Mortgage and Portfolio Loan Guide

What are FHA Loans for Bad Credit?

A question that is frequently asked is: are there FHA loans for bad credit? The answer is yes. FHA loans are available with as low as 500 credit score on home purchase, refinance, and cash out refinance. These are federally insured mortgages with competitive rates and costs, and have less strict rules than conventional loans.

Below you’ll find everything you need to know about getting approved for an FHA loan even if you have poor credit.

Can I get an FHA loan with a 500 credit score?

Yes, it is possible to get approved for FHA loans for bad credit even if your middle credit score is 500. But if you are below 550 credit score, it can become a bit more challenging.

In fact, I would argue that many lenders flat out say that it’s not possible to get approved on an FHA loan if you’re below 580 credit. That’s absolutely not true.

With that said, not all FHA loans for bad credit are approved.

Here are some of the main factors that underwriters look at when considering an approval on a low credit FHA loan (and all FHA loans for that matter):

Key Points – FHA Loan Requirements

  • Credit score – the underwriter will use the middle credit score for a qualifying score. So if you’re 498, 552, and 509, the qualifying score will be 509. If you only have 2 credit scores, the lower of the 2 scores will be used.
  • Debt-to-income ratio – Typically you want to be below 43% debt-to-income ratio. This means if your monthly debt is 5,000 (including your mortgage) then your monthly income would need to be 11,700/month. However, there are some cases where FHA loans can get approved up to 57% debt-to-income ratio.
  • Equity (or down payment) – Loan-to-value RatioFHA loans for bad credit check mark
    • Home Purchase – On a home purchase, if your credit is below 580 credit score, the minimum down payment is 10%. If you’re above 580 credit score, the minimum down payment on FHA is 3.5%.
    • Refinance – On a refinance or cash out refinance, the maximum loan to value ratio is 85% (or 15% equity). So if the home value is $300,000, max loan amount would be $255,000
  • Payment history – If you have more than 1 payment that is over 30 days late on your mortgage in the last 12 months, the loan is probably not going to get approved on FHA. Same goes for other installment types of loans like car loans and student loans.
  • Recent credit events
    • Bankruptcy – For FHA you need 2 years to pass after chapter 7 bankruptcy, and 12 months on time payments to pass on a chapter 13 bankruptcy.
    • Foreclosure and short sale – 3 year waiting period on FHA from when the title was transferred out of your name until you can purchase or refinance a home.
  • Only allowed on primary residence. No vacation home or investment property allowed

Max Loan Limit

There are also loan limit maximums that vary from county to county all across the US. Check max FHA loan limit in your county here.

Automated Underwrite vs. Manual Underwrite

There are two different ways that FHA loans for bad credit are underwritten – Automated and Manually.

When a lender accepts your mortgage application, the data on your application is run through a desktop (digital) underwriting system. The desktop underwriting system weighs all factors of your application. That data includes credit scores, loan-to-value ratio, debt-to-income ratio and pretty much everything I described in the above “key points”.

The desktop underwriting system will determine eligibility with a response of Approve/Eligible, Refer/Eligible, or Refer with caution.

Findings

  • Approve/Eligible – means the loan will be underwritten based on normal FHA standards and current application appears to meet FHA guidelines.
  • Refer/Eligible – means the loan will be heavily scrutinized and current application may not meet FHA guidelines.
  • Refer with caution – means the loan does not meet FHA guidelines and application cannot proceed with FHA loan.

The goal is to get Approve/Eligible findings in order to proceed with loan process with as little friction as possible. You still need to provide supporting docs (income, assets, ID, etc.).

If you have Refer/Eligible findings the payment history requirements and debt-to-income ratio requirements are more strict. The loan needs to be manually underwritten to determine eligibility. Many lenders to not allow manual underwrite due to being labor intensive, but some lenders do.

More on manual underwrite mortgage here.

How to Get Approved for FHA Loans For Bad Credit

What if I don’t qualify for FHA Loans for bad credit?

