Author: Nick Graziano
I decided to write this article today after closing a home purchase loan for a couple that had some major
credit issues. They got into the house with ZERO down payment, and only had to bring $600 for the closing
costs. Their situation was pretty bad, I’m talking about a bankruptcy 2 years ago, thousands of dollars in
outstanding collections, charge-offs and debt to income ratio of 49%. By the way, we left all of their
outstanding charge-offs and collections open which means they didn’t have to pay any of them off! So many
think they won't be able to qualify for a mortgage loan. Many will keep thinking they can't qualify until
they read this article.
I have been employed as a Loan Officer for 5 years & I have experience originating conventional mortgage
loans as well as sub-prime (non-conventional) residential mortgage loans. Many of the clients that I deal
with have great credit (and know it) and have no problem getting a loan but then there are those with
credit problems (and they know it too). The ones with great credit are the ones that are easy to close,
get the best rates and all with minimal time involved on the part of myself.
But, this article is for those with credit problems, low income and those who cannot afford a down
payment. I am going to show you how to qualify for a loan with ZERO down payment, and the only out of
pocket expense will be less than $1,000 ( if any at all) to cover some of the closing costs. This is just
an example of one particular loan program that I use but there are numerous others out there. I picked
this loan program because it allows 100% financing down to a 575 credit score
I see it on a daily basis.
Everyone wants to own a home and those with credit problems are calling every mortgage company in the
phone book and applying on every mortgage website out there. (And there are many out there). Only to find
out later that every time a mortgage company pulls their credit, their credit score dropped a few points,
or that the particular lender doesn’t originate the type of loan that you need. That is frustrating.
Step by Step
Here is where I show you how to qualify yourself for a zero down loan.
1.The first thing you need is your tri-merge credit score. I would be more that happy to suggest a few
places on the internet that you could go to get your credit score but I don’t want this article to seem
like an advertisement. So, the best thing to do is to do a search on yahoo.com for terms like “free credit
reports”, or “tri-merge credit report”. Just make sure that you end up pulling a “tri-merge” credit report
on yourself. A tri-merged credit report pulls your credit profiles from the 3 major credit reporting
companies and merges it into 1 report. The nice thing about pulling your credit yourself is that it will
NOT affect your credit score. Bookmark this page while you go get a copy of your credit report and then
come back to see the additional steps.
2.What is your credit score? Most mortgage lenders will use the middle of the three scores. Example: Your
credit scores are 576, 525, 599. In this case you would use the 576 credit score since it is not the
lowest score and it is not the highest.
3.Is your middle credit score at least 575? If so, congratulations and move on to the next step. If your
middle score is less than 575 you have some homework to do. You can either sign up with a credit repair
company (“search yahoo.com for credit repair”) to try and remove some derogatory items on your credit
which will raise your credit score OR you can try to acquire some credit to help re-establish your credit
worthiness. The easiest way to re-establish your credit is by either getting a car loan or credit card
designed to help re-establish your credit. Again search yahoo.com for “credit cards to re-establish
credit”
4.Do you have a bankruptcy or foreclosure in your past? Has it been 2 years since it was discharged? If
yes, move on to the next step! If not, unfortunately in most cases your bankruptcy or foreclosure will
need to be discharged at least 2 years or you will need to have at least 5% down payment.
5.You will need to document 24 months of recent mortgage or rental history. If you rent from a property
management company we will need a Verification Of Rent completed. The form will be supplied by your
mortgage lender or broker. If you rent from a private landlord, you will need 24 months cancelled checks/
or money order receipts with no payments over 30 days late. Sorry, you cannot prove your rental history if
you pay your landlord cash every month, unless they are a property management company. If you are unable
to document your rental history there is a way around it. Get your credit report and look for the
following: Do you have an active credit line on your credit report that has been open for at least 24
months? Has this credit line had any activity in the last 6 months? If so, move to the next step.
6.Look at your credit report. Do you have a credit line that has a 12 month history reporting? If so and
as long as you have no more that 2x30 day late payments then move on to the next step.
7.Look at your credit report again. Do any of your credit lines have a high limit of at least $3,000. If
so, move to the next step.
8.Now take one more look at your credit report. You will need 1 more additional open credit line reporting
on your credit report. (It does not matter how long it has been open or how much the credit line is for).
Well, congrats! You made it this far which means that your credit might qualify for a Zero Down Payment
Loan. The loan program you qualified for is subject to change and is subject to additional conditions.
This article should not be construed as an advertisement to lend. These are the steps that I go through
when trying to pre-qualify a client that has credit problems. There are many more factors to determine so
please discuss this with a qualified mortgage professional.
You are probably asking yourself what you are supposed to do with the information that was given to you in
this article. The first thing is to contact a few mortgage companies. Ask them if they have any zero down
loan programs that will go down to a 575 credit score, or whatever your credit score is. Remember, you
will need at least a 575 credit score to qualify for this particular loan program. Also, in order to
minimize your out of pocket expense, ask your mortgage professional if the property seller is allowed to
pay 6% of the purchase price towards closing costs. If so, you will need to remember to negotiate that
into your purchase contract when you make an offer on a house.
About the author: Gateway Mortgage Group
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