The team at Gustan Cho Associates (GCA Mortgage) powered by NEXA Mortgage, LLC, has created this detailed comprehensive FHA home loans FAQs Mortgage Guide. In this guide, you will find every aspect of qualifying and getting approved for FHA home loans in a user-friendly format. We will touch on the fact that not all lenders have the same lending requirements on FHA loans. You will also understand why Gustan Cho Associates can do loans other lenders can’t do. This guide on FHA home loans frequently asked questions home buyers guide is for mortgage borrowers, loan officers, and realtors. It covers everything from what an FHA loan is, to every detail on agency HUD guidelines, lender overlays, and whether you can qualify for an FHA loan when other mortgage companies have denied you.

Read More on Bad Credit Mortgage Options

In this article (Skip to…)

What Are FHA Home Loans?

FHA home loans are home loans originated and funded by private lenders but insured by HUD, which is the parent of FHA. Private mortgage lenders aggressively market FHA-insured loans to borrowers and can offer FHA loans with 3.5% at competitive rates due to the government guarantee. FHA home loans are the best home loan program for first-time homebuyers, borrowers with little to no credit, homebuyers with bad credit, borrowers with credit scores down to 500 FICO, and homeowners with high debt-to-income ratios.

What Is The Difference Between FHA and Conventional Loan?

FHA home loans are government-backed loans that require lower credit scores than conventional loans. HUD is the government agency that administers FHA home loans. Homebuyers with credit scores down to 500 FICO can qualify for FHA home loans. You need a 620 credit score to qualify for a conventional loan. FHA loans are popular for homebuyers with bad credit, low credit scores, collection accounts, charged-off accounts, bankruptcy, foreclosure, while in Chapter 13 bankruptcy, and high-debt to income ratio. Conventional loans are not backed by a government agency. You normally need higher credit scores and better credit to qualify for a conventional loan.

What Are The Rules For FHA Home Loans?

How Does HUD Insure Private Lenders?

In order for HUD to insure lenders, mortgage lenders need to make sure borrowers meet every aspect of HUD agency mortgage guidelines. Due to the government guarantee, HUD-approved lenders aggressively offer FHA loans with a 3.5% down payment with low credit score requirements at competitive rates. FHA loans are the most popular loan program for first-time homebuyers, borrowers with less than perfect credit, homebuyers with lower credit scores, and borrowers with high debt to income ratios. HUD has the most lenient mortgage guidelines for borrowers with prior bad credit and outstanding collections and/or charged-off accounts. Homebuyers with credit scores down to a 500 FICO are eligible to qualify for an FHA loan.

Who Provides Funds For FHA Home Loans?

Due to the government guarantee, mortgage lenders aggressively compete for the FHA loan business. Due to the government guarantee by HUD, lenders can offer FHA home loans with a 3.5% down payment for first-time homebuyers and/or borrowers with less than perfect credit at competitive rates with an easy streamlined mortgage process. HUD and FHA do not originate, process, underwrite, fund, or services FHA loans. Banks and private mortgage companies that are HUD-approved originate and fund FHA loans. HUD, the parent of FHA, is a federally backed mortgage insurer and insures FHA loans lenders originated and funded in the event the borrower defaults. HUD will partially guarantee the lender on the loss from the defaulted loan. Due to the government guarantee, lenders can offer FHA loans at low down payments to first-time homebuyers, borrowers with less than perfect credit, and lower credit scores.

How Do I Qualify For FHA Home Loans?

HUD, the parent of FHA, does not originate, process, underwrite, fund, or services FHA loans. Private lenders originate FHA loans. It is called FHA home loans because HUD insures FHA loans in the event borrowers default and foreclose on FHA home loans. HUD is the government agency that sets the minimum agency guidelines for FHA home loans. However, each independent mortgage lender can have higher lending requirements above HUD on FHA Home loans. When we talk about lending requirements on FHA home loans, we are talking about the minimum agency HUD mortgage guidelines. HUD is the parent of the Federal Housing Administration (FHA). HUD and FHA do not have anything to do with originating, processing, underwriting, or funding FHA loans. In this guide on FHA home loans frequently asked questions, we will discuss and cover FHA Home Loan Requirements And Guidelines and the mechanics of the mortgage process on FHA loans.

