Need to close a bad credit mortgage fast

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I found a great deal on a home but I need to close fast or it will be sold to someone else who offered cash. I have bad credit in the past and my score is only 600. Are there lenders who can close this kind of loan and do it quickly? - Cliff, Trenton, N.J.

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Dear Cliff,

You do have a couple of options, depending on your circumstances.

  1. Got the need for speed? Try hard money. If you have a large down payment and don't mind paying through the nose for financing, a hard-money lender (usually a private person or small group of investors) can cut you a check in a matter of days. These people don't really care about your credit rating because they require large down payments -- at least 30 percent -- and can be fairly sure of recouping their investment if you default.
  2. Rebuilding credit? Try FHA. The other option, if your bad credit problems have been resolved and you have started rebuilding your scores (at least two years since a Chapter 7 discharge and three since a foreclosure) is an FHA mortgage. As long as your score is over 580 and you are paying your bills on time, you could be approved for a 96.5 percent loan -- although a bigger down payment increases your chances of loan approval.

Condo properties can slow down FHA approval

If you plan to try FHA, you'll need to be aware that if the property is a condo, it needs to be part of an FHA-approved project. The project could be submitted for approval as part of your loan application, but condo approval often does not happen quickly.

There are two ways these projects may be approved. One is the U.S. Department of Housing and Urban Development (HUD) Review and Approval Process, or HRAP, which can take a long time to obtain. The other route is the Direct Endorsement Lender Review and Approval Process, or DELRAP, for lenders with unconditional Direct Endorsement authority and qualified staff for reviewing and approving condominium projects.

Bottom line: When time is of the essence for FHA condo approval, make sure that you apply with an FHA Direct Lender to save time. Direct Endorsement (DE) lenders must comply with fairly strict guidelines set forth by HUD. These guidelines include HUD's review of the company's experience, sound lending practices, financial strength and overall business conduct.

FHA lender differences explained

Direct Endorsement lenders are allowed to approve and close FHA mortgages. Other lenders can submit FHA loans; they are called Sponsored Third Party lenders. Loans from Sponsored Third Party lenders must be submitted to DE lenders, which then underwrite, approve and fund the loans.

The Direct Endorsement lender is responsible for the correctness of the submissions of its Third Party partners for quality control, auditing, and other details, just like wholesale lenders are on the hook for any mistakes or misrepresentations of the mortgage brokers they work with.

This extra layer of oversight means that loans originated through Third Party lenders generally take longer to close, which matters a lot when you have a strict deadline to meet.

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