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Chicago FHA Loans With Bad Credit Mortgage Guidelines

Chicago FHA Loans With Bad Credit Mortgage Guidelines

This BLOG On Chicago FHA Loans With Bad Credit Mortgage Guidelines Was UPDATED On March 11th, 2019

FHA Loans are the most popular loan programs we have in this country and enable hard-working Americans eligible to be homeowners.

  • The minimum down payment required is 3.5%
  • Home sellers can contribute up to 6% of home buyer’s closing costs
  • Minimum credit scores of 580 FICO to qualify for 3.5% down payment FHA home purchase loan in Chicago and Illinois
  • Outstanding collections and charge off accounts do not have to be paid off
  • FHA Loan Limits for single family homes is $365,700 in Chicago and surrounding counties
  • Down payment can be 100% gifted
  • Home buyers with 500 to 579 credit scores can qualify for FHA Loans with 10% down
  • Debt To Income Ratio caps at 56.9% for borrowers with 620 credit scores or higher: Less than 620 FICO, 43% DTI
  • Gustan Cho Associates specializes in helping borrowers with Chicago FHA Loans With Bad Credit and no overlays

Chicago FHA Loans Requirements

Before approving a loan, the mortgage underwriter will be analyzing the credit payment history of the borrower.

  • Most realize that there are minimum credit score requirements to qualify for Chicago FHA Loans
  • However, just meeting the minimum credit score is not sufficient
  • The Automated Underwriting System would not have given the borrower an approve/eligible if the borrower was not creditworthy
  • Underwriters will just go over the overall credit history of the borrower and make sure that the borrower has a history of paying their bills
  • HUD Guidelines are very lenient but want to see that borrowers had demonstrated financial responsibility
  • Past performance on timely payments is a good indicator that they will be paying their mortgage payments timely

The following is a list of items concerning the borrower’s credit

QUALIFYING FOR CHICAGO FHA LOANS WITH NO CREDIT HISTORY

  • Credit tradelines are not required to get approved for Chicago FHA Loans
  • However, three credit tradelines with at least 12 months seasoning is a good sign
  • Borrowers with no credit history, non-traditional credit tradelines can be used
  • Those without any credit tradelines should get themselves three to five secured credit cards to start re-establishing their credit

QUALIFYING FOR CHICAGO FHA LOANS DURING AND AFTER CHAPTER 13 BANKRUPTCY

Here are FHA Guidelines During And After Chapter 13 Bankruptcy:

  • Under HUD Guidelines, borrowers can qualify for FHA Loans during a Chapter 13 Bankruptcy one year into their payment period
  • Mortgage applicants need to show that they have been paying on time and have made at least 12 payments to their creditors
  • Loan applicants need to get the approval of the Chapter 13 Bankruptcy Trustee which is not an issue most of the time
  • A detailed letter of explanation of the Chapter 13 Bankruptcy is required with the mortgage application for the underwriter
  • The following will be compensating factors for borrowers qualifying for FHA During And After Chapter 13 Bankruptcy:
    • Reserves
    • Credit tradelines of on-time payments
    • No gift funds and own funds for down payment
    • Proof of job stability
    • Other income such as part-time income not used in qualification
    • Low payment shock
    • Low debt to income ratio
    • Larger down payment are compensating factors that show solid credibility for borrowers
  • All FHA Chapter 13 Bankruptcy files need to be manually underwritten.
  • Manual underwrites require verification of rent.

CHAPTER 7 BANKRUPTCY

Here are the HUD Guidelines On Chicago FHA Loans After Chapter 7 Bankruptcy:

  • There is a two year waiting period after the discharged date of a Chapter 7 Bankruptcy
  • No late payments after bankruptcy and re-established credit
  • Minimum credit scores required is 580 

LATE PAYMENTS

Here are the rules on late payments to qualify for Chicago FHA Loans:

  • Timely payments in the past 12 months
  • No late payments after bankruptcy, deed in lieu of foreclosure, foreclosure, and short sale
  • Gustan Cho Associates Mortgage Group has no overlays
  • As long as borrower gets an approve/eligible per Automated Underwriting System Findings with late payments after bankruptcy and foreclosure, we can do the FHA Loan
  • No late payments on all manual underwriting

QUALIFYING FOR CHICAGO FHA LOANS AFTER FORECLOSURE

Here are the requirements to qualify for Chicago FHA Loans After Foreclosure:

  • Borrowers can qualify for Chicago FHA Loans three years after the recorded date and/or sheriff’s sale date after the deed in lieu of foreclosure and/or foreclosure
  • Borrowers can qualify for Chicago FHA Loans three years after the short sale date reflected on the HUD-1 Settlement Statement, now the new CD, or Closing Disclosure
  • No late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • One or two late payments after bankruptcy and/or housing event is not a deal killer

CAN I QUALIFY FOR CHICAGO FHA LOANS WITH COLLECTIONS, JUDGMENTS AND FEDERAL DEBTS?

FHA does not require borrowers to pay outstanding collections and charge offs to qualify for Chicago FHA Loans.

Here are the HUD Guidelines with regards to Collections, Charge Offs, Judgments, and Federal Debts:

  • Collections and charge offs do not have to be paid
  • Medical collections and zero balance non-medical collection accounts are exempt from DTI Calculations
  • Non-Medical outstanding collections with greater than $2,000 total balance, 5% of the outstanding collection account will be used for DTI calculation purposes
  • If the 5% of the outstanding collection accounts is too much and will disqualify the borrower, the borrower can negotiate a written payment agreement with the creditor and use the figure agreed upon in lieu of the 5% 
  • Borrowers can qualify for Chicago FHA Loans with outstanding judgments and federal debts such as tax liens
  • However, a written payment agreement needs to be in effect and three months of payments need to be made

Home Buyers and/or Homeowners who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and/or conventional loans can contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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