REJECTED FOR A MORTGAGE BECAUSE OF UNSATISFACTORY CREDIT?

Nothing foils a mortgage application quicker than a credit report showing a history of late payments, past dues, bills sent for collection, or bankruptcy. Still some red flags loom larger than others.

Certain experts say that "medical collections are not a big deal as long as you can support a letter of correction. Student loans are kind of a biggie. Underwriters are concerned with those unless it was just an initial payment missed."

The experts also state "anything in the past 12 months is significant. Prior to that, if you can write a good explanation letter, there should not be a problem. The explanation is vital. It can't be, 'I missed a payment because I was sick'. It should give some detail and history".

Mortgage lenders are especially sensitive to negative marks that have to do with mortgages, particularly foreclosure and late payments made 16 days after the due date. Most lenders will reject applications if they have more than two late mortgage payments within the last 12 months.

Severe black marks, such as foreclosures, vehicle repossessions or charge offs by creditors who have given up on collecting a debt owed, will likely disqualify a person for a mortgage, particularly if they've happened in the last two years. Likewise for liens or severe problems with the IRS. One mortgage broker commented "they're the kiss of death"

Is there a solution? This is an area where working with a mortgage broker may be your best bet. Not only are brokers used to helping clients deal with credit problems, their ability to shop your loan can help find a mortgage source that is willing to take more risk than typical lenders. However, you may have to pay a higher interest rates -- 2-3 percent points higher -- for a nonconforming-loan. Or you may be required to come up with a larger down payment.

One expert said, "There is a lot more flexibility than there used to be" Certain lenders actually specialize in loans for getting people out of foreclosure.

A banking expert indicated that there are few rejections that can't be resolved. "As long as the buyer really wants to do it and is willing to pursue all options, where there is a will, there is still a way."

The bottom line is that systematically reducing debts will improve a credit rating!