Qualifying For Chicago FHA Loans With Bad Credit

This BLOG On Qualifying For Chicago FHA Loans With Bad Credit Was UPDATED On March 26, 2017

FHA Loans are the most popular loan programs we have in this country and enables 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
  • Chicago FHA Loan Limits for single family homes is $365,700
  • Down payment can be 100% gifted
  • Home buyers with 500 to 579 FICO credit scores can qualify for FHA Loans Chicago 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
  • The Gustan Cho Team specializes in helping borrowers with Chicago FHA Loans With Bad Credit and no lender 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 credit worthy. 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 is 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 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.
  • 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, and 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 a bankruptcy and re-established credit.
  • Minimum credit scores required is 580 FICO.

LATE PAYMENTS

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

  • Timely payments in past 12 months
  • No late payments after bankruptcy, deed in lieu of foreclosure, foreclosure, and short sale
  • The Gustan Cho Team at Nationwide Mortgage & Realty LLC has no overlays and as long as you get an approve/eligible per Automated Underwriting System Findings with lates 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.

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 needs to be made.
The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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