Buying A House With A FHA Loan Versus Conventional Mortgage

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Buying A House With A FHA Loan Versus Conventional Mortgage

This BLOG On Buying A House With A FHA Loan Versus Conventional Mortgage Was PUBLISHED On July 10th, 2019

Buying A House With A FHA Loan Versus Conventional Mortgage

Advantages Of Buying A House With A FHA Loan Versus Conventional Loans

There are many benefits with buying a house with an FHA Loan. Many home buyers often have many questions about mortgage loan programs once they make up their mind to become home buyers.

  • Two of the most popular mortgage loan programs available to home buyers, especially first time home buyers, are FHA and Conventional Loans
  • Buying A House With A FHA Loan is more advantageous versus Conventional Loan because FHA Loans have much more lenient credit and debt to income ratio requirements
  • HUD, the parent of FHA, requires a minimum credit score of 580 credit score for home buyers
  • Conventional Loans require a minimum of 620 FICO credit scores for home buyers

In this blog, we will discuss Buying A House With A FHA Loan Versus Conventional Mortgage.

FHA Versus Conventional Loans

FHA Versus Conventional Loans

HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration or FHA and sets the Mortgage Guidelines for all FHA loans.

  • Fannie Mae and Freddie Mac are the two mortgage giants in the United States that set the mortgage lending standards for Conventional Loans
  • Conventional Loans are also called Conforming Loans
  • This is because they need to Conform to Fannie Mae and/or Freddie Mac conventional mortgage lending guidelines
  • Buying A House With A FHA Loan is highly recommended for home buyers who had prior credit issues such as the following:
    • prior bankruptcy
    • foreclosure
    • deed in lieu of foreclosure
    • short sale
    • collection accounts
    • tax liens
    • charge off accounts
    • late payment history
    • higher debt to income ratios
    • late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale

FHA is way more lenient with borrowers with less than perfect credit, high debt to income ratios, and gaps in employment.

Buying A House With A FHA Loan With Prior Bad Credit

Buying A House With A FHA Loan With Prior Bad Credit

HUD understands that borrower may have had prior bad credit due to unemployment, loss of business, medical reasons, divorce, or other extenuating circumstances:

  • Many people will experience the flow of their income get interrupted where it affected them not to be able to make their monthly debt payments on time where it affected their credit
  • FHA does not require borrowers to pay off outstanding unpaid collection accounts with balances and/or charge off accounts
  • Borrowers can still qualify for an FHA Loan without having to pay off any outstanding collection accounts
  • There are lenders who will require borrowers to pay off outstanding unpaid collection accounts in order for them to qualify for an FHA Loan with their lending institution
  • However, this is not an FHA Guidelines On Collection Accounts
  • HUD does not require borrowers to pay off outstanding unpaid collection accounts
  • If lenders require to pay off outstanding collection accounts or charge off accounts, it is due to the individual lender’s own internal mortgage lender overlays

Lender Overlays are each individual lender’s own lending requirements that are on top of the FHA mortgage lending guidelines.

Buying A House With A FHA Loan With Outstanding Collections And Late Payments

Buying A House With A FHA Loan With Outstanding Collections And Late Payments

HUD does understand Borrowers that went through financial hard times and have bad credit and lower credit scores as well as outstanding unpaid collection accounts as well as charged off accounts.

  • However, having prior bad credit and outstanding unpaid collection accounts and charge off accounts in the past is different than having recent bad credit and recent late payments
  • HUD wants to see that all borrowers have been timely with all of their monthly debt payments in the past 12 months
  • HUD really frown upon the fact if Borrowers has had late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale

Buying A House With A FHA Loan: Bankruptcy And Foreclosure

Buying A House With A FHA Loan: Bankruptcy And Foreclosure

Home buyers who had a prior bankruptcy and/or foreclosure can become eligible to purchase a home with an FHA Loan two years after a bankruptcy:

  • The waiting period is three years after a foreclosure, deed in lieu of foreclosure, or short sale with re-established credit to qualify for FHA Loans
  • Again, minimum credit scores to qualify for an FHA Loan after bankruptcy and foreclosure is 580 credit scores
  • 3.5% down payment is required
  • Lenders do not want to see any late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
  • Re-established credit is required
  • Lenders want to see timely payments in the past 12 months

Buying A House With A FHA Loan: FHA Loan After Chapter 13 Bankruptcy

Buying A House With A FHA Loan: Bankruptcy And Foreclosure

There is no waiting period to qualify for an FHA Loan after a Chapter 13 Bankruptcy discharged date.

  • However, if the Chapter 13 Bankruptcy discharge has not been discharged for at least 2 years, then all FHA Loans after a Chapter 13 Bankruptcy discharge are all manual underwriting
  • All manual underwriting FHA Loans require verification of rent
  • Verification of Rent is only valid if the renter can provide 12 months of timely canceled checks and/or 12 months timely online bank statements payments to the landlord

Getting Started With Buying A House With A FHA Loan

Getting Started With Buying A House With A FHA Loan

Buying A House With A FHA Loan is very simple. A loan officer will go over the credit report, credit scores, credit payment history, your two years tax returns, two years W2s, most recent paycheck stubs, bank statements, and will run the mortgage loan application to the Automated Underwriting System for automated approval. Gustan Cho Associates at Loan Cabin Inc. are national direct lenders with no overlays on FHA Loans. With being a no overlay direct lender, as you have an automated approval per Automated Underwriting System and you can meet all the conditions, you should have no problem in closing on your FHA home loan on time. If you are in need of a pre-approval, please contact our Team at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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