Applying for a mortgage can be one of the more frustrating aspects of buying your Colorado Springs home. And if you’ve suffered a bump in the road credit wise, you may be hesitant even to try to obtain a home loan. But, fear not! Armed with some knowledge and a bit of patience, you can join the ranks of homeowners in the Colorado Springs area.
You checked your report at www.annualcreditreport.com and, to your dismay, there is some erroneous information or a negative report based on late or missing payments. Even though you may want to call the company immediately, if you are applying for a mortgage, do not dispute any derogatory information on your credit report. If your report shows that you are in the middle of a dispute, your loan application will be rejected or it will be referred to a person (instead of a computer) for a “manual underwrite,” which can take a very long time to resolve. Wait until your mortgage is approved and then dispute the report.
Yes, you can be approved for a mortgage even if you’ve declared bankruptcy. If you have declared a Chapter 7 bankruptcy (one in which all debts are forgiven), you must wait 2 years after the bankruptcy is discharged to qualify for an FHA or VA loan. For a Chapter 13 (when you agree on a repayment plan), if you have been making on-time payments for one year after declaration, you may qualify for an FHA or VA loan. In either case, you must not have a single late or missed payment during the post-bankruptcy waiting periods—if you do, the qualifying period will be reset close to the date of your missed payment.
For conventional (non-government insured) loans, the waiting period is 4 years after the discharge of a Chapter 7 bankruptcy and 2 years after the 1-year payment period for a Chapter 13 bankruptcy. And, as with disputed credit reports, if you dispute a bankruptcy while applying for a home loan, the date of the bankruptcy will be reset close to the date you initiate the dispute.
If you are having difficulty making mortgage payments for your loan in its current form, you may request a loan modification. When you do so, and if it is approved, make sure that the lender reports this to the credit bureau as “Paid as agreed.” Have the lender put this in writing before you sign off on any loan modification papers. If the lender reports the modification as a “Repayment plan,” your credit report will be dinged.
Short Sale and Foreclosure
If you go through a short sale (selling your home for less than the outstanding debt), your credit score will not be affected if the lender notates it as “Paid as agreed.” If your lender agrees to forgive a portion of your loan, you will most likely sign an unsecured note promising to pay back the agreed-upon amount. As with Loan Modification, have your lender give you written proof that “Paid as agreed” will be reported to the credit bureau. If you don’t take this step, and the lender notates “Settled for less than the full balance,” you will be dinged a whopping 105 points!
If you are experiencing foreclosure, in which the lender takes possession of the property due to non-payment of the loan, you will also want to negotiate with the lender about how he will report it. If the notation “Foreclosure” appears on the report, you will be dinged 110 points.
In both cases, with a potential short sale or foreclosure, speak to your lender as soon as you realize there may be trouble looming. Don’t wait until the situation becomes dire, as many lenders are now much more willing to negotiate help for homeowners than in previous years.