What Is The Role of HUD Versus Lenders on FHA Loans?

We will explain the difference between the agency HUD guidelines and the lender overlays. It is very important for borrowers to understand the minimum agency HUD mortgage guidelines. If you meet the agency guidelines but get denied by a lender due to their lender overlays, you can qualify for an FHA loan with a different lender that has no lender overlays. Gustan Cho Associates is one of the very few mortgage companies licensed in multiple states with no lender overlays on FHA loans. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays.

Are FHA Loans For First-Time Home Buyers?

FHA Home Loans are a great first-time home buyer mortgage loan program but they are not just for first-time home buyers. HUD, the federal government agency that administers FHA loans, promotes FHA loans for first-time homebuyers and homebuyers with less than perfect credit.  HUD sets the rules and guidelines on how private lenders need to follow its guidelines if they want HUD to insure the lender in the event borrowers default on their FHA loans. HUD will partially guarantee and insure lenders who have borrowers default on their FHA loans. Private mortgage companies originate, process, underwrite, and fund FHA loans. The role of HUD is to promote homeownership to hard-working Americans by insuring private lenders with government-backed mortgage insurance on FHA loans in the event borrowers default and/or foreclose.

Read More on What Are FHA Loans

FHA Home Loans Minimum Credit Score Requirements

FHA home loan requirements on credit scores are quite lenient.  Most lenders have overlays when it comes to credit scores. Most lenders require a minimum of a 620 credit score. The Team at Gustan Cho Associates are loan officers who are experts in originating and funding FHA Loans with no Overlays. To qualify for a 3.5% down payment loan FHA Loans, credit scores need to be at least 580. However, borrowers with a credit score between 500 and 580 can qualify for FHA Loans with automated underwriting system approval. This holds true as long as they have a 10% down payment.

How Do FHA Automated Underwriting System Findings Work?

Gustan Cho Associates will only go by AUS FINDINGS and has no Lender Overlays. The mission of HUD is to promote homeownership by offering the FHA-insured mortgage program to private lenders. FHA nor its parent HUD is a lender. HUD insures FHA home loans for lenders who make FHA loans. The role of HUD is to insure HUD-approved mortgage lenders on FHA loans the lender originates and funds if the borrower defaults. In order for HUD to insure mortgage lenders, the lender needs to have followed the HUD agency guidelines on the FHA loans they originate.

Difference Between AUS Versus Manual Underwriting

A large percentage of our FHA mortgage applicants at Gustan Cho Associates are manual underwriting files. Manual underwriting guidelines apply. There is not much difference between automated underwriting versus manual underwriting. A human mortgage underwriter will closely review and underwrite manual underwrites. Debt to income ratio caps is normally lower on manual underwrites. Timely payments in the past 24 months are very important in manual underwriting. Having strong compensating factors is key for manual underwriting borrowers with higher debt-to-income ratios. The maximum debt to income ratios on manual underwriting is 40% front end and 50% back end with two compensating factors.

Mortgage Underwriter Discretion on Manual Underwriting

Mortgage underwriters have a lot of underwriter discretion. Manual underwriting guidelines are not set in stone. Borrowers with strong compensating factors can surpass over the 50% manual underwriting recommended cap depending on the mortgage underwriter. Some lenders will downgrade certain borrowers who have an approve/eligible per automated underwriting system to a manual underwrite. This is never done at Gustan Cho Associates. If you are a borrower who meets the minimum HUD Agency Guidelines but is getting turned down by other lenders due to their lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response.

FHA Loans With Credit Scores Down To 500 FICO

If your credit score is under 580 and down to a 500 FICO, HUD requires homebuyers to put in a 10% down payment versus a 3.5% down payment. Borrowers who can only afford to put a 3.5% down payment on a new home purchase, the team at Gustan Cho Associates will help you with boosting your credit scores to 580 FICO. We are experts in helping borrowers increase their credit scores with several quick fixes. Our team of licensed and/or support personnel can help you repair your credit and improve your scores so you qualify for a 3.5% down payment FHA-insured mortgage loan. Homebuyers who need a loan officer who specializes in originating FHA loans with no lender overlays or have questions on FHA home loan requirements, please contact us at Gustan Cho Associates at 262-716-8151 or email us at [email protected] Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

How Much Money Do I Need To Buy a House?