If you have poor credit and you don’t meet the requirements for FHA, there are alternatives.fha loans for bad credit home 5

A portfolio loan may be your solution if you do not meet FHA standards.

Portfolio loans are mortgages that have non-traditional lending standards and have a more common sense approach to the approval process.

For example: let’s say you have a 516 credit score, and 40% equity in your home, but you missed 3 mortgage payments in the last 12 months due to a temporary layoff at work. That scenario wouldn’t work on an FHA loan because of the late payments, but with a portfolio loan you’d have a chance to get approved.

Portfolio loans are a temporary fix, for temporary circumstances. Typically, borrowers refinance out of their portfolio loan after 6-12 months of successful on time payments, and get back into something more traditional.

Key Points – Portfolio Loan Requirements

  • As low as 500 credit score
  • Available on primary residence, vacation home, and investment property
  • Available on home purchase, refinance, and cash out refinance
  • No PMI
  • Alternative documentation loans available for self-employed borrowers and real estate investors
  • Minimum down payment on home purchase is 10%
  • Maximum debt-to-income ratio is 50% with compensating factors
  • Recent bankruptcy, short-sale, foreclosure okay

More on portfolio loans here.

In Summary

An FHA loan is a great option to explore even if your credit is as low as 500. And if it turns out you don’t qualify for FHA, a portfolio loan may be a perfect alternative. If you’re not sure if you qualify whether you have good or bad credit please feel free to reach out.

I have been able to help many homeowners who have been told by other lenders that they don’t qualify.

portfolio loansI invite you to reach out.

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

Cash Out Refinance Texas

Getting a cash out refinance in Texas is possible with conventional, FHA, and portfolio loans (for unique credit and income scenarios).

In today’s post I am going to cover everything you need to know about getting approved for a cash out refinance in Texas.

Is cash out Refinancing Allowed in Texas?

The answer is yes. But there are some restrictions to keep in mind per Texas 50(a)(6) Laws.

Many lenders do not offer cash out refinance Texas loans because they have different compliance rules than all other states, but from a borrowing perspective most of the same loans are available.

cash out refinance lenders in texas

3 Ways to Get Approved on Cash Out Refinance Texas Loan

  1. Conventional Loan – If you have good credit and seeking max cash out, a conventional loan might be the best direction to consider. That is because you won’t have to pay PMI, and the interest rates are competitive. These are full documentation loans with traditional income requirements.
  2. FHA Loan – If your credit is not perfect, an FHA loan may be the route to consider. FHA is a great option to explore because of competitive rates, but will require a mortgage insurance premium to be included in the payment.
  3. Portfolio Loan – If you have unique credit or unique income circumstances, a Portfolio Loan might be the loan you’re looking for. Portfolio loans are approved with more of a common sense approach than conventional or FHA. [more on portfolio loans here]

How Does a Cash Out Refinance Work?

A cash out refinance is a mortgage where the borrower uses a portion of the existing equity in the home to pay off other debt or do home improvements.

The amount currently owed on the home is increased to allowable or desirable amount per the goals of the borrower. Also, costs and escrows are added to the loan balance to minimize out of pocket expense for the borrower. Typically only the appraisal fee is required as an out of pocket expense. Everything else can be “rolled into the loan”.

“Equity” is the difference of principal balance owed and fair market value.

Example: if you owe $200,000 on your home, and it appraises at $300,000, you currently have $100,000 in equity.

In a case like that, depending on credit score, you may look at doing a cash out refinance for a total loan amount of $240,000. This would mean you are doing a refinance with 80% loan-to-value ratio. You would take the proceeds (minus costs and escrows for taxes and insurance) and use it to accomplish your original cash out goals.

Why take cash out?

Here are some reasons people use their home’s equity to do a cash out refinance:

Debt consolidation.

Consolidating high interest debt is perhaps the most popular reason for doing a cash out refinance. By consolidating unsecured debt into your mortgage, you almost always end up with a much lower rate, and you turn your interest payment into a tax deduction. Mortgage interest is tax deductible. Credit card and personal loan interest is not tax deductible. By consolidating debt, there is almost always very significant monthly savings.

