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Citadel Realty has been selling real estate in Colorado Springs for over 20 years. We will be posting regular articles here with
important information for both buyers and sellers to consider when entering into a transaction. Be sure to check back regularly.
FAQ on Qualifying Applicants with Credit
Q. I have had credit problems in the past. Will this affect
my ability to obtain a mortgage loan?
A. In evaluating an application for a mortgage loan, an applicant's
credit history will be considered as one element in determining the
applicant's qualification for the requested loan. Negative credit
histories or a lack of previous credit experience can adversely affect
an applicant's ability to obtain a requested loan. More recent credit
information will be weighed more heavily than older information.
Also, some types of credit histories may be given greater weight
than others. Generally, the applicant's previous payment history on
a mortgage loan is given the greatest weight, followed by major
installment accounts (such as auto loans), followed then by major
credit card accounts (such as MasterCard and VISA accounts), and
finally followed by minor revolving charge accounts such as
departments stores and finance companies.
Q. My credit problems occurred more than three years
ago. Will this affect my ability to obtain a mortgage loan?
A. In evaluating a loan application, we will look closely at
information occurring in the past two years. Generally, a few late
payments occurring on installment loans or credit-card accounts
more than two years ago will not affect an applicant's ability to
obtain maximum financing (with minimum equity or down
payment) as long as the late payments were isolated and an
adequate statement has been provided explaining why the credit
Q. I recently filed bankruptcy. Will this affect my ability
to obtain a mortgage loan?
A. An applicant may be able to qualify for maximum financing with
a previous bankruptcy provided that the discharge date is more
than two years ago, the applicant has re-established and
maintained a positive credit history on at least three accounts since
the date of the bankruptcy discharge, and the applicant provides an
acceptable explanation for the reason the bankruptcy was filed.
Chapter 13 bankruptcy plans (which provide for a restructuring of
debt and repayment of all or a portion of the debt over a 3 to 5 year
period) must have been fully completed for a 2 year period to
obtain maximum financing at the best available interest rates.
However, we offer special loan programs at higher interest rates
which allow more recent bankruptcies. These special programs
typically require higher down payments or equity positions than
our conventional loans (between 10% to 35%) depending on how
recent the bankruptcy.
Q. I have very recent late payments on a prior mortgage.
Will this affect my ability to obtain a mortgage loan?
A. As previously stated, mortgage payment histories are given
greater weight than other types of credit information. Thus, late
payments occurring on a mortgage within the past two years will
typically preclude an applicant from obtaining maximum financing
at the best interest rates. However, we offer special loan programs
at higher interest rates, which allow recent late payments on
mortgages. These special programs typically require higher down
payments or equity positions than our conventional loans (between
10% to 35%) depending on how recent the late payments occurred.
We even have loan programs for applicants which are currently in
default on a mortgage loan or which have experienced foreclosures;
however, these programs typically require higher equity positions
of between 20% and 35% and have interest rates which are much
higher than those offered on other loan programs.
Q. How is the amount of the down payment I will be
required to pay determined on these special loan
programs allowing derogatory credit?
A. The amount of the down payment required for an applicant with
recent derogatory credit is determined on a case-by-case basis.
Generally, the more negative and more recent the derogatory
information, the higher the down payment or equity position that
will be required. For example, we offer a program which allows a
5% down payment which permits late payments on a mortgage
occurring more than 12 months prior to the application date, and
up to three 30-day late payments on other types of accounts during
the preceding 24 months. With 10% down, several late payments
on a mortgage occurring within the preceding 12 months and a few
30-day and 60-day late payments on other types of accounts will be
permitted on these special programs with higher interest rates.
Most of these programs also allow higher debt ratios than those
programs at more favorable interest rates.