BREAKING NEWS: Qualifying for FHA loans during coronavirus pandemic mortgage crisis. Gustan Cho Associates is getting countless calls from borrowers who are getting conflicting reports as to qualifying for FHA loans during coronavirus pandemic mortgage crisis. Many are often confused because they are turned down from qualifying for an FHA loan by lenders. Others who are shopping for an FHA loan are getting quoted ridiculously high rates.
Borrowers with good credit scores were getting quoted high mortgage rates and discount points on FHA loans. So what is going on with FHA loans during coronavirus pandemic mortgage crisis?
Did HUD, the parent of FHA, change agency guidelines on FHA loans? The answer is no. HUD did not change any lending guidelines on FHA mortgages. Mortgage companies have implemented a flood of lender overlays on FHA loans due to the mortgage crisis in the secondary market. The mortgage industry is going through a mortgage crisis and changes. Qualifying for FHA loans during coronavirus pandemic mortgage crisis is challenging but not impossible.
FHA Loans During The COVID-19 Pandemic Mortgage Crisis for homebuyers and homeowners:
- Many borrowers are confused about why so many lenders have different credit score requirements on FHA Loans During The COVID-19 Pandemic
- Gustan Cho Associates is getting countless calls daily by borrowers to check on whether or not HUD changed FHA Guidelines on FHA Loans
- HUD is the parent of FHA and sets the minimum agency mortgage guidelines on FHA loans
- HUD had not changed any agency lending guidelines on FHA loans
- It is still the HUD 4000.1 FHA Handbook that lenders need to go by
- Under HUD guidelines, borrowers need a 580 credit score to qualify for a 3.5% down payment FHA loan
- Borrowers can qualify for FHA loans with credit scores down to 500 FICO as long as they get an approve/eligible per automated underwriting system
- However, to qualify for an FHA loan with under 580 FICO, the borrower needs a 10% down payment versus 3.5%
- The coronavirus pandemic has caused turmoil and chaos in the secondary mortgage bond market
Borrowers with under 700 credit scores are facing challenges in qualifying for a mortgage.
Hurdles And Obstacles With Qualifying For FHA Loans During The COVID-19 Pandemic
Investors in the secondary mortgage bond market have no interest nor appetite in buying mortgage of borrowers with under 700 credit scores
- That is why mortgage rates are high for borrowers with under 700 credit scores
- Not only do borrowers get higher mortgage rates but they also need to pay discount points
- When mortgage rates are at historic lows, borrowers with under 700 FICO need to pay high mortgage rates PLUS discount points
- Most lenders have stopped doing FHA loans with under 660 credit scores
- The great news is Gustan Cho Associates have no lender overlays on FHA loans during the COVID-19 pandemic
- Gustan Cho Associates is one of the very few national mortgage companies that still aggressively do FHA and VA loans under 620 credit scores
- Mortgage underwriters are more careful when underwriting a loan
- Lenders do not want to take a chance in not being able to sell their loan on the secondary mortgage bond market after they fund
- Due to extra caution when underwriting a loan, the mortgage process is much longer during the coronavirus pandemic
- Most loans take 45 to 60 days to close
- Many lenders have stopped doing manual underwriting on FHA and VA loans
- Many lenders have suspended doing FHA 203k loans
- Many lenders have stopped doing Reverse Mortgages during the coronavirus pandemic
Secondary Market on FHA Loans During Coronavirus Pandemic
Investors in the secondary market have found any mortgages with borrowers under 640 FICO next to worthless. This is the main reason why lenders have imposed lender overlays on credit scores to higher than 640. Most lenders have imposed minimum credit scores to 660 to 680 FICO PLUS points.
Chase Mortgage just announced today they will no longer accept FHA, VA, USDA loans and all conventional loans need to have 700 FICO and have 20% down payment.
The great news is Gustan Cho Associates Mortgage Group is open for business for borrowers with under 620 credit scores and down to 500 FICO. Gustan Cho Associates still has no lender overlays on government and conventional loans. In this breaking news article, we will discuss and cover qualifying for FHA loans during coronavirus pandemic mortgage crisis.
How The Coronavirus Pandemic Mortgage Crisis Is Affecting The Mortgage Markets
All lenders need to have borrowers meet the minimum HUD agency mortgage guidelines on FHA loans. However, lenders can impose higher lending standards of their own that are above and beyond the minimum HUD Guidelines. Lender overlays can be imposed on credit scores, debt to income ratios, and other risk factors sustained by lenders. The coronavirus pandemic outbreak caused major chaos in the mortgage industry.
The economic crisis due to the economic crisis has tanked Mortgage-Backed Securities (MBS) causing major liquidity issues in the secondary bond market.