Home improvements.

Many major home improvements can be very costly. For that reason, a cash out refinance may be the perfect option if you need a new deck, roof, septic system, or add square footage. Doing such improvements can drastically improve your home value. At the very least doing these improvements can make it more desirable for buyers when it’s time to sell.

Pay off medical bills or other collections.

When you have an unexpected medical bill or an unforeseen collection it can be a challenge to pay them off in full. Do doing a cash out refinance is a tool many borrowers use in order to get a fresh start, and get back on track.

Increase cash reserves for unexpected emergency.

When doing everything you can to make ends meet, it can be tricky to consistently put enough away in reserves. Nerdwallet.com suggests that a person should have available emergency funds that cover three to six month cushion of living expenses. This is in case of major injury, loss of job, or divorce. A cash out refinance is often a tool to put away those reserves.

Credit Requirements for Cash Out Refinance in Texas

Just the same as all other states, your credit is a big determining factor when considering what mortgage program will fit best.

For traditional financing you’ll need to be 620+ credit, and at least 2 years outside of a bankruptcy, and 3 years from foreclosure.

If you are below 620 credit or have a more recent major credit event, a portfolio loan will likely be needed.

Low credit cash out refinance in Texas is okay.

If you have at least 500 credit score and strong equity, we may be able to help – depending on employment/income circumstances.

cash out refinance texas calculator

Cash Out Refinance Texas | Investment Property

These loans are available on primary residence, second home, and investment property.

Many lenders do not allow these on investment property, so it just a matter of connecting with the right lender.

For investment property the maximum loan to value ratio is 80%. If the property appraises for $200,000 the maximum loan amount would be $160,000.

Minimum credit score when doing a cash out refinance on investment property is 580. This would be done on portfolio loan only.

For primary residence, minimum credit score is 500.

Keep in Mind

  • Available on primary residence, second home, and investment property
  • Good credit, fair credit, bad credit okay
  • Must have owned home for at least 12 months to use new appraised value
  • Traditional and alternative documentation loans available

In Short

A cash out refinance can be a major benefit for you depending on what you’re looking to accomplish. The key is to have strong equity and established stable income to show ability-to-repay the loan.

If you have been told you do not qualify for a cash out refinance in Texas:

portfolio loans

I invite you to reach out.

Get your questions answered.

 

We have been able to get many borrowers approved for cash out refinance in Texas when other lenders said it couldn’t be done.

If I cannot help, I should be able to point you in the right direction at the very least.

self employed home loans

 

Buying a House After Bankruptcy

When buying a house after bankruptcy, there are several mortgage options including portfolio loans, conventional, FHA, and VA loans. They key is to know which mortgage option would apply to you best.

In today’s blog post I will cover everything you need to know about buying a house after bankruptcy including time frame you’ll need to wait for each type of loan available.

Can you buy a house after bankruptcy?

The short answer is: yes, it is absolutely possible get approved when buying a house after bankruptcy.

The long answer is: it depends on your income, credit, down payment (assets), and waiting period circumstances.

  • Income – You need to have an established/stable income and/or employment situation. If your income is unstable or inconsistent, it is going to create more of a challenge when looking to get approved for a mortgage.
  • Credit – It’s important to show that you have made an effort to re-establish your credit since having a major recent credit event like a bankruptcy. On time payment history, and no new collections would be the goal. Credit score requirements vary, and will be laid out below.
  • Assets – If you’re looking to buy a home immediately after bankruptcy discharge, you’ll likely need at least 15-20% down payment, plus 6 months of reserves. If you can wait, the down payment requirements are less aggressive. If you are at least 2 years out from bankruptcy, and have at least 580 credit, 3.5% down payment may be possible on FHA (10% down if below 580).
  • Waiting period – see below for waiting period on different bankruptcy types and loan types.

How long after bankruptcy can I buy a house?

