporting Act, federal consumer - protection legislation, you can post a 100 word response disputing any reported item. (Before posting, ask when and how you can remove such a statement. It may be that you do not want a reference to a negative item.)
FOR MORE INFORMATION ON CREDIT REPORTING:
THE 3 MAJOR CREDIT BUREAUS EACH HAVE WEB SITES: