Vail Daily column: How poor credit can impact getting a mortgage loan
January 24, 2014
With the recession the past few years, millions of Americans have been unable to pay all of their bills on time. Depending on the frequency, severity and, in some cases, the cause, this will impact one's ability to get a mortgage loan.
If a credit problem leads to bankruptcy, then you can generally apply for a mortgage loan to purchase a primary residence within 12 months if there were extenuating circumstances such as a divorce, job loss, drastic drop in income or medical issue with FHA. FHA loans are easier to qualify for than a conventional mortgage, and they cost a bit more. If there were no extenuating circumstances, then one will likely have to wait 24 months to get an FHA loan.
If you filed Chapter 7 bankruptcy, then you might be eligible for a mortgage within 24 months if there were extenuating circumstances or 48 months if there were not any. If you filed Chapter 13 (meaning you made payments to your creditors to partially satisfy your debts), then you can apply for a primary residential purchase mortgage 24 months after discharge. If you failed to make the payments as promised and the BK was eventually dismissed, then you would need to wait 48 months.
Now, if you did not go bankrupt but had a foreclosure due to extenuating circumstances, then the waiting period is 36 months if you have at least 11 percent equity (for a refi) or 11 percent for a down payment. If there were no extenuating circumstances, then the waiting period is seven years.
If you opted to surrender the property to the lender (and they were willing to accept) or had a short sale (where the lender allowed the property to be sold and accepted less than the amount owed for a payoff), then the general waiting time is two years if there were extenuating circumstances or between two years and seven years if you have 10-20 percent down payment (or equity in the event of a refi).
Note that all of the above pertain to the purchase of a primary residence. If the property is to be a second home or investment property, then there is generally a seven-year waiting period regardless of the credit incident or cause.
In addition to the waiting period, it is important that a borrower have made every effort to re-establish credit, preferably with at least three trade lines that have a $1,000 credit limit or loan amount.
In addition, the cost of your loan will be impacted by your credit score and loan-to-value and property type.
If your credit issues stem from a string of late payments on your mortgage, then be aware that if you have more than two 30-day late pays on your mortgage in the past 12 months, then you will generally not be able to get a mortgage loan. If you have any 60-90 day late pays on your mortgage in the past 24-36 months, then you might have a problem as well.
Late payments on credit cards are scrutinized. One or two won't necessarily disqualify you from a loan but will impact your credit score, which will force a higher interest rate on your loan.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon, and he welcomes mortgage related inquires from readers. His blog and a collection of his columns is at mtnmortgageguy.com,