The waiting period depends on what type of bankruptcy you went through, and what type of loan you’re applying for.

how long after bankruptcy can I buy a house

Chapter 7 Bankruptcy

  • Portfolio Loan – 1 day after bankruptcy was discharged. With portfolio loans your bankruptcy just has to be discharged. There is no lengthy waiting period you have to go through until you can buy a home. Expect higher rates and costs with portfolio loan. Portfolio loans are a short term solution for short term circumstances. Once you meet normal lending guidelines, you’d refinance out of the portfolio loan into convention or FHA
  • FHA and VA Loan – 2 year waiting period. When applying for an FHA loan, you’ll need to wait until the bankruptcy has been discharged before expecting to be approved. The discharge date will show on your credit report, and you can also provide your proof of bankruptcy discharge to your lender so they can further verify the discharge date.
  • Conventional Loan – 4 year waiting period. The lender will need to see 4 years have passed since the bankruptcy discharge date before the approval will be considered.

Chapter 13 Bankruptcy

  • Portfolio Loan – 2 years from original filing date. Must be discharged prior to application. The lender will likely want to see on time payment history on the chapter 13 bankruptcy.
  • FHA and VA Loan – 1 year from original filing date. Need to be able to show on time bankruptcy payments. If still in bankruptcy the court’s trustee will need to approve your request to obtain mortgage financing as well.
  • Conventional Loan – 2 years from discharge date or 4 years from dismissal date.

What if I had a home/mortgage included in bankruptcy?

Portfolio Loan – If mortgage was included in bankruptcy, you may be okay to purchase a new home once the bankruptcy is discharged.

Conventional Loan – If mortgage was included in bankruptcy and the home was surrendered (you left the home) a conventional loan is an option once the bankruptcy has been discharged for 4 years. This applies even if it took several years for the bank to foreclose on the property. Waiting period is still based on the bankruptcy discharge date, not the foreclosure date. This is a fannie mae guideline found here. Also, the snippet from the guideline is listed below.

Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

 

FHA Loan – The waiting period will be based on the foreclosure date (which is 3 years) unfortunately.

Mortgage Included in Bankruptcy | When/How to Buy a house after your home was surrendered

Getting a Mortgage Post-Bankruptcy

It is extremely important that you prepare yourself to present your situation to your lender with complete clarity when getting a mortgage post-bankruptcy.

The story matters, especially if your bankruptcy has been discharged for less than 2 years. The lender is going to want to understand what circumstances led to the bankruptcy, and what has taken place to prevent that from happening again.

As you can see, as stated above, if you do not meet “traditional” lending guidelines, a portfolio loan may be the best solution when buying a house after bankruptcy and it was just recently discharged. A portfolio loan is an alternative type of mortgage that allows borrowers to get approved for a home loan based on more of a common sense approach. [more on portfolio loans here]

how long after bankruptcy can I buy a house

 

  • Low credit scores okay
  • Primary residence, vacation home, and investment property okay
  • Single family home, 2-4 unit, and condominium property type okay

The most important part about buying a house after bankruptcy

Working with a lender who is highly experienced with this type of scenario is perhaps the most important thing to keep in mind when buying a house after bankruptcy.

It is very common for a loan officer to see a bankruptcy on a credit report, and automatically state the borrower doesn’t qualify for “X” number of years without really digging deep into the situation.

Be sure to work with a lender who has a portfolio loan option in case the traditional mortgage route is out of the question.

If you are not sure if you qualify, please feel free to reach out.

I’ve been able to help many homeowners who have been told by other lenders that they don’t qualify.

portfolio loans

I invite you to reach out.

Get your questions answered.

 

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Jumbo Loans for Bad Credit

When seeking home financing with bad credit, your options may be limited. When seeking Jumbo Loans for bad credit, your options might even be more limited, but options are available.

Whether the low credit is due to recent foreclosure/bankruptcy/short sale or just recent collections, this post will tell you everything you need to know about how to get jumbo loans when you have bad credit.

What to Expect When Seeking Jumbo Loans for Bad Credit

In many cases, these loans can be done with as low as 500 credit score. These loans are typically referred to as “portfolio loans“.

