How To:

Help Your Low Credit Score Borrowers Get A Mortgage

For some borrowers with less than stellar credit or no credit at all, automated underwriting may leave them out in the cold with nothing more than a declined loan application. Sadly for these borrowers, the automated systems are formula-driven and do not allow for judgment calls. They either fit the formula or they are declined. However, loans declined by automated systems may have a second chance… with manual underwriting.

Manual underwriting allows a lender to take into account other proofs of a borrower’s ability to make steady payments. If a borrower experienced a negative life event which affected their credit, manual underwriters can assist in verifying the applicant’s payment history that was in place before the negative event.

Our manual underwriters work hard to accommodate those with low or no credit scores. At Residential Acceptance Corporation (RAC), each low-credit or no-credit file is reviewed on its own merits. Whether your borrower had their credit score crushed by a life event, chose not to use formal credit, or they were possibly a veteran serving our country on multiple tours without the need or time to establish credit, RAC manually underwrites loans and can offer borrowers second chance. We do this because we understand financial hardships and prefer to make common-sense decisions about borrowers.

  • 2+ years employment history
  • Stricter ratios may apply (29/41 for USDA & 31/43 for FHA)
  • No unpaid collections
  • Verification Of Rent (VOR) showing 12-month history with no late payments
  • No 30 day late payments in last 12 months
  • 1 or 2 months of reserves
  • 3 historical trade lines (including VOR) showing 12-month history with no late payments or 1 active trade line + 2 historical trade lines with 12 months no late payments (standard or alternative trades)
  • No score files will need to provide 3 alternative trades with 12-month history of no late payments. If no VOR we may require 3 alternative trade lines.

Finally, you will need a letter explaining: what caused the low scores and derogatory credit, what has been done to stem the problem and what assurances can be given that this credit issue will not re-occur.