Feb
08

Q&A:Home Purchase?

Question: Home Purchase?
My husband and I were pre-approved for a mortgage. We found a house we liked and put in a contract on it. We had a foreclosure  back in 2008  and some lates on other accounts around the same time. Since then we have had good credit. We have established new trade lines that are over a year old with no late payments. Our credit scores are 606 and 614. We are going through underwriting and they are telling us that we aren’t being approved because of the foreclosure we had, nothing was said when we were being pre-approved for a loan. The loan officer told me that I need to write a letter explaining how and why we went to foreclosure. We lost our home due to an ARM rate that we couldn’t afford it. Can this help with our FHA loan approval?

Best answer:

The loan officer that did your pre-qualification letter obviously did not know FHA guidelines. That’s why now that the underwriter is taking a closer look, they obviously don’t like what they see. One year of payments on trade lines doesn’t negate a foreclosure and your scores are still really low.

FHA guidelines are 36 months since foreclosure. Credit score ABOVE 620!

If there are negatives on your credit since the foreclosure. FHA will want you to have COMPENSATING FACTORS in order to get an exception. These are:

1) Job stability
2) Year over year growth in income
3) Paid off/down credit accounts
4) Paid off collections (except medical)
5) Assets (reserves)
6) Low DTI Ratio (Debt to Income) / Good income over your payments

A letter stating you didn’t anticipate your previous ARM payment adjusting is just not good enough.  Legitimate reasons are usually medical, death in the family forced change in income. 

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About Kristofer Nance

Kristofer Nance, Real Estate Broker with Nance & Associates, Realtors in Fredericksburg VA
Owner/Agent of Nance & Associates, Insurance.

Comments

  1. You aren’t getting funding with low credit and a foreclosure to boot.

    I love your excuse, “we could not afford to repay the money we spend”. A letter stating the obvious will not do any good. And refusing to pay is not a valid excuse, just a statement of fact.

    You need to clean up your credit and learn to live within your means before you venture into ownership again.

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