When credit score is low, the lender is going to want to see strong compensating factors in order to give careful consideration on whether or not the loan can be funded.

Compensating factors that are helpful for approval if you do have bad credit:

  • Strong equity (or down payment). Although portfolio loans will allow 10% down payment (or 10% equity), typically that is if you have at least 660 credit and at least 2 years since major credit event like bankruptcy/foreclosure/short sale. The lower the credit, the higher the down payment. Example, if you have 500, it is likely you’ll need at least 25-30% down payment.
  • Strong liquid reserves. Lenders love to see that you have plenty of cash reserves or liquid reserves (401K, IRA, etc.) after it’s all said and done. It makes them feel comfortable knowing that if you were to fall on hard times, you have the means to still cover your mortgage and living expenses. Typically showing 6 months worth of reserves is a good sign.
  • Strong history with employer. Stability and consistency of income/employment is important. If you have been with your employer for 3 years, that factor will strengthen the overall profile. That doesn’t mean you’ll be declined if you don’t have 3 years on the job, but it does help if you do.jumbo loan with low credit
  • Low debt-to-income ratio. If you have bad credit, but a low debt to income ratio, it’s much more simple to demonstrate your ability to repay the mortgage. When calculating debt to income ratio, the lender will factor in your new mortgage payment (including taxes/insurance/HOA dues), and all other liabilities that are shown on your credit report. In addition, they will want to include any other real estate owned and taxes/insurance/HOA dues tied to those properties. The lender will take your monthly debt, divided by your monthly income, and that equals your debt-to-income ratio. Example, if your monthly debt is $5,000 and your monthly income is $15,000, your debt-to-income ratio is 33%. Some lenders will go as high as 55% (with strong compensating factors), but typically they are looking to see 45% or lower.
  • Low payment shock. Your current housing expense will be carefully considered when factoring in your new potential housing expense. It helps to show housing payment history, and not much of an increase when comparing present housing expense with new potential housing expense (unless it is a cash out refinance, and other monthly obligations are being paid off).

Be ready to give a thoughtful explanation as to why your credit is bad.

Portfolio loans are considered case by case, and it helps if you can clearly tell the story of what happened. [more on portfolio loans here]

4 Things You’ll Need To Do When Getting Jumbo Loans For Bad Credit

  1. Be prepared to tell your story. When getting a portfolio loan, the story matters. Take the time to have your facts straight and put it in writing. Help the lender understand exactly what the circumstances were which led to the credit challenge. Explain why these circumstances are isolated, and won’t happen again.
  2. Have all of your documents in order. Just like any other mortgage, when getting a jumbo loan with bad credit, you’ll need to document everything (income/credit/assets). Do not try to cut corners, or ask for exceptions on having all necessary docs. The lender is already taking a risk with lending on low credit. The goal is to minimize the layers of risk involved.
  3. Expect higher rates. When getting a portfolio loan you’re dealing with a different mortgage market than the conventional home financing world. These portfolio loans are designed to be a short term fix for short term circumstances. Once your credit meets normal lending guidelines, you’ll be refinancing into a traditional loan.
  4. Be patient. The underwriting process may take longer than traditional financing in some cases. People are surprised by this because they figure “outside-the-box” lending = quick-and-easy. That’s just not the case. Portfolio loans are carefully underwritten, and fully documented.

Alternative Documentation | Business Owners | Self-Employed

If you are a business owner who shows low net income on tax returns, a bank statement loan may be the best option for you to show your ability to repay the mortgage.

These loans allow self-employed individuals to use their personal or business bank statements to calculate income, and can be done with some low credit scenarios.

When using personal bank statements to qualify you’ll provide 12 months bank statements. Deposits will be averaged over that time frame, and unusual/unverifiable deposits will be excluded from income average.

When using business bank statements to qualify you’ll provide 24 months bank statements. You can only use business bank statements if you are 100% owner of the business. The deposits will be reviewed/averaged, and a “expense factor” will be applied. Typically, the minimum expense factor is 35%. So if you show 100K income, the usable amount is 65K. Your CPA will need to confirm what your expense factor should be.