For borrowers with under a 580 credit score who does not have the 10% down payment, Gustan Cho Associates can help them get to a 580 credit score. The team at Gustan Cho Associates are experts in helping borrowers boost their credit scores and re-establish their credit. Even though HUD did not change its agency mortgage guidelines, most lenders added tighter lending restrictions on FHA loans as well as other mortgage programs. The good news is that Gustan Cho Associates has not added any lender overlays before, during, and after the COVID-19 pandemic. The business model at Gustan Cho Associates is not having any lender overlays on government and conventional loans.

The U.S. Department of Housing and Urban Development (HUD) administers the FHA loan program. HUD is the parent of FHA. The role of HUD is to promote homeownership by promoting banks and mortgage companies by offering government-backed mortgage insurance in the event the borrower defaults on FHA loans. Lenders need to follow the HUD 4000.1 FHA Handbook, which is a 900-plus page list of agency guidelines by HUD. Mortgage lenders must meet the minimum agency HUD guidelines in order for FHA homes if they want the loans they originate to be insured and partially insured by HUD in the event of foreclosure.

Why Is It Important To Understand the Basic HUD Agency Guidelines?

This is why it is important for borrowers to understand the basic agency mortgage guidelines on FHA homes. If a homebuyer gets denied an FHA loan from one lender, the borrower can qualify with a different lender if they meet the minimum HUD agency guidelines. FHA loans are for owner-occupant primary homes. You cannot finance second homes and investment properties with FHA loans. Any homebuyer can qualify for an FHA loan and get approved if they meet the minimum agency mortgage guidelines.

Why FHA Loans Are Popular For First-Time Homebuyers

FHA loans are very popular for first-time homebuyers. This is because of the low down payment requirements and the lenient credit criteria required to qualify. FHA home loans are very popular. HUD, the parent of FHA, makes homeownership affordable to all hard-working Americans. One negative factor with FHA home loans has a one-time 1.75% FHA mortgage insurance premium that is added to the balance of the FHA loan balance. Mortgage borrowers are also responsible for paying an annual FHA mortgage insurance premium of .085% of the loan amount for the term of a 30-year fixed-rate mortgage for the life of the FHA loan.

Are FHA Loans Easy To Obtain?

FHA home loans are substantially easier to obtain than conventional loans. HUD, the parent of FHA, allows borrowers to be eligible for FHA home loans with credit scores down to 500 FICO scores. However, borrowers with credit scores between 500 to 579 FICO scores need a 10% down payment. To qualify for a 3.5% down payment home purchase FHA loan, you need a 580 credit score. Home buyers who cannot get an approve/eligible but get a refer/eligible per automated underwriting system may qualify for manual underwriting on FHA home loans We can still do FHA One-Time Close Construction Loans, FHA 203k loans, and Reverse mortgages for seniors. Gustan Cho Associates has a national reputation for being able to do mortgages other mortgage companies cannot do.

Read More on FHA Loans With No Overlays

FHA Loans For First-Time Homebuyers With Bad Credit

First-time homebuyers do not have to worry about having perfect credit to qualify for a home loan. FHA home loans are the most popular loan program for first-time homebuyers with prior bad credit, collection accounts, charged-off accounts, little to no credit tradelines, and low credit scores.  There are several mortgage loan programs for first-time homebuyers. The first and most popular loan program for a first-time homebuyer is FHA loans.

Do All Lenders Have The Same Requirements on FHA Home Loans?

One of the most mistaken assumptions by home buyers is they assume all FHA lenders have the same mortgage requirements on FHA home loans since FHA home loans are government-backed home loans. This is not true. Mortgage lenders have different requirements for FHA loans. All mortgage lenders have to have their clients meet the minimum HUD agency guidelines on FHA home loans. Mortgage lenders can have their own higher mortgage guidelines above the minimum agency HUD agency guidelines called lender overlays. Most lenders have lender overlays on FHA home loans. Gustan Cho Associates is a mortgage company licensed in 48 states including Washington DC and Puerto Rico (not yet licensed in NY, and MA) with no lender overlays on FHA loans.

