Are You Really Ready for a Mortgage?

There are some general guidelines for most mortgage loans, and they are as follows:

CONSIDER YOUR CREDIT HISTORY

BANKRUPTCY: Most lenders want to see a minimum of two (2) years since final discharge date.

FORECLOSURE: The majority of lenders are looking for a minimum of three (3) years since foreclosure was finalized.

LATE PAYMENTS: Late payments for installment loans or credit card accounts usually only appear on a credit report if a payment, or minimum required payment, is 30 days late or more. Most lenders are looking for a minimum of 12 months (1 year) with no late payments on a credit report. If your credit has been excellent for years, and a minor late payment occurs, you may be able to provide an explanation (i.e., thought you paid it online, misplaced the bill and due date passed before you remembered the bill, etc.). Some explanations really are accepted by lenders.

Lenders also usually check with landlords for a borrower's rental payment history for at least the past two (2) years for renters to verify timely payments. Be sure to ask your landlord to document your rental history, and double-check to be sure that the lender is considering any prior rental payment history so that you can gain the lender’s trust with respect to your creditworthiness.

DEFAULTED STUDENT LOANS: Keeping up payments on your student loan(s) can make or break you with prospective lenders. When any government guaranteed student loan is in default, it can and in most cases will disqualify a person for a mortgage.

If you can show the lender that a loan repayment schedule has been renegotiated and payments have been made on time for at least one (1) year, the history of the defaulted loan might not keep you from getting a mortgage.

COLLECTIONS: Collection accounts can and do eventually catch up with you if you apply for a mortgage before the statute of limitations runs on the debt, and it is removed from your report. A lender and title company, for that matter, will make sure that all collection accounts are repaid before qualifying for a mortgage loan.

Note: Pull your own credit report to examine it for any collection accounts and/or discrepancies. If you find discrepancies, immediately file a dispute (report it) with the appropriate credit reporting agency.

If you find valid collection accounts, and if you do not have the funds to repay those debts in addition to making a down payment on a home purchase together with closing costs and any other costs that may arise in the process of purchasing your home, it is best to wait before applying for a mortgage.

JUDGMENTS: If you even think that there may be judgments or liens that you are responsible for, check with your local clerk’s office at the courthouse (and other locale that you have resided) as you will be required to pay these accounts in full as well prior to qualifying for a mortgage.

In cases of court ordered child support payments, the payments must be caught up and current.

CONSIDER YOUR INCOME

SELF-EMPLOYMENT AND COMMISSION-BASED INCOME: If you are self-employed or a commission-based professional, unless you have been making a living this way for a minimum of two (2) years, the lender may not be able to qualify you for a mortgage. Of course, there can be some exceptions; however, that will depend on the lender that you are currently working with.

OVERTIME AND BONUS INCOME: Generally, a lender can use overtime or bonus pay as "qualifying" income if you have a history of overtime or bonus pay from your current employer for at least one (1) to two (2) years, and one (1) year is being optimistic. Two (2) years is generally the best guideline. However, your employer will have to verify the number of overtime hours or anticipated bonus income that is likely to continue for it to be used as "qualifying" income.

INCOME FROM A SECOND JOB: If you are working a second job to supplement your primary income, the income from your secondary job can be considered “qualifying income” only if you have had a continuing history of working your second job for at least two (2) years.

CHILD SUPPORT INCOME: Child support “income” needs to be received consistently to be used as "qualifying" income. A lender will typically want to see a history of payments; therefore, if you are just recently receiving child support payments, you may not be able to persuade a lender to consider your newly awarded child support as "qualifying" income.

LAWSUITS OR PENDING DIVORCE: If you are being sued, or perhaps involved in a pending divorce (the divorce has not yet been made final by the Court), most underwriters for mortgage companies are not going to approve a mortgage application. Due to various laws governing marital property and marital debt and those laws varying from state to state, a careful lender is not going to want to be entangled in a later legal battle that questions who has legal title to the property or “whose debt is this anyways?” Therefore, if you are filing for divorce, have recently filed for divorce/been served with divorce papers, or are awaiting the Court’s Decree stating that you are divorced, you will need to wait to purchase a home.