[more on bank statement loans here]

Keep In Mind

  • Minimum down payment is 10%. The lower the credit, the higher the down payment.
  • Minimum credit score 500
  • Recent bankruptcy, foreclosure, short sale is okay
  • Typically need to show at least 6 months reserves
  • Having strong compensating factors help your likelihood of approval
  • Available on home purchase and refinance
  • Cash out refinance also available on jumbo loans for bad credit

In Summary

Having bad credit does not mean that you have to rent a home while you wait on getting your credit up to normal lending standards. A portfolio loan may be your perfect solution when seeking  jumbo loans for bad credit.

I invite you to reach out.

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Mortgage Included in Bankruptcy | Eligibility Answers

There is an interesting guideline with a conventional Fannie Mae mortgage, where the waiting period to obtain new home financing is based on the bankruptcy discharge date, NOT the foreclosure date when mortgage is included in bankruptcy.

This post is for anyone who has ever had a home included in their bankruptcy, and are looking for answers on when they can buy a new home.

Waiting Period – Mortgage Included in Bankruptcy

Let me paint a picture for you to make sure we are on the same page on when this guideline is used.

You filed bankruptcy and listed your home and mortgage(s) tied to the home as included in the bankruptcy.

The bankruptcy was discharged in 2014, but the home that was included in the bankruptcy was not foreclosed until 2017.

Most lenders will tell you that you have to wait 7 years from the foreclosure date before you will be eligible for conventional financing. This is either because the loan officer is unaware or because their company has an overlay that doesn’t allow this guideline. mortgage included in bankruptcy 7 13

But wait a minute, you surrendered that property in the bankruptcy 4 years ago. The guideline states that when including a mortgage/home in a bankruptcy, the waiting period is based on bankruptcy discharge date, NOT the foreclosure date.

This is ONLY on conventional Fannie Mae loan. This guideline does NOT apply on FHA loans.

Who should pay attention

This guideline is for borrowers who vacated the property at the time the bankruptcy was discharged, or around that time. Remember, your intent was to surrender the home as part of the bankruptcy. If you stayed in the home, and were mortgage/rent free for several years, and then expect to buy a house buy using this guideline, there is a good chance the loan will be declined.

The guideline is not designed to help if you did not truly surrender the home when the bankruptcy was discharged.

If you did vacate the property, and got into a rental, paid your rent on time as promised – this guideline is perfect for you.

It is extremely common for lenders to not complete foreclosure proceedings for several years after the home was surrendered in bankruptcy. But this guideline is what saves the day.

Here is the guideline straight from Fannie Mae:

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

On conventional mortgage loans the waiting period is 4 years from chapter 7 bankruptcy discharge date. Chapter 13 bankruptcy requires 2 years from discharge date or 4 years from the dismissal date.

But if chapter 13 was dismissed, that means the bankruptcy wasn’t completed. This means the debt wasn’t settled per the agreement. So if you foreclose in that scenario, the waiting period will be 7 years.

Where to Look

The guideline above states that the lender must obtain appropriate docs to prove that the mortgage was included in the bankruptcy. What does that mean?

It’s pretty simple actually (if you retained copies of all your bankruptcy docs, not just the discharge).

When filing bankruptcy, there are many schedules (different sections) that are drawn up that identify assets and liabilities that are included and excluded in/from the bankruptcy.

What you are looking for:

  • Schedule A (Real Property – Real estate that is owned by the person filing bankruptcy)
  • Schedule C (Property claimed as exempt from the bankruptcy) – If your property is listed on the schedule C that means you do NOT intend to surrender the home in the bankruptcy
  • Schedule D (Creditors Holding Secured Claims) – This is where you will find the mortgages or other debts that are included in the bankruptcy

Chapter 7 Bankruptcy

With chapter 7 bankruptcy, it is pretty straight forward. If you mortgage was not reaffirmed, your mortgage was surrendered in the bankruptcy along with all of the other debt you listed.