Read More on FHA Lender Overlays

Do Lenders Have Its Own Lending Requirements on FHA Loans

Yes, each mortgage lender has its own mortgage lending requirements that are above and beyond the minimum HUD agency guidelines on FHA loans called lender overlays. Overlays are higher lending requirements set by individual lenders on credit standards. Lenders can have overlays on just about anything and everything. Most loan officers will not tell you that you meet the minimum HUD Agency Guidelines but you do not qualify with just them due to their lender overlays.

Can Lenders Have Higher Requirements Above HUD Guidelines on FHA Loans?

Lenders can have higher lending standards and requirements that surpass the minimum agency HUD guidelines which are referred to as lender overlays. The Federal Housing Administration, also known as FHA, insures lenders if borrowers default and foreclose on their FHA Loans. This is why it is important for you to familiarize yourself with the basic agency guidelines which we will list below. As long as you meet the minimum HUD Guidelines, you will qualify for an FHA loan. Just contact us at Gustan Cho Associates at 262-7161-8151 or text us for a faster response. Or email us at [email protected]

Read More on Lender Overlays on FHA Loans

Getting Denied By Mortgage Lender Due To Overlays

Just because you get denied for an FHA loan by one lender does not mean you cannot qualify and get approved by a different lender. It is very important for homebuyers to understand the basic HUD agency guidelines on FHA loans. As long as you meet the minimum HUD agency guidelines, you know you qualify for an FHA loan. However, each independent mortgage lender can have higher lending requirements above and beyond the minimum HUD agency guidelines.

Why Do Lenders Deny FHA Home Loans?

We will go in-depth about lender overlays and the common lender overlays imposed by mortgage lenders. The mission of HUD is to promote homeownership by offering the FHA-insured mortgage program to private lenders. FHA nor its parent HUD is a lender. HUD insures FHA home loans for lenders who make FHA loans. The role of HUD is to insure HUD-approved mortgage lenders on FHA loans the lender originates and funds if the borrower defaults. In order for HUD to insure mortgage lenders, the lender needs to have followed the HUD agency guidelines on the FHA loans they originate.

Read More On Last Minute Mortgage Denial

Are Mortgage Brokers or Mortgage Bankers Best For Bad Credit?

There are lenders like Gustan Cho Associates with zero lender overlays on FHA loans. Your best bet in getting a lenient mortgage lender with lenient guidelines on FHA home loans is to hire a mortgage broker versus mortgage bankers. Mortgage brokers have a network of wholesale lenders with no lender overlays. Mortgage bankers are captive lenders who normally cannot go outside the box and can only deal with their own product. Mortgage brokers have lower commissions than mortgage bankers, therefore you will get better mortgage rates with brokers. Mortgage brokers are able to offer government loans, conventional loans, non-QM loans, and other forms of alternative mortgage options where mortgage bankers can’t.

Read More on Mortgage Brokers Versus Mortgage Bankers

How Do I Choose A Lender With Lenient Guidelines on FHA Loans?

FHA loans are originated and funded by private lenders but backed-by HUD. HUD is the parent of FHA. FHA loans are the most popular loan program for first-time homebuyers and buyers with less than perfect credit. Not all lenders have the same mortgage guidelines on FHA home loans. Most lenders have increased their lending standards and added many lender overlays. Not too many lenders will do bad credit FHA loans under 620 credit scores. Most lenders have stopped doing manual underwriting and FHA 203k loans. Some lenders set credit score lender overlays at 680 FICO on FHA loans. However, there are lenders that have no lender overlays like Gustan Cho Associates.

Read More on the Best Bad Credit Mortgage Lenders

Can I Get Approved With A Lender After Being Denied?

Over 75% of our clients are borrowers who could not qualify at other mortgage companies due to lender overlays or last-minute loan denials. Not all lenders have the same FHA lending guidelines. All lenders need to have all of their borrowers meet the minimum HUD Agency Guidelines. However, the lender can set their own lending requirements on FHA loans called lender overlays. Gustan Cho Associates is one of the very few national mortgage companies with no lender overlays on FHA loans. It is very important to understand the basic lending guidelines of HUD on FHA loans. Gustan Cho Associates are mortgage brokers licensed in 48 states with over 170 wholesale lenders. We wholesale mortgage lenders and investors with no lender overlays on FHA loans.

