|
The lending industry uses categories to asses the credit risk of any
particular borrower. If the property checks out and you have sufficient income,
impeccable credit and the required down payment, you are considered an 'A'
borrower. An 'A' borrower can walk into almost any lender and get a mortgage
loan. A borrower can fall short in one of these areas and still be considered an
'A' borrower, as long as the other areas can compensate for the weakness. For
example, a borrower that exceeds the required monthly debt-to-income ratios (28%
housing debt and 36% combined debt) could offer a large down payment, have an
above average credit score, or a strong history of stability. We
can also excuse modest credit 'blemishes' if a reasonable explanation is
provided (i.e. job transition, medical problems). Being 30-60 days late on one
credit card payment is a typical blemish that could excused.
But what
about those that have more serious marks against their credit. Depending on how
tarnished your credit history has been, lenders will typically place borrowers
into the following credit categories, which are qualified by time
frames:
A-minus Credit:
Acceptable blemishes within the last two
years: Charge-offs, or collection accounts, of minor amounts (e.g. less than
$500 in all) are acceptable. Medical bills, including hospitalization and clinic
visits, are usually disregarded. As for payment habits, the borrower can have no
more than two 30 days late payments, or one 60 days late payment on revolving or
installment credit.
B Credit:
Acceptable blemishes within the last 18
months: Up to four 30 day lates , or up to two 60 day late payments
are allowed on revolving and installment debt. If the credit ding is an isolated
incident, a 90 days late payment can be allowed within the last 12 months.
Charge-offs, or collection accounts, which are isolated, insignificant, and less
than $1,000 in all, are acceptable. However, outstanding collection accounts
less than four years old must be paid. Bankruptcy or foreclosure that had been
discharged or settled previous to the 18 month time frame is allowed.
C
Credit:
Acceptable blemishes within the last 12 months: No more than six 30
days late payments, three 60 days late payments, or two 90 days late payments
are allowed on revolving or installment credit. Open collections accounts and
charge-offs may not exceed $4,000 and must be paid in full. Bankruptcy or
foreclosure that had been discharged or settled prior to the last 12 months is
acceptable.
D Credit:
A sporadic disregard for timely payment or
credit standing categories the borrower in this class. Open collections
accounts, charge-offs, and judgments must be paid through loan proceeds. The
borrower who had filed bankruptcy and had been discharged prior to the last six
months is acceptable, as much as the ex-homeowner who had his previous home
foreclosed and settled prior to the last six months. However, mortgage payments
cannot be longer than 90 days past due.
The above are general industry
guidelines to make lending judgment on the borrower's loan application. There
are no hard-and-fast rules of separating the borrower on the border line between
one credit category and another. Also, there are compromising factors that can
boost a borrower to the next higher grade.
Down payment
requirements are being reduced!
Typical lenders in the market of
credit-damaged borrowers usually lend only up to 80% of the appraised value of
the home, so the borrower often has to have 20% equity or come up with a 20%
down payment for a purchase. Extensive shopping may uncover a company that will
lend a greater percentage, Mine!
What about income?
A-minus and B-credit borrowers are often allowed to allocate 50% of their income
to pay for combined monthly debt (compared to the standard 36% guideline used
for A credit borrowers), while the bottom rung of the credit ladder can be
stretched to 60%. As for proof of income, we have "Stated Income" programs
which do not require tax returns, W-2s, or pay stubs, but may require up to
6-month bank statements to verify income activity.
Depending on the
extent of the blemishes, borrowers with less-than-perfect credit histories can
expect to pay higher than market interest rates for their home loan. But if
getting into a home or refinancing out of a bind is one's goal, there are plenty
of options out there to help you move forward financially.
Another option that may be available is an
FHA home loan. FHA does not use your credit score as a determining factor and as
long as all collections, charge-offs, judgments, and liens are paid or settle
at or prior to closing then it may be your best option.
Copyright 2007 PaulBurke.net. All rights reserved.
Privacy Policy , Terms of Use , Questions info@paulburke.net
|