Once the bankruptcy is discharged, your obligations are gone essentially.

Chapter 13 Bankruptcy

With chapter 13 bankruptcy it gets a little tricky. Traditionally, chapter 13 bankruptcy is considered to be a “reorganization of debt”, enabling individuals with regular income to develop a plan to repay all or part of their debts. You and your creditors agree to new terms on your debt per the bankruptcy terms, and you retain the assets associated with that debt. You make your payments per the bankruptcy and once all of your payments have been made, the debt or delinquency is settled.

Some people use chapter 13 bankruptcy as an instrument to actually save their homes from foreclosure. In those cases, typically the mortgage debt that is included in the bankruptcy is any arrearage (past due payments). So the bankruptcy in this case, would act as a tool to help you keep the house while getting caught up on what you owe. In this case, the home would be listed on the Schedule C in the bankruptcy (property claimed as exempt from the bankruptcy).

However, there are many cases where the home and entire mortgage is included in the chapter 13 bankruptcy. If that is the case, the home will NOT be listed on the Schedule C (property claimed as exempt from the bankruptcy), and the home is considered to be surrendered.

Special Note for Chapter 13

When the home is surrendered in chapter 13 bankruptcy, you may need more than the schedule C to convince the underwriter that the home was in fact surrendered in the BK. This (again) is because traditionally chapter 13 is considered reorganization of debt.

Showing additional proof – Each state is different, but if you’re looking to show further evidence of home being surrendered in the bankruptcy, look for a form stating: Chapter 13 Plan and Motions. This will once again declare what is to happen with the real estate, and the debt tied to that real estate upon successful completion of the chapter 13 bankruptcy.

If the home was surrendered, the chapter 13 plan and motions will state it accordingly.

Alternative

If it turns out you do not meet traditional lending standards and guidelines, a portfolio loan may be the alternative solution for you.

A portfolio loan is a mortgage designed for borrowers who don’t qualify for traditional home financing.

Whether the issue is credit related or otherwise, a portfolio loan may be the solution to get you into the home you’re looking to buy while you wait on appropriate time to pass before being eligible for traditional financing.

More on portfolio loans here.

The Most Important Thing

Keep records of all bankruptcy documents.

I cannot tell you how many times I request bankruptcy documents, and all that is provided is proof of discharge.

In order to document everything properly (and make an appropriate lending decision), lenders need all documents associated with the filing. This also includes any schedules, amendments, and discharge of the bankruptcy in question.

If you have had a mortgage included in bankruptcy, and have been told you need to wait to buy a new home based on foreclosure waiting period:

I invite you to reach out.

 

Get your questions answered.

 

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

 

 

self employed home loans

 

What is Manual Underwriting Mortgage?

If you have been told you do not qualify for an FHA or VA loan, but were not given a reason, a manual underwriting mortgage may be your ticket to getting approved.

What is a manual underwriting mortgage?

Traditional mortgage loans have two ways of getting approved: automated underwriting and manual underwriting. When the loan is manually underwritten, the scenario is evaluated with a more fine tooth comb than automated underwrite to ensure the borrower meets required guidelines. A manual underwritten mortgage is often a deal saver if the loan doesn’t receive an automated approval.

Automated approval vs. Manual Approval

what is manual underwriting 2

Mortgage lenders use a “desktop underwriting” system where the mortgage application is imported and then sent to get “automated findings”. Based on the application data (income, credit, assets, property) the desktop underwriter (automated approval) with give:

  • Approve/Eligible
  • Approve/Ineligible
  • Refer/Eligible
  • Refer with caution

Approve/Eligible means based on the application submitted, the borrower appears to meet minimum guidelines for the mortgage they are applying for. If approve/eligible findings are received there is high confidence the loan will be approved assuming the application is correct and all income/credit/asset/property can be verified per requirements on the automated findings. Lenders are not required to share the findings.

