FHA Guidelines on Late Payments After Bankruptcy

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In this blog, we will cover and discuss FHA guidelines on late payments after bankruptcy. Borrowers are often confused with FHA guidelines on late payments after bankruptcy due to being turned down for an FHA Loan if they have late payments after bankruptcy. Recent late payments in the past 12 months are not good. You can have prior bad credit and qualify for a mortgage. This holds true as long as you have timely payments in the past 12 months.

You can have unpaid collections and charged-off accounts and not have to pay them and still qualify for a mortgage. This holds true as long as you have timely payments in the past 12 months. In the following paragraphs, we will cover and discuss the FHA guidelines on late payments after bankruptcy.

Can You Qualify For a Mortgage After Bankruptcy and Foreclosure?

Even if you’ve experienced bankruptcy, foreclosure, deed instead of foreclosure, or a short sale, you can still qualify for a mortgage under the FHA guidelines on late payments after bankruptcy. This remains valid as long as you have rebuilt and reestablished credit after bankruptcy and the housing event.

According to FHA guidelines on late payments after bankruptcy, having one or two late payments within the past 12 months can be challenging. If you’ve managed multiple credit tradelines responsibly and have generally been timely with your debt payments, a few late payments may not hinder your chances of receiving an AUS Approval. Qualify for a Mortgage after bankruptcy and foreclosure

How Do Mortgage Underwriters View Recent Late Payments?

Recent late payments within the past 12 months are typically not well-received by lenders, especially in light of FHA guidelines on late payments after bankruptcy. Most lenders generally disapprove of Late payments after bankruptcy and foreclosure, aligning with FHA guidelines on late payments after bankruptcy and foreclosure.

Gustan Cho Associates operates as a licensed mortgage broker in 48 states and has built a national reputation for facilitating mortgage loans that other lenders may need help to accommodate, even within the parameters of FHA guidelines on late payments after bankruptcy. More than 75% of our clients face challenges such as lender overlays, stress, last-minute loan denials, or limited mortgage products.

At Gustan Cho Associates, we specialize in offering mortgage solutions that are feasible and competitive, adhering closely to FHA guidelines on late payments after bankruptcy. In addition to government and conventional loans without lender overlays, we provide a wide array of non-prime mortgage programs, including non-QM and non-prime mortgages.

Our team at Gustan Cho Associates has a proven track record of assisting numerous borrowers in obtaining approval and successfully closing their home mortgages, even in cases involving recent late payments and late payments after bankruptcy, all while staying compliant with FHA guidelines.

What is the Waiting Period for a Conventional Bankruptcy?

The length of time one has to wait to be eligible for a conventional mortgage after filing for bankruptcy can differ based on the type of bankruptcy filed and the criteria set by the lender. Here are some general guidelines:

1. Chapter 7 Bankruptcy: Typically, for a Chapter 7 bankruptcy, the waiting period before you can file again is four years from the date of discharge or dismissal of the previous bankruptcy. During this time, you cannot receive a discharge of debts. However, some lenders may offer exceptions with a shorter waiting period, such as two years, if certain extenuating circumstances can be demonstrated.
2. Chapter 13 Bankruptcy: Under Chapter 13 bankruptcy, debts are restructured, and a repayment plan is established. The waiting period is usually two years from the date of discharge or four years from the date of dismissal. However, borrowers may qualify for a conventional mortgage while still in Chapter 13 bankruptcy if they have made satisfactory payments for at least one year and receive approval from the bankruptcy court.
3. Foreclosure: If there was a foreclosure as part of the bankruptcy, additional waiting periods may apply. You normally have to wait for seven years from the completion date of the foreclosure action following a foreclosure.

It’s important to emphasize that these are general FHA guidelines on late payments after bankruptcy, and individual lenders may have specific requirements and criteria. Borrowers who have previously filed for bankruptcy may encounter stricter lending terms and potentially higher interest rates than those with a clean credit history.

For personalized advice according to your financial position and the lender’s policies, it is recommended to consult with a mortgage lender or advisor who is well-versed in FHA guidelines on late payments after bankruptcy.

How Lenders View Recent Late Payments After Bankruptcy

Late payments after bankruptcy are really frowned upon by lenders. However, recent late payments and late payments after bankruptcy are not always deal killers. Most lenders will not approve borrowers with recent late payments and late payments after bankruptcy. This holds true even though borrowers get an approve/eligible per automated underwriting system (AUS).

What Are Compensating Factors in Mortgage?

It is possible for borrowers with strong compensating factors to get approve/eligible per an automated underwriting system (AUS) with recent late payments and late payments after bankruptcy. However, most lenders will have lender overlays on late payments in the past 12 months and late payments after bankruptcy and foreclosure.

