FHA Credit Guidelines For 2016
FHA Credit Guidelines Explained:
Home Buyers seeking to qualify for FHA Loans needs to meet FHA Credit Guidelines. FHA Credit Guidelines are much more lenient than Fannie Mae and Freddie Mac Guidelines on Conventional Loans. Just meeting the minimum credit scores required by FHA does not mean that FHA borrowers meet FHA Credit Guidelines. There are many factors involved with meeting FHA Credit Guidelines with regards to credit, credit scores, credit payment history, outstanding collection accounts, charge off accounts, judgments, bankruptcies, foreclosures, deed in lieu of foreclosures, short sales, tax liens, and late payments. Home Buyers with prior bad credit and low credit scores can still qualify for FHA Loans, however, they must meet FHA Credit Guidelines. Home Buyers with bad credit also needs to meet the mortgage lender’s overlays. Mortgage lender overlays are specific additional mortgage lending guidelines that a mortgage lender imposes in addition to the minimum FHA Credit Guidelines. Just because you meet FHA Credit Guidelines does not mean you are home free with securing a FHA Loan because depending on which lender you go to, they may have additional mortgage lending requirements. If you have bad credit and prior credit issues, you should consult with a mortgage lender who has no lender overlays, such as myself. We do not have any mortgage lender overlays and just go off the federal minimum mortgage lending guidelines on FHA Loans, VA Loans, USDA Loans, and Conventional Loans.
FHA Credit Guidelines On Bankruptcy And Foreclosure
Home Buyers with a prior bankruptcy and/or foreclosure or short sale must meet minimum waiting period requirements to qualify for a FHA Loan. FHA requires a minimum 2 year waiting period after a Chapter 7 Bankruptcy discharge date in order for a borrower to be eligible to qualify for a FHA Loan.
Home Buyers who have filed a Chapter 13 Bankruptcy can be eligible to qualify for a FHA Loan one year into the Chapter 13 Bankruptcy repayment period with the approval of the Chapter 13 Bankruptcy Trustee. 12 months of on time payments needs to be provided and no late payments are allowed in order to qualify for a FHA Loan. Home Buyers who had a Chapter 13 Bankruptcy discharged can qualify the day after the Chapter 13 Bankruptcy discharge date and there are no waiting period after the Chapter 13 Bankruptcy discharge date. Any FHA mortgage loan applications after Chapter 13 Bankruptcy that has not been two years after the Chapter 13 Bankruptcy discharged date are all manual underwriting and manual underwriting guidelines applies. FHA Credit Guidelines on manual underwrites requires verification of rent which is only valid if the renter can provide 12 months canceled checks where the renter has paid to the landlord. If the renter is renting their home or apartment from a registered property management company, then a VOR provided by the mortgage lender and completed by the property management company property manager can be used in lieu of canceled checks.
There is a three year waiting period to qualify for a FHA Loan after the recorded date of a foreclosure and/or deed in lieu of foreclosure. There is a three year waiting period after a short sale to qualify for a FHA Loan.
FHA Credit Guidelines On Credit Scores
To qualify for a 3.5% down payment home purchase FHA Loan, you need at least a 580 FICO credit score. However, if your credit scores are below 620 FICO, then the borrower’s debt to income ratios are capped at 43% DTI. If the borrower has credit scores of 620 FICO or higher, then the debt to income ratio caps are capped at 56.9% DTI.
FHA Credit Guidelines On Outstanding Collection Accounts And Charge Offs
FHA allows for FHA Borrowers to qualify for FHA Loans with outstanding unpaid collection accounts without having to pay them off. FHA classifies collection accounts into three categories. Medical collections, charge offs, and non-medical collection accounts. Medical collection accounts and charge off accounts are exempt from debt to income ratio calculations. However, non-medical collection accounts with outstanding unpaid collection balances are counted in debt to income calculations even though no monthly payments need to be paid. If the borrower has a total of $2,000 or more in outstanding non-medical collection account balance, then 5% of the unpaid outstanding collection account balance is counted as a monthly expense and counted in debt to income ratio calculations.
FHA Credit Guidelines On Credit Disputes
There are strict FHA Credit Guidelines on credit disputes. You cannot have any credit disputes on charge off accounts. You cannot have any credit disputes on non-medical collection accounts with a total aggregate unpaid collection account balance of $1,000 or greater. You can have credit disputes on medical collection accounts no matter how large the unpaid outstanding medical collection account balance is. You are allowed to have credit disputes on non-medical collection accounts if the collection accounts show zero credit balance.