Read More on Mortgage Denied After Being Pre-Approved

What Is The Downside of FHA Home Loans?

Although FHA home loans have great benefits for first-time homebuyers, borrowers with low credit scores, homebuyers with outstanding collections, borrowers with collection accounts, and homebuyers who can’t qualify for other mortgage loan programs, there are downsides to FHA home loans. One of the major downsides of FHA home loans is the high cost of the upfront FHA mortgage insurance premium. Another downside is FHA loan limits are lower than conforming loan limits by an average of 37%. Conforming loan limits for 2022 are at $647,800. The 2022 FHA loan limit is capped at $420,800.

What Is The FHA Upfront Mortgage Insurance Premium?

The FHA Upfront Mortgage Insurance Premium is 1.75% of the FHA loan balance that is normally rolled into the balance of FHA home loans. The FHA upfront mortgage insurance premium is often referred to as the FHA UPMIP. The FHA UPMIP goes into a pool for HUD to tap into for FHA home loans that default from private lenders. Lenders get paid for FHA home loans that default and go into foreclosure from the FHA upfront mortgage insurance premium fund.  FHA requires a one-time upfront FHA mortgage insurance premium of 1.75% which is normally added to the balance of the loan balance.

What Is FHA Mortgage Insurance Premium?

Besides the one-time FHA upfront mortgage insurance premium (FHA UFMIP), there is a 0.85% annual FHA mortgage insurance premium (FHA MIP) for the term of an FHA 30-year fixed-rate mortgage loan for the term of the loan. Along with the upfront-FHA mortgage insurance premium, the annual FHA MIP goes towards the FHA fund to pay lenders for borrowers who default and/or foreclose on their FHA home loans. FHA loans have a lifetime annual FHA mortgage insurance premium of 0.85% which needs to be paid for the lifetime of a 30-year fixed-rate mortgage loan no matter how much down payment they put on a home purchase.

How Easy Is It To Get An FHA Loan?

Hardworking Americans can now make their dream of homeownership become a reality with little down payment and lenient credit guidelines with an FHA home purchase loan. One important thing borrowers need to keep in mind is that not all lenders have the same lending requirements on FHA home loans. Some lenders have tougher credit requirements than others. This is why it is important to read and understand this guide on FHA home loans frequently asked questions mortgage guide by Gustan Cho Associates.

FHA Home Loans Versus Non-QM Mortgages For Bad Credit

Some of our most popular non-QM mortgage programs include bank statement mortgages, mortgages one day out of foreclosure and/or bankruptcy, non-QM Jumbo loans, asset-depletion mortgages, FHA and VA construction loans on new construction homes, fix and flip mortgages, P and L stated income mortgage loans, ITIN and Foreign National Mortgages, bridge loans, and commercial loans. Google us. Gustan Cho Associates. We have a five-star national reputation for being able to do loans other lenders cannot.

Read More on Non-QM Mortgages For Bad Credit

FHA Home Loans With No Credit Tradelines

FHA home loans are the most popular home loan program in the United States for first-time homebuyers, borrowers with no credit tradelines, buyers with high debt to income ratio, borrowers with low or no credit scores, and homebuyers with bad credit. The United States Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). HUD is the federal agency that creates the HUD 4000.1 FHA Handbook for FHA loans. In the following paragraphs, we will be covering and discussing the types of FHA home loans, the benefits of FHA loans, and the eligibility requirements for homebuyers and homeowners.

Read More FHA Loans With No Credit Scores

What Is The HUD 4000.1 FHA Handbook?