What Are Lender Overlays?

Lender overlays are additional lending requirements above and beyond the minimum agency mortgage guidelines. All lenders need to have their borrowers meet the minimum agency guidelines of FHA, VA, USDA, Fannie Mae, and Freddie Mac.

Lenders can have higher lending requirements called lender overlays. Gustan Cho Associates is one of the very few mortgage companies with no lender overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays. Click here to find the lender for Mortgage

Late Payments After Bankruptcy and Foreclosure

Many of our borrowers at Gustan Cho Associates were told they were denied by other lenders even though they got approve/eligible per the automated underwriting system (AUS). Most lenders do not want any borrowers with late payments after bankruptcy and/or a housing event. A housing event is a prior foreclosure, deed in lieu of foreclosure, or short sale. This holds true even though the borrower gets an automated underwriting system approval.

Lender Overlays By Mortgage Companies

These lenders with overlays consider borrowers with late payments after bankruptcy and/or a housing event as second offenders. However, extenuating circumstances do happen after bankruptcy and/or a housing event. At Gustan Cho Associates understand fully people can always go through a hard time. Many times, it is beyond the control of a person when things do not go well even though the person is responsible and want to do the right thing.

Reasons For Bad Credit From Homebuyers

People can get laid off and/or fired after bankruptcy and/or a housing event and get behind on their bills. There is no guarantee a person will not lose their jobs and/or have an interruption of their income stream after bankruptcy and/or foreclosure. At Gustan Cho Associates, we help countless folks with recent late payments and late payments after bankruptcy and/or foreclosure qualify for home loans.

Qualifying For an FHA Loan With Late Payments

HUD, the parent of FHA, has the most lenient agency guidelines when it comes to recent late payments and late payments after bankruptcy. Nothing on FHA Guidelines on Late Payments After Bankruptcy state that borrowers cannot qualify for FHA Loans with late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Most lenders will automatically disqualify borrowers if they have any late payments after bankruptcy, short sale, deed in lieu, or foreclosure.

Late payments after bankruptcy and foreclosure are frowned upon by lenders as well as the Automated Underwriting System. However, as long as mortgage applicants can get approve/eligible per Automated Underwriting System, they should have no problem qualifying for FHA Loans with lenders with no overlays.

Does FHA Allow Paying Off Revolving Debt to Qualify?

Yes, the Federal Housing Administration (FHA) allows borrowers to pay off revolving debt to qualify for a mortgage. Reducing revolving debt can improve a borrower’s debt-to-income (DTI) ratio, an important factor in mortgage approval. Lenders who offer FHA loans usually consider a borrower’s Debt-to-Income (DTI) ratio to evaluate their capacity to handle monthly mortgage payments and current debts.

Lowering revolving debt can lower the DTI ratio, making qualifying for an FHA loan easier. However, it’s essential to consult with a lender or mortgage advisor for specific guidance tailored to your financial situation and the requirements of the FHA loan program.

Mortgage Lenders For Bad Credit With No Overlays

Gustan Cho Associates has no lender overlays on government and conventional loans. Government loans are mortgage loans insured and guaranteed by the government. Lenders originate and fund government loans with lower down payment requirements or no down payments by borrowers at competitive mortgage rates due to the government guarantee. In the event, that the borrower default and/or forecloses on government loans, the government agency will insure and partially guarantee the loss sustained by the lender.

What Are Government-Backed Loans

Government-backed mortgages are home loans issued by private lenders but guaranteed and partially insured by a government agency.

Lenders are more than eager to originate and fund government loans with low or no down payment for borrowers with less than perfect credit at great rates due to the government guarantee. Government loans have much more lenient mortgage guidelines than conventional loans. 

What Are The Three Government-Backed Mortgage Loans?

The following are government-insured mortgage loans:

• FHA Loans 
• VA Loans
• USDA Loans

Government loans are one of the most popular loan programs in the United States. 

Can I Qualify For FHA Loans With Late Payments After Bankruptcy

Many home buyers think that just because they have bad credit and outstanding collections they do not qualify for a mortgage loan.  This is absolutely not the case. Most banks do not want to touch any mortgage loan borrower with open collections or bad credit.

There are many lenders that will grant a mortgage loan approval with open collections or bad credit if the open collections and bad credit have been aged. By age, we are talking more than 12 months. The older the open collections accounts and bad credit is, the less impact they will have on the borrowers’ credit scores. Therefore the less impact on the mortgage underwriting processes.