Approve/Ineligible findings in my opinion are most commonly found when there are not enough assets for funds to close (down payment, costs, escrows, and reserves) or the length of time employed or housing history is incomplete.

Refer/Eligible means the borrower appears to meet minimum guidelines, but the loan needs to be manually underwritten in order to confirm that is the case.

Refer with caution means there appears to be significant risks with the loan, and the applicant most likely does not meet minimum underwriting standards for the loan they are applying for.

When referring to a “manually underwriting mortgage” the findings with the automated underwrite would be Refer/Eligible.

The problem with manual underwriting mortgage:

Many lenders do not do manual underwriting.

Why?

Because like I mentioned above, with a manual underwrite the loan needs to be underwritten with more of a fine tooth comb which means it slows underwriters down. The guidelines on manually underwritten mortgages are more strict than automated underwritten loans as well.

Many lenders tend to chose a path of least resistance, and only allow automated underwriting to be done. This leaves many borrowers left with a denial letter and no direction as to what to do.

The good news is that there are plenty of lenders who do offer manually underwritten mortgages.

If you have been told that you do not qualify for a mortgage, ask specifically: “What is causing me to not be approved?”

If you can clearly understand the reason for denial, you know what questions to ask if you end up pursuing approval with a different lender.

Perhaps the reason for denial is that your application received Refer/Eligible findings, and the lender you’re working with just doesn’t allow a manual underwrite to be completed.

Manual Downgrade

In some cases, even if the loan received Approve/Eligible findings, the loan has to be “downgraded” and be manually underwritten.

Here is the most comprehensive available list for manual downgrade scenarios:

The Mortgagee (Lender)  must downgrade and manually underwrite any Mortgage that received an Accept recommendation if: 

  • the mortgage file contains information or documentation that cannot be entered into or evaluated by TOTAL Mortgage Scorecard;
  • additional information, not considered in the Automated Underwriting System (AUS) recommendation affects the overall insurability of the Mortgage;
  • the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts;
  • the date of the Borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment;
  • the case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale);
  • case number assignment date is within three years of the date of the transfer of title through a foreclosure sale;
  • the case number assignment date is within three years of the date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure;
  • the Mortgage Payment history, for any Mortgage trade line reported on the credit report used to score the application, requires a downgrade as defined in Handbook 4000.1 II.A.4.b.iii (K) – Housing Obligations/Mortgage Payment History;
  • the Borrower has undisclosed mortgage debt that requires a downgrade; or
  • business income shows a greater than 20 percent decline over the analysis period.

 
If a determination is made that the Mortgage must be downgraded to manual underwriting, the Mortgagee must cease its use of the AUS and comply with all requirements for manual underwriting when underwriting a downgraded Mortgage.
 
For additional information see Handbook 4000.1 II.A.4.a.v.–vi. available here

What to expect if your loan is being manually underwritten?

Take a breath and prepare yourself. You’re going to need to be patient because your loan process is going to be slightly more complicated than an automated underwrite.

You’ll need to provide more documentation, and you’ll likely need to provide a few more letters of explanation to your lender.

The bit of extra work that it takes to get a loan approved with a manual underwrite is worth it. The approval is worth the work. The alternative is not doing the work, no approval, and no loan.

What if you’ve tried getting manual underwriting mortgage, and were still denied?

A portfolio loan may be your solution.

what is manual underwriting 3

Portfolio loans are mortgage options that work outside the “normal” lending guidelines. These loans are perfect for borrowers who don’t quite fit within the traditional mortgage requirements.

Examples of when portfolio loans are done:

Ending thoughts…

Just because one lender tells you that you do not qualify for a mortgage, that does not necessarily mean there aren’t any options for you.

Whether you get a manually underwritten mortgage or a portfolio loan, the extra effort is probably worth it. At the very least, you’ll have a 2nd opinion, and have clear understanding of what you do need to accomplish in order to qualify in the future.

 


 

Invite you to reach out to me.

Get your questions answered.

 

 

house loans for bad credit

 

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

Cash out refinance to complete home improvements

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 

 

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.