Can You Get a Loan With Missed Payments and Get AUS Approved?

Peter Bieda The Mortgage Expert
November 5, 2021 - 6 min read

Key On How To Get A Mortgage With Late Payments

The key to get automated approval per the automated underwriting system is to have been timely in the past 12 months. One of two late payments in the past 12 months may not be a deal killer. You may get an AUS Approval with one or two late payments in the past 12 months if you are a strong borrower. By strong borrower, you will need a larger down payment, have reserves, have had great payment history, have strong aged credit tradelines, and have lower debt-to-income ratios. Lenders and the automated underwriting system frown upon the fact borrowers having late payments.

Manual Underwriting On FHA And VA Loans

FHA and VA Loans are the only two loan programs that allow manual underwriting. Manual underwriting is when a borrower cannot get an approve/eligible per automated underwriting system and needs to get downgraded for a human underwriter to carefully underwrite the file manually. There are times when an AUS-approved file needs to be manually underwriting due to high layered risk factors such as multiple job changes in the past two years, high debt-to-income ratio, or other extenuating circumstances.

How Late Payments Impact Borrowers

Consistent late payments will be an issue for mortgage loan applicants in getting an approve/eligible per automated underwriting system. Capital Lending Network, Inc. are experts in helping borrowers on manual underwriting. However, to be eligible for manual underwriting you need timely payments for the past 24 months.

Late payments on credit tradelines have different rating systems. Making late mortgage payments is one of the most serious derogatory credit penalties and consequences you can have You do not want to be late on your mortgage payment under any circumstances.

Mortgage Lates FHA Loan

If you’re hoping to qualify for an FHA loan but have had some late payments in the past, you may still be in luck. While a conventional mortgage lender will typically shy away from approving a loan for someone with a history of missed payments, the FHA has more lenient standards.

As long as you can demonstrate that the late payments were caused by extenuating circumstances beyond your control and that you’ve since regained financial stability, you may still be able to qualify for an FHA loan.

Here are a few tips to help increase your chances of qualifying for an FHA loan despite a history of late payments:

• Make sure the late payments are not recent. The further in the past they are, the better.
• Get a letter from your lender explaining the circumstances that led to the late payments.
• Show proof of financial stability since the late payments occurred. This can be in the form of tax returns, pay stubs, bank statements, etc.
• Be prepared to make a larger down payment than you would with a conventional loan.

If you’re not sure whether you meet the requirements for an FHA loan, it’s always best to speak with a loan officer or mortgage broker to get expert advice. They’ll be able to review your individual circumstances and let you know if you qualify.

Housing Late Payments

Any mortgage payments that goes beyond 30 days late will be reported on your credit report as a mortgage late payment. Homeowners have a 15-day grace period every month to pay their mortgage payments. If the payment for the month is not received by the 15th of the month, the mortgage servicer will charge a late fee.

However, the mortgage payment is not reported late as long as the borrower pays it by the end of the month. This holds true even though the mortgage servicer will charge a late fee for getting the mortgage payment on the 16th of the month and prior to the end of the month. We will discuss on the next paragraph the consequences of late mortgage payments.

Consequences Of Paying Your Mortgage 30 Days Late

30 day late payments on a home mortgage is the worst late payment you can have if you are planning on applying for a new home mortgage. One late payment in the past 12 months is allowed to qualify for a home mortgage. However, multiple late payments and/or rolling 30 day late payments on mortgage payments will be an issue if you are planning on qualifying for a mortgage.

Let’s take a case scenario to better explain the seriousness of late payments on mortgage payments in the past 12 months. Let’s say you are a homeowner and have entered in sales contract to sell your current home and need to qualify for a new mortgage to purchase a new home. However, you had multiple late payments in the past 12 months on the home you just sold.

Bad Credit Versus Late Payments

Borrowers can get an approve/eligible per AUS with prior bad credit such as outstanding collections and charged off accounts. Late payments are alright if they are older than 12 months old. You will have a problem qualifying for a new mortgage for the new home purchase since you had multiple late payments on your mortgage in the past 12 months.

This holds true even though your current mortgage will be paid off when you sell your home. Lenders want to see timely payments on your mortgage for the past 12 months for you to be able to qualify for a new mortgage loan. This holds true even though you have sold your home and paid off your previous mortgage.

Negative Impact Of Late Payments On Credit Report

Any 30-day late payments will report to all three credit bureaus and are considered really bad. Not only do creditors report all 30-day late payments to credit bureaus, but it will also drop your credit scores. A 30-day late payment can drop your credit scores 50 to 80 points. Another consequence of 30-day late payments is the late payment on your credit report will remain on your credit report for a period of seven years from the date of last activity (DLA).

Any recent late payments on your credit report will have consequences in your ability in getting new credit. This holds especially true in getting a new home mortgage. Lenders will carefully review the overall payment history of the mortgage loan applicant. Any late payments reporting on the loan applicant’s credit report will be addressed and may be cause for a mortgage loan denial.

The Importance Of Timely Payments

To qualify for a mortgage, the key is to have timely payments in the past 12 months. This holds especially true if you need to get an approve/eligible per automated underwriting system (AUS). The best way to prepare for a mortgage with recent late payments is to make sure to timely pay all your monthly debt payments. Keep your credit card balances low.

For maximum credit score optimization, keep your credit utilization ratio below 10%. As the late payment date of last activity season, your credit scores will increase. If you only have one or two credit tradelines, try to have a total of 3 to 5 credit cards. Do not apply for unsecured credit cards if your credit scores are under 680 FICO. Get secured credit cards. Secured credit cards are the easiest and fastest way of rebuilding and reestablishing your credit scores.