Poor credit home loans

Asked by LaShonda Gainey, Macon, GA Sun Jun 23, 2013

My husband and I credit scores are in the mid 400s, but we have a great income. We currently pay $1200 for rent. Is there anyway we can qualify for a home loan

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, ,
Mon Jul 1, 2013
Good evening MrsG,

We see many credit reports with low credit scores (anything less than 620), and often many scores in the 500's. This is BAD credit. If you are one of the folks affected by this terrible economy, you have a low credit score and you have a dream of buying a home, here's some simple advice for you.

It is unlikely you could be approved for mortgage financing with that credit score at this time.

Beware of any mortgage professionals promising you an approval with such a low score. Wait on buying a home. I recommend you take the time to resolve your credit issues.

First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.

Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.

I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website.

Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE.

The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.

The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.

Trevor Curran
NMLS #40140

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Jonathan Rai…, Agent, Macon, GA
Mon Jul 1, 2013
Wells Fargo does offer low credit options, but you will need a good down payment. You'll still need to be above 500+ to qualify, but it's available.

Rodney's comments on improving your credit score hold great advice on improving your score. You should investigate any errors on your report (check your report at http://www.annualcreditreport.com), as well as asking your lenders directly to remove negative info in return for prompt payments.

Lenders will also look at debt-to-income ratios, so if you're in the 400's due to outstanding debt, the debts will factor in to what size mortgage you can qualify for.

I recommend working on your debt situation first before diving into home ownership. While an $800 payment may look great, you're also taking on thousands of dollars in repair bills, moving costs, plus closing costs. Improving your credit standing will also help on interest rates for your current situation. If you need help on specific steps to take, consider going to a HUD approved housing counselor.

If you're in the 400's due to a bankruptcy, then you often must wait 2-3 years after it is discharged to qualify for a home loan, though there are exceptions.

Your situation is not impossible to overcome, especially with good income. Just stay at it! Best of luck!
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, ,
Mon Jun 24, 2013
Mrs. G.

You really need to work on improving your credit score. 620 and above is what most lenders want to see. What are the issues you have going on with your credit?

Have a great day;

Christina Solorzano;
CEO & SR Credit & Mortgage Consultant of
Everlasting Credit Repair
Making home ownership more than a dream...
Retired Mortgage Banker
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, ,
Sun Jun 23, 2013
With a credit score that low, you are no where close to being able to qualify for a mortgage. To have a credit score that low, you have to have numerous late payment and unpaid collection accounts. Until you take control of your finances and start paying all of your bills on time, your situation is not going to improve any.

To begin improving your credit score, you would need to contact each of your creditors directly to see what your options are. Paying off derogatory debt will help improve your credit score in the long run, but not immediately.

With collection accounts, most of the damage is done when they are initially placed on your credit report. Some collection companies are now reporting you are late each month the debt goes unpaid. This continues to drag on many people’s credit scores each month until the debt is paid in full. Until you do that, your credit score has little chance of improving.

In exchange for paying the collection account in full, you can try to negotiate to have them completely remove the derogatory item once the payment is received. Some collection agencies will do this, while others will not. You will just have to ask each one and see. If they will not remove it, just having it paid and closed will help in the long run.

All liens and judgments will also need to be paid in full. These impact the title position of a mortgage so they must be satisfied.

It is very important that you be VERY careful in disputing accounts. You cannot dispute accounts which you know to be accurate. For a mortgage, you cannot have an active and open account that has a disputed status. Fannie Mae/Freddie Mac/HUD all have very specific guidelines to be following when a borrower has an account in a disputed status. In some cases, it could cause you not to be able to qualify.

To build positive credit, you typically need to have 2-3 trade lines reporting for 12-24 months. There should be no late payments or other derogatory items reported in the last 12-24 months. On your Revolving credit accounts, your outstanding balance on your monthly statement should not exceed 30% of the credit limit.

For an FHA mortgage, most lenders require a 640+ credit score for the last 3-4 years now.

Prospect Mortgage is one of the few direct lenders to offer an FHA 580-639 FICO loan program. Credit profile is a major factor in a mortgage approval. Generally, there should be no late payments, new collections accounts/charge-offs/liens/judgments in the last 12 months. It is required that all open collection accounts must be paid in full if their cumulative balances exceed $1,000.

The 3.5% minimum down payment can be from the borrowers own funds or it can be gifted from a family member. Two months of reserves for the PITI (Principal + Interest + Taxes + Insurance) payment + HOA Dues will be required. This must be from the borrower’s own funds and not a gift.

Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia with over a decade of mortgage lending experience.

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle® Renovation | VA | USDA | GA Dream | Jumbo Financing.
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