About Your Credit
At Landmark Financial we understand that a client’s credit report may be full of blemishes, compounded with a history of foreclosures and bankruptcy, but it is still possible to get a loan for a home purchase, refinance, or even cash out of your current home. It doesn’t matter whether you have charge-offs, collections, or tax liens on your credit report, as long as you meet the specific guidelines for loan approval.
Historically, the lending industry has used specific 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. Many lenders will 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 be accepted by a lender.
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:
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 by the lender. 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.
Acceptable blemishes within the last 18 months: Up to four 30 days late, or up to two 60 days late payments are allowed on revolving and installment debt. If the credit ding is an isolated incident, a 90 days late payment is 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.
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.
A sporadic disregard for timely payment or credit standing categories puts 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 well 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.