Get New Credit To Offset Bad Credit and Open Collections

When a mortgage lender underwrites a borrower’s mortgage loan application, the underwriter will see when the date of the last activity was on open collections accounts and late payments.

As long as the outstanding collections, late payments, charge-offs, and other bad credit items have been isolated to a certain time period and limited to that time period, it is possible for approval. Borrowers should have re-established credit after a period of bad credit. Talk to us for Mortgage Loans with bad credit

How Do You Rebuild Credit After Late Payments?

With multiple timely payments after late payments, borrowers should have no problem getting mortgage approval. However, borrowers who have a history of late payments and open collections throughout the years that shows that they are financially irresponsible will have a hard time getting a mortgage loan approval.

For borrowers who go through a period of financial hardship such as a job loss, divorce, or medical problems and it resulted in getting their credit bruised the best remedy is to start re-establishing credit by getting new credit. Start developing a good payment history by adding new credit: Secured Credit Cards are the best tools for reestablishing credit.

Obtaining New Credit With Bad Credit

This is a great question and dilemma most folks with bad credit and open collections have. How can one get new credit and reestablish new credit with low credit scores? The best route to take is to get secured credit cards.

Secured credit cards are like regular credit cards. But consumers need to put a deposit down with the credit card company. The secured credit card company will give the same amount of credit on the amount of money cardholders deposit with them.

How Do I Use Secured Credit Cards To Increase My Scores For a Mortgage?

For example, by putting a $500 deposit with the secured credit card company, the secured credit card company will get the cardholder a $500 secured credit card limit. I strongly recommend at least 3 secured credit cards with $500 credit limits.

Each one of these secured credit cards will boost credit scores by a least 20 to 40 points. Credit scores will gradually increase as the cardholder develops timely payment history with these secured credit card companies. Make sure they report to all three major credit reporting agencies.

Re-Establishing Credit After Bankruptcy and Foreclosure

I get countless calls from home buyers who cannot qualify for FHA loans because they have a late payment or open collections after bankruptcy and/or foreclosure. Again, FHA guidelines on late payments After Bankruptcy do not automatically disqualify borrowers with late payments. As long as borrowers can get approve/eligible,

Gustan Cho Associates can proceed with the FHA Loan Process. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. A letter of explanation with documented facts and reasoning behind late payments after Bankruptcy and/or Foreclosure will be required.

Qualifying For FHA Loans With Late Payments After Bankruptcy

Home Buyers who were told that they do not qualify for FHA loans with late payments after bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure, please contact us at Gustan Cho Associates at 800-900-8569 or text for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

FAQ: FHA Guidelines on Late Payments After Bankruptcy

• 1. Is it possible for me to be eligible for an FHA loan even after experiencing bankruptcy and foreclosure? Yes, you can still qualify for an FHA loan even if you’ve experienced bankruptcy, foreclosure, a deed instead of foreclosure, or a short sale. However, rebuilding and reestablishing credit after these events is essential.

• 2. How do mortgage underwriters view recent late payments? Recent late payments, especially within the past 12 months, are typically viewed unfavorably by lenders. Late payments after bankruptcy or foreclosure are particularly frowned upon.

• 3. What are compensating factors in mortgage lending? Compensating factors are positive attributes or circumstances that can offset negative aspects of a borrower’s financial profile. Strong compensating factors can increase your chances of mortgage approval, even with recent late payments.

• 4. What are lender overlays? Lender overlays are additional lending requirements that exceed the minimum agency mortgage guidelines imposed by individual lenders. While all lenders must adhere to agency guidelines, some may have stricter requirements, known as overlays.

• 5. How do lenders view late payments after bankruptcy and foreclosure? Late payments after bankruptcy and foreclosure are generally viewed negatively by lenders and automated underwriting systems (AUS). However, borrowers with strong compensating factors may still be considered for approval.

• 6. How can I rebuild credit after late payments? Rebuilding credit after late payments involves establishing a positive history, such as obtaining secured credit cards and making timely payments. Consistently demonstrating responsible credit management can gradually improve credit scores.

• 7. Can I get an FHA loan if I’ve had late payments after bankruptcy? While recent late payments are discouraged, FHA guidelines do not automatically disqualify borrowers with late payments after bankruptcy. Meeting the requirements of an automated underwriting system (AUS) is crucial for approval.

• 8. How can I apply for an FHA loan with late payments after bankruptcy? To explore FHA loan options despite late payments after bankruptcy, contact Gustan Cho Associates. We offer mortgage solutions with minimal lender overlays, helping borrowers achieve homeownership goals despite past credit challenges.

This blog about the FHA Guidelines on Late Payments After Bankruptcy was updated on March 27th, 2024.

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