Getting a Mortgage with Tarnished Credit
by Nicholas Vracas
November 1996
Most Americans use credit to purchase goods and services. Typically, the largest purchase most families make -- a home -- is financed with a long term loan. From cars to stereos and from clothes to Friday night dinners, the use of credit is a common form of payment.
There are two major types of credit: installment and revolving. Installment credit is generally issued through financial institutions and is used to finance homes, autos, education, etc. Revolving credit is issued by banks and retail stores through credit cards. In most forms of credit, the borrower agrees to make monthly payments on the loan until it is paid in full.
Sometimes, consumers find their financial situation has changed and monthly credit obligations have become difficult to meet. A job loss, chronic illness, divorce, etc. can all have an affect on an individual's ability to meet monthly payment obligations. Most Americans encounter difficult periods in their life that sometimes result in tarnished credit. Tarnished credit is reflected on a credit report as a slow payment history, collection, bankruptcy, repossession, or foreclosure.
Contrary to the beliefs of many consumers, tardy or tarnished credit does not necessarily preclude one from obtaining a loan to finance a home. Many times an experienced mortgage professional can help consumers with proper strategy needed to qualify for a mortgage loan. Mortgage lenders are in the business to make loans and will attempt diligently to help consumers obtain a mortgage to purchase of home.
Sometimes there may be an isolated blemish on an otherwise good credit record. In these cases, the mortgage lender will ask for a written statement explaining the reasons for the late payment. If the explanation is creditable, the infraction may not be held against the consumer. In other cases, the credit problem occurred sometime ago, but the consumer has reestablished credit. A letter of explanation coupled with excellent current credit may be more than adequate to meet home mortgage underwriting guidelines.
What is important is for consumers to work with an experienced loan officer to help determine your home mortgage eligibility. A loan officer can review your credit report and formulate a plan to bring the report into compliance for a home loan. Sometimes a letter of explanation with supporting documentation is sufficient. Other times the loan officer may suggest you pay off some debts and reestablished good credit over a period of time before buying a home. The most critical time period of your credit history is the proceeding twelve months.
Loan officers working for a rebutable mortgage lender are armed with an arsenal of mortgage programs with varying degrees of credit grade requirements. Many times loan officers are able to find a mortgage for a consumer even if their credit is substandard.
The key is to not be discouraged and work with an experienced loan officer in developing a strategy. There are many ways a loan officer can help consumers work through credit problems and ultimately help them obtain of mortgage. Tarnished credit is not the end of the world.
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