Mortgage Loan



Looking to buy a house in Louisville, KY, but worried about finding a mortgage because of a bankruptcy? Bankruptcy is more common now and banks will consider making loans within two or three years after the bankruptcy is discharged - as long as your credit history has been pristine since the bankruptcy. 

Expect to be charged higher interest rates or be required to come up with a bigger down payment, though. Even if you have excellent credit history, a larger down payment usually means the best interest rates, and if you have a bankruptcy on your credit report it becomes especially important to put down as much money as possible.

Your past credit report is an important factor, but keep in mind there are several other financial indicators that are also considered.

Your employment history and income. If you've had steady employment for a long period (more than two years) and you've received regular pay raises and promotions, this counts heavily in your favor when applying for a home mortgage.

Your debt-to-income ratio. Bankruptcy either discharges or restructures your debt for a certain period of time, allowing you the breathing room to clear up your credit history. If you avoid taking on large debts after bankruptcy, your debt-to-income ratio should be fairly low.

The loan-to-value ratio of the home you'd like to buy. It's possible to find great real estate deals where the asking price on the home is far below the appraised value of the home. As you talk to mortgage loan officers, point out how much equity you'll immediately have in your new home.

Your down payment. Obviously, the more money you pay up front the less money you borrow overall. Saving the ideal 20 percent down payment makes you look much better to a mortgage company, even if you have a bankruptcy on your credit.

It is possible to get a mortgage after bankruptcy. You probably won't get the lowest interest rate or the most ideal terms, but it's possible to refinance a mortgage in a few years after building equity in the home. Be patient and persistent, and discuss your finances with the one of the Brad Long Groups recomended lenders.

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If you have bad credit and want to obtain a mortgage to buy a new home, you may feel as though it's impossible since lenders tightened their eligibility rules. There are plenty of so-called “options” available on the Internet for bad credit loans, but you must be very careful to watch out for scams.

Mortgage laws have changed in recent years but, the following general guidelines apply:

• Your credit report must have fewer than two 30-day-late payments in the past two years. 

• Bankruptcies must be at least two years ago, with excellent credit history since then.

• Foreclosures must be at least three years ago, with excellent credit history since then.

If you have a few minor negative marks on your credit, you might be better off simply waiting a few months for those to clear (while continuing to make all your payments on time, of course). Alternatively, you may ask a creditor to remove a single late payment flag from your report—though it's up to the creditor to do it.

If you've had serious financial trouble, you'll need to shop for a mortgage loan from several lenders. Don't assume you're actually prequalified for a mortgage just because you filled out an online form and received several offers. You'll need to follow through with the process of applying for a mortgage with each lender to make sure the offers are real.

It's best if you talk to a loan officer in person and get your questions answered on the spot. Even if the first bank you talk to won't give you a mortgage because you have bad credit, the loan officer can help you understand what needs to be done in order to secure a mortgage.

It's not impossible to get a mortgage with bad credit, but it is more difficult. Work with several potential lenders and don't settle for the first approval. Even though you have bad credit, there are several places in the process where you can negotiate a better deal. Give us a call and we can put you in touch with a mortgage professional that can give you all of your options.

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Top 10 Credit Don'ts


1.       Don’t Do Anything That Will Cause A Red Flag To Be Raised By The Scoring System. This may include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. Generally, the less new activity on your reports during the loan process, the better.


2.       Don’t Apply For New Credit Of Any Kind. Including those “You have been pre-approved “credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor you could lose points from your credit score. Depending on the elements in your current credit report, you could lose anywhere from one to twenty points for one hard inquiry. For lender inquiries as of Jan. 2007, any indicial inquiries count as one incident through a duration of 45 days.


3.       Don’t Pay Off Collections or Charge Offs During The Loan Process. Unless you can negotiate a delete letter, paying collections will usually decrease your credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, consider doing it through escrow at closing.


4.       Don’t Max Out Or Over Charge Your Credit Card Accounts. This is typically the fastest way to bring credit scores down 50-100 points. Try keeping your credit card balances below 30% of their available limit at all times during the loan process. If you decide to pay down balances, consider doing it across the board - meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all 30% of the limit, or all 40% etc.)


5.       Don’t Consolidate Your Debt Into One Or Two Credit Cards. It seems like this would be the smart thing to do; however, when you consolidate all of your debt into one credit card, it may appear that you are maxed out on that card and the system will penalize you as mentioned in above item #4. If you want to save money on credit card interest rates, consider waiting until after closing.


6.       Don’t Close Credit Card Accounts. If you close a credit card account, you may lose available credit and it might appear to the FICO that your debt ratio has gone up. Also, closing a card may affect other factors in the score such as length of credit history. If you have to close a credit card account, think about doing it after closing.


7.       Don’t Pay Late. Stay current on existing accounts. Under the new FICO scoring models, one 30-day late could cost you anywhere from 50-100 points. Points lost for late pays may take several months if not years to recover.


8.       Don’t Allow Any Accounts To Run Past Due—Even 1 Day! Most cards offer a grace period; however, what they may not tell you is that once the due date passes, that account could show up past due on your credit report. Past due balances can also drop scores by 50+ points.


9.       Don’t Dispute Anything On Your Credit Report Once The Loan Process Is Started. When you send a letter of dispute to the credit report agencies a note is added to your credit report. In many cases when an underwriter notices a dispute they may not process the loan until the dispute is removed.


10.   Don’t Lose Contact With Your Mortgage And Real Estate Professionals. If you have a question or not if you should take a specific action that you believe may affect your credit reports or scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources you need to avoid making mistakes that could drop your credit score or affect your loan.


Any questions about credit or Louisville Real Estate please contact us at The Brad Long Real Estate Group.