This is content from a prior version of our website. Please click here to be directed to the updated version of this document.

 

Home

 

 

Mortgage Loans for Borrowers with Low Credit Scores or Bad Credit

Q. I have had bad credit problems in the past. Will this affect my ability to obtain an FHA, conventional or sub-prime mortgage loan?

A. In evaluating an application for a mortgage loan an applicant's credit history will be considered as one element in determining the applicant's qualification for the requested loan.  Negative credit histories or a lack of previous credit experience can adversely affect an applicant's ability to obtain a requested loan. The credit bureaus compute a "credit score" based on the information contained in your credit report.  These scores have significant impact on your qualification for a mortgage loan.  Generally, scores in a range from 600 to 640 may not qualify for the most favorable rates and pricing. More recent credit information will be weighed more heavily than older information. Also, some types of derogatory credit may be given greater weight than others. Generally, the applicant's previous payment history on a mortgage loan is given the greatest weight, followed by major installment accounts such as auto loans, followed then by major credit card accounts such as MasterCard and VISA accounts, and finally followed by minor revolving charge accounts such as departments stores and finance companies.  Also, applicants that have balances at or near their maximum credit limits will have significantly lower scores than applicants who have low credit card balances. Applicants with credit scores significantly below 600 can qualify for a mortgage at a higher interest rate utilizing an A- or Sub-prime loan program.

Q. My bad credit problems occurred more than three years ago. Will this affect my ability to obtain a mortgage loan?

A. Credit scores are affected most heavily by occurrences in the preceding two years. Generally, a few late payments occurring on installment loans or credit-card accounts more than two years ago will not affect an applicant's ability to obtain maximum financing (with minimum equity or down-payment) as long as the late payments were isolated.

Q. I recently filed bankruptcy. Will this affect my ability to obtain a mortgage loan?

A. An applicant may be able to qualify for maximum financing (conforming loans) with a previous bankruptcy provided that the discharge date is more than two years ago, the applicant has re-established and maintained a positive credit history on at least three accounts since the date of the bankruptcy discharge, and the applicant provides an acceptable explanation for the reason the bankruptcy was filed.

Chapter 13 bankruptcy plans (which provide for a restructuring of debt and repayment of all or a portion of the debt over a 3 to 5 year period) must have been fully completed for a two year period to obtain maximum financing at the best available interest rates. However, our company offers special loan programs at higher interest rates which allow more recent bankruptcies. These special programs typically require higher down-payments or equity positions than our conventional loans (between 20% to 35%) depending on how recent the bankruptcy

Q. I have very recent late payments on a prior mortgage. Will this affect my ability to obtain a mortgage loan?

A. As previously stated, mortgage payment histories are given greater weight than other types of credit information. Thus late payments occurring on a mortgage within the past two years will typically preclude an applicant from obtaining maximum financing at the best interest rates. However, our company offers special loan programs at higher interest rates which allow recent late payments on mortgages. These special programs typically require higher down-payments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the late payments occurred. We even have loan programs for applicants that are currently in default on a mortgage loan or which have experienced foreclosures, however, these programs typically require higher equity positions of between 25% and 35% and have interest rates which are much higher than those offered on other loan programs.

Q. How is the amount of the down-payment I will be required to pay determined on these special loan programs allowing derogatory credit?

A. The amount of the down-payment required for an applicant with recent derogatory credit is determined on a case-by-case basis. Generally, the more negative and more recent the derogatory information, the higher the down-payment or equity position that will be required. For example, our company offers a program which allows a 5% down-payment which permits late payments on a mortgage occurring more than 12 months prior to the application date, and up to three 30-day late payments on other types of accounts during the preceding 24 months. With 10% down, several late payments on a mortgage occurring within the preceding 12 months and a few 30-day and 60-day late payments on other types of accounts will be permitted on these special programs with higher interest rates. Most of these programs also allow higher debt ratios than those programs at more favorable interest rates.  

Q. I've heard that programs for applicants with bad credit had been eliminated because of problems in the subprime mortgage industsry. Is that true?

A. The recent travails of more than three dozen major subprime mortgage lenders sent the mortgage industry (and Wall Street) reeling. And although these occurences have created more stringent standards on some of our 100% and 95% subprime mortgage programs for applicants with below-average credit, our company is still providing 100% financing to applicants with median credit scores as low at 575. Unfortunately, our programs for applicants with unpaid judgments and tax liens with these low score at high-LTV's are no longer available.

Information for mortgage loan applicants with low credit scores or bad credit problems seeking mortgage loans for purchase or refinance transactions in Dallas, Texas, Houston, Austin, Fort Worth or San Antonio, Texas.