The HUD 4000.1 FHA Handbook consists of over 1,000 pages of every aspect of FHA lending requirements. It is updated by HUD as changes in FHA loan requirements get changed or new guidelines are implemented on FHA loans. We have created a simplified guide for the HUD 4000.1 FHA handbook below this paragraph which is user-friendly and easy to navigate. The HUD 4000.1 FHA Handbook, which is updated periodically, consists of over 1,000 pages of HUD agency guidelines that lenders need to follow for the loans they originate to be insured by HUD. All HUD-approved lenders need to meet the minimum agency guidelines for HUD. However, each individual mortgage lender can have lending requirements that are above and beyond the minimum HUD guidelines of the HUD 4000.1 FHA Handbook.

Read More on HUD 4000.1 FHA Handbook

HUD Credit Score Guidelines on FHA Home Loans

To qualify for a 3.5% down payment FHA home purchase loan, you need a 580 credit score. Homebuyers can qualify for FHA home loans with credit scores down to 500 FICO. Per HUD, the parent of FHA, agency guidelines, the minimum credit score requirement to qualify for an FHA loan is 500 FICO. A 10% down payment is required for borrowers with credit scores between 500 to 579 credit scores. Homebuyers with only a 3.5% down payment can try to raise their credit scores to 580 FICO.

What Is The Difference Between Manual and Automated Underwriting System (AUS)?

Borrowers either need to get an approve/eligible per automated underwriting system (AUS) or be eligible for an FHA manual underwrite. We will discuss more manual underwriting in later paragraphs. The key to getting an approve/eligible per automated underwriting system (AUS) is to have been timely on all of your monthly debt payments that report to credit bureaus for the past 12 months. To be eligible for manual underwriting, you need to have been timely on all of your payments for the past 24 months.

Read More About FHA Credit Score Requirements

FHA Debt to Income Ratio Guidelines

FHA loans are the most popular loan program for homebuyers with a debt-to-income ratio. The maximum debt to income ratios allowed to get an approve/eligible per AUS is 46.9% front end and 56.9% back end DTI. To be eligible for the 46.9% front-end and 56.9% back-end debt-to-income ratio, borrowers need at least a 580 credit score. Borrowers with under 580 FICO are limited to a 31% front-end and 43% back-end debt-to-income ratio

Use GCAs FHA DTI Calculator To Get Your Front-End and Back End DTI

FHA Guidelines On Collection Accounts

One of the most frequently asked questions at Gustan Cho Associates is whether mortgage borrowers can qualify for FHA home loans with unpaid collection accounts. A lot of borrowers are told by lenders they need to pay unpaid debts in order to qualify for FHA home loans. Again, it goes back to not all lenders being the same when it comes to FHA home loans. HUD, the parent of FHA, does not require outstanding collections that do not have to be paid to qualify. However, it is up to the individual mortgage company to require whether or not they will honor HUD agency guidelines on collection accounts. If you have collection accounts and are told by a lender to pay them off in order for your to qualify for FHA home loans, then go to a different lender with no overlays on collection accounts. Gustan Cho Associates has no lender overlays on collection accounts.

Read More on FHA Loans on Collection Accounts

FHA Guidelines On Charged-Off Accounts

Charge-off accounts are when a creditor writes off bad debt. Charged-off accounts are reported as charged-off accounts and/or profit and loss write-off accounts on credit bureaus. Collection accounts normally turn into charged-off accounts. However, a charged-off account does not mean the consumer is no longer responsible for unpaid debts. Creditors can sell charged-off accounts to third-party collection agencies and/or zombie debt collectors. Credit card charged-off accounts are normally good for 5 years under most states’ statute of limitations debt collection laws. Outstanding charged-off accounts do not have to be paid to qualify for FHA home loans. This holds true no matter how large the outstanding charged-off accounts are.

Read More on Charged-Off Account Guidelines To Qualify For a Mortgage

FHA Loans After A Housing Event

A housing event is a foreclosure, deed in lieu of foreclosure, or a short sale. Homebuyers can qualify for FHA home loans after a housing event. However, there is a mandatory waiting period after a housing event to qualify for FHA home loans. If the borrower had home foreclosure, deed in lieu of foreclosure, or short-sale, there is a three-year waiting period from the recorded date of the foreclosure and/or deed in lieu of foreclosure or the date of the sheriff’s sale. The waiting period start date is the date the deed of the home was transferred out of the homeowner’s name. Homebuyers can qualify for FHA Loans with bad credit, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale, outstanding collections, and outstanding charge off accounts.

