Underwriters Don't Look at Your Various Credit Accounts and See How Many Late Payments You Have or Haven't Made.
Underwriters rarely even review a credit report. They don't have to. When an AUS approval is issued, a credit report is redundant. The AUS will pull a credit score, while at the same time locating any public records such as bankruptcy filings or tax liens.
Loan officers don't automatically run credit reports any longer; instead, they go directly to the AUS for a decision. Just a few years ago, the underwriter would indeed not just glance at but pore over a credit report, looking to see if any late payments were made, when they were made, and how often. Not so now.
Automated underwriting systems have close to eliminated most credit report reviews by humans. Do you need good credit? Of course you do, but it's simply reviewed differently.
The exception is when there's a previous bankruptcy in a consumer's history. Lenders can make a mortgage loan with a bankruptcy showing on the credit report, but they typically do so only if there are no late payments on the credit report since the bankruptcy was discharged. One of the rules for approving a mortgage with a bankruptcy showing up is that "credit must be reestablished," and most underwriters view that guideline as meaning not only opening up new credit lines but also not having any late payments whatsoever.
Bankruptcy Doesn't Automatically Mean That You Can't Get a Mortgage.
This is a common misunderstanding. This credit myth is so pervasive that it still keeps qualified people from applying for a home loan at all. The biggest bankruptcy myth is that one can't get a mortgage until seven years have passed. Wrong. In fact, loans can be issued to those with bankruptcies even if their bankruptcy is just one day old. There are loans available for those with good credit and for those with not good credit. And both loan types make allowances for bankruptcies. If you've got a bankruptcy in your long ago or recent past, take heart; you can still buy.
Conventional and government lending issued under Fannie Mae, Freddie Mac, FHA, or VA guidelines allows for such instances. But there are certain bankruptcy rules for each.
Fannie Mae and Freddie Mac guidelines typically allow a lender to give a loan approval if the bankruptcy is at least 48 months old. Government programs can make a loan when bankruptcies are only two years old.
Each set of guidelines states that after a bankruptcy has been discharged, credit must be reestablished through other credit accounts, such as a credit card or a car loan. And as for those who think that creditors don't issue credit to people who have experienced a bankruptcy, they're wrong. There's a huge industry designed specifically for those who need to reestablish good credit. Yeah, the rates are a little higher under these circumstances, but that's to be expected.
Under any circumstances, always try for a conventional or government loan first.