Due to the illiquidity issues, the secondary mortgage bond market has altogether stopped buying mortgage bonds on under 640 FICO borrowers. What this means is lenders with mortgage with borrowers with under 640 FICO cannot be packaged up as MBS and cannot be sold in the secondary mortgage bond market. Therefore, most lenders have increased credit score requirements on FHA loans as well as other government and conventional loans.
Typical Lender Overlays on FHA Loans During Coronavirus Pandemic
Lenders came out with lender overlays on credit scores as soon as the mortgage crisis started due to the coronavirus pandemic outbreak. Lenders who had a minimum of 580 credit score requirements have increased credit score guidelines to 660 to 680 FICO literally overnight.
Gustan Cho Associates is originating government loans with under 620 credit scores and down to 500 FICO. Gustan Cho Associates still has no overlays on government and conventional loans.
Not only did lenders increased credit score requirements but they also increased rates plus required discount points to be paid. So in a time when mortgage rates are at an all-time historic low, lenders are charging all-time mortgage rates as well as discount points for borrowers with credit scores under 680 FICO.
Higher Lending Requirements on FHA Loans During Coronavirus Pandemic
Most lenders do not want any borrowers with credit scores under 640 FICO on FHA loans. The good news is Gustan Cho Associates are still catering to borrowers with lower credit scores and still has its no lender overlays policy on government and FHA loans.
Overlays imposed by lenders is they stopped doing FHA 203K loans, reverse mortgages,manual underwriting and one-time FHA and VA construction loans.
Other lenders have halted all down payment assistance mortgage programs until further notice. Non-QM Loans are suspended until further notice. As of today, we do not know whether these overlays imposed by lenders will be permanent or just temporary until the coronavirus pandemic crisis is over.
Agency Mortgage Guidelines Versus Lender Overlays
Why are lenders quoting different credit score requirements on FHA loans?
- FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD)
- HUD is the parent of FHA. HUD is in charge of setting minimum credit score requirements on FHA loans
- The minimum credit score required for a 3.5% percent down payment FHA loan is 580 FICO per HUD Guidelines
- However, lenders can have higher credit score requirements called lender overlays
- Lender overlays are lending requirements set by individual lenders
- Most lenders have overlays on FHA loans
- Examples of overlays are credit scores, debt to income ratios, and other credit and/or income requirements
- All lenders need to meet the minimum HUD guidelines for their borrowers
- However, lenders can impose higher lending standards that are above and beyond those of FHA Guidelines
- This is the reason why many lenders are requiring higher credit scores during the coronavirus pandemic
The good news is Gustan Cho Associates has no lender overlays on FHA loans during the COVID-19 pandemic. We just go off the automated findings of the automated underwriting system.
Mortgage Rates On FHA Loans During The COVID-19 Pandemic
Many borrowers do not understand why mortgage rates are so high. Why are mortgage rates so high when the Central Bank lowered interest rates to zero percent. Besides high mortgage rates, many consumers do not understand why they need to pay discount points. Yet others do not understand why it is so difficult to qualify for an FHA loan during the coronavirus pandemic. Mortgage rates are very low for prime borrowers. Prime borrowers will get the best rates. What is a prime borrower? A prime borrower is a mortgage borrower with at least a 700 credit scores with 20% down payment and/or equity and financing a single-family home. A prime borrower can get a mortgage rate in the low 3.0% percent range with no discount points on a 30-year fixed-rate mortgage. Prime borrowers can get mortgage rates under 3.0% percent on a 15-year fixed-rate mortgage. However, any borrower with under 700 credit scores will get pricing adjustments and get higher rates. Besides higher rates, they may need to pay discount points. The issue is because there is no liquidity in the secondary mortgage bond markets for borrowers with under 700 credit scores. Until the mortgage markets stabilize, mortgage rates are going to be out of sync for lower credit score borrowers. Mortgage rates and terms are expected to stabilize in the coming weeks and months. The key question is when. Once mortgage rates stabilize, we will have a refinance boom. FHA and VA streamline mortgages will be booming again.
Qualifying For FHA Loans During Coronavirus Pandemic With a Lender With No Overlays
Gustan Cho Associates is approving borrowers with lower credit scores and has no lender overlays on government and conventional loans. If you were told you do not qualify for a mortgage due to not meeting a lender’s overlays, please contact us at Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at gcho@gustancho.com.
Until further notice, many lenders have stopped doing manual underwriting until the coronavirus pandemic crisis has been resolved.
We can approve you for an FHA loan with under 620 credit scores during the coronavirus pandemic mortgage crisis. Gustan Cho Associates Mortgage Group is still able to originate and fund government loans with under 620 credit scores and down to 500 FICO. Gustan Cho Associates still has no lender overlays on government and conventional loans.
