Can You Qualify For An FHA Loan With Late Payments

This Article Is About Can You Qualify For An FHA Loan With Late Payments

As most of our readers know, Gustan Cho Associates are experts in FHA mortgage financing. Gustan Cho Associates specialize in FHA, FHA 203K, and especially in FHA manual underwriting scenarios. In this blog, we will detail what an FHA loan is. We will explain and cover when an FHA loan requires a manual underwrite, and how to apply for an FHA loan with Gustan Cho Associates.

Do All Lenders Have The Same FHA Lending Requirements?

Do All Lenders Have The Same FHA Lending Requirements?

There are numerous different types of mortgage financing through the Federal Housing Administration or FHA. All FHA guidelines are overseen by the U.S. Department of Housing and Urban Development or HUD. Currently, HUD is overseen by secretary BEN CARSON. Most guidelines have not changed much with the COVID-19 coronavirus outbreak, many lenders have added additional LENDER OVERLAYS to their FHA mortgage products.

The good news is, Gustan Cho Associates still have investors who do not have added lender overlays. This allows us to help more clients than most banks and lenders when it comes to FHA financing. Not all lenders have the same lending requirements on FHA loans. Just because one lender says you cannot qualify does not mean you cannot qualify with a different lender that has no lender overlays.

The Importance Of Credit History

When you are looking into obtaining a mortgage loan, credit history is incredibly important. If you have missed payments in the past 12 or 24 months, it does not necessarily disqualify you from obtaining an FHA mortgage loan. Ideally, we do not want to have any late payments. The higher the credit score, the lower your interest rate will be. It is a fact you will save money with a higher credit score over the life of the loan. However, if your credit score is lower than you would like, obtaining a mortgage is a great way to raise your credit score.

Once your credit score is raised, you can always refinance your FHA mortgage loan into a lower interest rate, depending on market conditions. Having a mortgage report to your credit report (with ON-TIME payments) will increase your credit score.

Can You Qualify For An FHA Loan With Late Payments: Automated Underwriting System

When late payments are present on your credit report, your lender will run your file through an automated underwriting system abbreviated AUS. After your loan officer has a complete file, they can complete the automated underwriting portion. During the automated underwriting, you will either receive an automated approval, downgrade to a manual underwrite, or simply do not qualify at this time.

If you receive an automated approval, that means that the file fits FHA guidelines for late payments, asset requirements, and credit score. If you need to be downgraded to a manual underwrite, Gustan Cho Associates are here to help. Please see our AUS BLOG for more details on the automated underwriting process.

FHA Manual Underwriting With Prior Late Payments

What does FHA's manual insurance mean with advance late payments

FHA manual underwriting with late payments in the past. If your file receives a manual recommendation (refer/ eligible), an underwriter will comb through your past 24 months of payment history for all installment and housing payments. They will only go back 12 months for all revolving credit card and collection accounts.

You are allowed to have a few late payments sprinkled throughout your credit report and still obtain a manually underwritten FHA mortgage. For installment and housing debts, you may not have any late payments in the past 12 months. FHA manual underwriting requirements to allow up to 2 – 30 day late payments between the months 13 and 24. Meaning assuming your late payments on installment or housing debts are at least 12 months old, you are allowed to slip up in the year previous.

The guidelines are slightly looser when it comes to revolving credit card debt. You are allowed up to 3 – 60 day late payments or 1 – 90 day late payments in the past 12 months. Any more than 3- 60 OR 1 – 90 day late payments, will be a hard stop for manual underwriting. Manual underwriting also takes collection accounts into account. You may not have had any non-medical collections in the past 12 months. As long as the collection account is 12 months or greater, 5% of the total balance will be used as a monthly payment against your debt to income ratio.

Can You Qualify For An FHA Loan With Late Payments: Case Scenario

Let’s take a case scenario:


  • Let’s say a borrower has a non-medical collection account from June 2017 totaling $2,150
  • $2,150 * 5% = $107.50 will be counted as a monthly payment against your debt to income ratio
  • You may have recent medical collections as HUD guidelines overlook any collection that is deemed medical

Unfortunately, a medical collection will still impact your credit score which can hinder your qualifications.

Increased Lender Overlays Due To The Coronavirus Outbreak

Many lenders stopped completing FHA manual underwriting at the beginning of the COVID-19 coronavirus outbreak.

  • At this time, many lenders added higher credit score requirements than HUD guidelines
  • These overlays are common throughout the industry but we do not have any overlays to get in your way
  • We are here to help with any FHA mortgage-related questions

For questions or clarification please call Mike Gracz and 630-659-7644. You may also email your questions directly to [email protected]

Mortgage Process At Gustan Cho Associates

How is the mortgage process at Gustan Cho Associates

Applying for an FHA mortgage loan with Gustan Cho Associates is a streamlined process.

  • The first step is to call Mike Gracz on 630-659-7644
  • After a brief mortgage consultation, Mike will pair you with a licensed loan officer in your state
  • You will be sent an application link to complete online
  • This application will contain all of your personal information required to obtain an FHA mortgage loan
  • You will need to send an income and asset documentation

Documents Required To Start Loan Process

Some common documents you want together are:

  • Last 30 Days Pay Stubs
  • Last Two Years W2’S
  •  Last Two Years Tax Returns
  • Driver’s License
  • Last 60 Days Bank Statements – to source money for the down payment

Once your loan officer receives the documentation, they are then able to complete your mortgage pre-approval. They will reverse engineer your income and asset documentation to show exactly what you qualify for. When you receive your qualifications, it is imperative you stay within your monthly housing budget. Owning a home could have additional costs that are not associated with renting.

Such as, you could have a water heater or a furnace go out and you are not responsible for that repair. If you have been renting in the past, your landlord needs to pick up that bill. When you own a home, you no longer have that luxury. It is imperative to stay within your budget.

We look forward to hearing from you and your family with any FHA mortgage-related questions. The team at  Gustan Cho Associates is available seven days a week. Feel free to give Mike Gracz a call on 630-659-7644

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