Loft Living | LALofts.me
Loft Living | LALofts.me
Today, there is still a general consensus that to buy a LA Condo or Loft you need to have 20 percent down and a good-to-excellent credit history. The good news is you actually donâ€™t need a large down payment orÂ great creditÂ in order to purchase a LA Condo or LoftÂ Â with competitive market terms. Letâ€™s look at the characteristics of what a mortgage lender deems to be bad credit when it comes time to qualify for a mortgage loan.
Credit Score ScaleÂ
*620-680 Less than perfect, but approvable
A mortgage companyâ€™s definition of bad credit might not be what a consumer considers to be bad credit. A credit score of 620 or higher is required to successfully obtain a mortgage. By the same token, a 620 credit score is considered by a lender to be less than perfect, but itâ€™s still possible to get a mortgage with that score.
Your credit score determines two major things for a mortgage company:
Loan programÂ - Whether itâ€™s a conventional or FHA-type mortgage.
PricingÂ - This includes your interest rate and any additional charges indicative of the credit score (the lower the credit score, the higher the interest rate and/or potential charges).
Your credit history is the next factor in determining whether or not your loan will be approved. Is there a pattern ofÂ previous credit delinquencies? Are there balances on closed-out accounts? Itâ€™s common for a consumer to have a 620 credit score, and have a consistent historical pattern of derogatory credit. Interestingly, this person would have a more difficult time obtaining mortgage loan approval than someone with a 640 credit score with no history of delinquencies other than a foreclosure from a couple of years before.
In order of priority, lenders will look at the credit score to determine which home loan youâ€™re eligible for. Next, the complete credit overview will be taken into consideration to determine what questions may or may not arise in the underwriting decision process. The underwriting process will be looking for â€œwhat happened,â€ â€œwhy it happenedâ€ and the future â€œlikelihood of continuance or repeat non-repayment.â€
Common Credit Red Flags for Lenders
Pattern of DelinquenciesÂ - A record of late payments is possible to work around, but more lender scrutiny will be given to the size of your down payment and your debt-to-income percentage.
Student Loan Late PaymentsÂ - If you had a late payment on your student loans within the past 12 months, you may be more likely to be approved for conventional financing.
Government financingÂ - like FHA â€“ does not take kindly to delinquent federal debt.
Mortgage Late PaymentsÂ â€“ One late payment in the past 12 months is permitted, so long as it can be explained and, if necessary, fully documented.
ForeclosureÂ â€“ 36 months from the date of the foreclosure youâ€™ll become eligible for a 3.5% down FHA loan; for aÂ VA loan, 48 months and no money down required; conventional loans require seven years no matter the down payment.
Short saleÂ â€“ It takes 36 months from the date of the short sale until youâ€™re eligible using a 3.5% down payment FHA loan; 24 months with the VA loan; 24 months on a conventional loan with a minimum down payment of 20%.
BankruptcyÂ â€“ With Chapter 7 (Chapter 13 is less common), you have 24 months from the date of discharge until youâ€™re eligible using a 3.5% down FHA loan; 48 months on VA loans (still no money down required); and 48 months on conventional loans, no matter the down payment.
Why You Can Get a Mortgage With Bad Credit
Thereâ€™s a thing called investor overlays, which are adjustments to guidelines and/or pricing created in favor of the lender. This is precisely why one lender can do a loan for someone with bad credit and minimal (or no) down payment, and another lender cannot do the loan in some instances.
Overlays further protect lenders against potential future losses from the home loans they originate, preserving profit margins and buyback risk (an event in which the originating lender is forced to buy back from the investor if the loan they made was not fully documented). Investor overlays tighten the screws on borrowersâ€™ ability to borrow. Put another way, it shifts risk â€” which translates to cost â€” on to the consumer by means of limiting the ability to borrow via higher loan fees, reduced purchase price, or lower debt ratio, to name a few.
Note: Every mortgage lender has investor overlays, itâ€™s the nature of how mortgage companies operate, the key is to work with a lender whose overlays are minimal.
DTLA Loft Buyer Homework
Know your credit score, first and foremost (you can monitor your score for free using a service likeCredit.comâ€™s Credit Report Card). Obtain a copy of your credit report (which you can do for free throughÂ AnnualCreditReport.com), this will aid you in selecting the appropriate lender. Get as much supporting documentation as possible surrounding your credit challenges so the story can be explained from A to Z.
When speaking with a potential lender, be very specific. Do not be afraid to share every detail of your needs and concerns, giving the most complete description possible. Find out upfront if they have any additional conditions with regard to credit history, as doing so could save you considerable time and money.
By Scott SheldonÂ |Â Credit.com
For more information, call 888-838-2177 or emailÂ email@example.com
We assist clients in helping them buy and sell Â in addition to leasing their condo and loft units . Please contact us for all your real estate needs.
David, Ramiro & Erica
LA Loft & Condo Specialists