Many times, it is in a potential borrower’s best interest to participate in a credible credit repair program. Often times, a borrower does not understand why they should do this if they meet the minimum credit score a lender requires for mortgage approval. It is something that is referred by our group on nearly a daily basis, even if your credit score is at or above the minimum to obtain approval.
Can I Apply For A Mortgage If My Credit Score is 580 or 590?
It is true, some lenders will lend to those with a 580 credit score for a FHA, and simply follow the AUS findings. This is perfectly acceptable if time is of the essence and there is no additional time to wait. However, those lenders may have one or two additional overlays to mitigate the risk of lending to a borrower with a lower credit score. Additionally, even though a 580 credit score can be fully insured by the Federal Housing Administration, it does not mean that there are not some additional restrictions that apply. For instance, the housing ratio and the overall debt to income ratio are going to be lower for those borrowers than they would be for a borrower that has a 620 FICO credit score. While you will likely get an AUS approval, your options are still going to be a bit more limited than someone else. Sometimes this plays a factor of being able to purchase the home you really want or not. From that point, it is important to then consider the mortgage lender overlays that they have for credit scores from 580-619. For instance, your housing ratio is limited to 31%, versus a borrower with a 620 credit score who can have a housing ratio as high as 46.9% for FHA mortgages. A borrower with a 580 credit scores have a maximum allowed back end debt to income ratio of 43%, versus a borrower with a 620 credit score who can a ratio of 56.9%. That seems insignificant, however, for many borrowers, this can be prohibitive. Additionally, for those borrowers with a credit score between 580-619 and who are married, even if the spouse is not going on the mortgage, we still need to consider the spouse’s debt as part of the overall debt to income ratio. If the spouse has any outstanding judgements, those must be satisfied prior to closing. This is an example of a lender overlay. This overlay has significant impacts on the overall landscape of the mortgage profile because while the lender will consider the debt, they cannot consider the income of the non-borrowing spouse. In addition to the restrictions listed above, there will likely be mortgage pricing impacts and the interest rate will be less advantageous than ones offered to those borrowers with a 620 FICO score.
What is FACTA and How To Get Your Items Removed?
Given all of the above information, this is where credit repair comes in handy. There are reputable and not so reputable credit repair companies out there. There are certainly those companies that offer credit repair, but do not do anything other than open disputes on every derogatory item on your credit report to see what will stick. There are also credit repair companies that know the laws, and use the reporting violations offered under the Fair and Accurate Credit Transaction Act (FACTA) and the Fair Credit Reporting Act (FCRA) to get items removed. Credit repair companies that repair credit using these two acts to repair credit are where a borrower is going to get the best return. Reputable credit repair companies will often offer a money back guarantee and a guaranteed mortgage approval for clients.
Rapid Rescoring VS Credit Repair
The first step within the fast rescore method is to get a duplicate of your credit report.
You are entitled by federal law to receive a free credit report once each year from every of the key credit bureaus, Equifax, Transunion and Experian.
You can begin with a free report, however a investor can have to be compelled to request your credit report themselves to order a fast rescore.
The rescoring method can vary per the things being updated. for example, if scores square measure low attributable to high mastercard balances, you’ll have to be compelled to pay down the cards before requesting the updates. the overall procedure is as follows.
Determine why credit scores square measure low
Find out whether or not the things square measure able to be corrected
Pay down mastercard balances or gather documentation proving a slip-up
Contact the someone. acquire proof of updated records
Provide this documentation to the investor or broker.
The investor orders the fast rescore victimization this documentation
The investor can receive Associate in Nursing updated report typically among 3 to seven days.
Rapid Rescores Accelerate shopping
Without a fast rescore, a brand new credit report and score may take months. The investor usually desires a better score to issue a pre-approval letter. the client desires that letter in-hand to start out seriously craving for a home.
Waiting for a credit score to enhance by ancient ways will appear to be Associate in Nursing eternity. the additional effort it takes to initiate a fast rescore is well definitely worth the weeks or months lost by taking a passive approach to raising your credit scores.