FHA Waiting Period After Foreclosure and Deed-In-Lieu of Foreclosure

Homebuyers can qualify for a mortgage after foreclosure and/or after a deed-in-lieu of foreclosure. Government and conventional loans have mandatory waiting period requirements after a foreclosure to be eligible to apply for a mortgage. The waiting period requirement depends on the individual loan program. The waiting period after a foreclosure is the same as the waiting period for a deed-in-lieu of foreclosure on FHA loans. For FHA home loans, there is a three-year waiting period requirement after foreclosure. Homebuyers can qualify for FHA home loans after a deed in lieu of foreclosure after three years of the recorded date of the deed in lieu of foreclosure. The waiting period start date is the date when the deed of the property has been transferred out of the borrower’s name to either the lender’s name and/or the new borrower’s name. Or the waiting period start date is the date when the property was sold at the sheriff’s sale.

Read More on FHA Loans After Foreclosure

What Is The Waiting Period After Short-Sale on FHA Home Loans?

There is a three-year waiting period required to qualify for an FHA loan after a short sale. However, if the borrower was not late with a monthly mortgage payment leading up to the date of the short sale, there is no waiting period requirement. If the borrower has made their monthly mortgage payment in full up to the short sale closing date, the waiting period requirement is waived. However, most mortgage lenders require you to skip the last month’s mortgage payment for them to approve the short sale. Homebuyers with a prior short sale are eligible to qualify for a mortgage after a short sale after meeting the waiting period requirements. Each mortgage loan program has its own waiting period requirement after a short sale. The waiting period start date after a short sale starts the date of the short sale which is reflected on the HUD-1 Settlement Statement and/or the Closing Disclosure (CD).

Read More on FHA Loans After Short Sale

Can I Qualify For An FHA Loan After Bankruptcy?

Homebuyers can qualify for home loans after bankruptcy. Government and conventional loans have waiting period requirements after bankruptcy. The waiting period requirement depends on the individual mortgage loan program. There are two different types of consumer bankruptcies: Chapter 7 and Chapter 13 Bankruptcy. Each type of bankruptcy has its separate mortgage guidelines on FHA loans. We will cover each type of mortgage guideline after bankruptcy in the following paragraphs. Regardless of what type of bankruptcy, lenders want to see no late payments after bankruptcy and rebuilt and re-establish credit. A large percentage of our business at Gustan Cho Associates is helping borrowers get qualified and approved for an FHA loan during and after bankruptcy. A prior bankruptcy will not affect the borrower’s mortgage rates.

FHA Loans After Chapter 7 Bankruptcy

Homebuyers can qualify for an FHA loan two years after the Chapter 7 Bankruptcy discharged date. Lenders expect rebuilt and re-established credit after the discharge date. No late payments after the discharged date of Chapter 7 Bankruptcy. The team at Gustan Cho Associates has helped countless borrowers get their credit scores to over 700 FICO after the Chapter 7 Bankruptcy discharged date. FHA loans require a two-year waiting period requirement after the Chapter 7 Bankruptcy discharge date. Chapter 7 Bankruptcy gives consumers a fresh start on their finances where they are debt-free after the discharge. Lenders do expect borrowers to re-establish and rebuild their credit after Chapter 7 Bankruptcy. No late payment after the bankruptcy discharge date is a must. Late payments after bankruptcy can be potentially a deal killer so borrowers need to make sure they are always on time.  Homebuyers can qualify for an FHA loan after Chapter 7 Bankruptcy after two years from the discharge date.

FHA Loans During Chapter 13 Repayment Plan

Borrowers can qualify for FHA Loans during a Chapter 13 Bankruptcy Repayment period. Need bankruptcy trustee approval to sign off on the home purchase and mortgage loan. Needs to be a manual underwrite. There is no waiting period after a discharge date of a Chapter 13 Bankruptcy to qualify for FHA Loans. If the Chapter 13 Bankruptcy has not been seasoned for two years, it needs to be a manual underwrite. Manual underwriting guidelines apply. Homebuyers can qualify for FHA home loans during a Chapter 13 Bankruptcy repayment plan without the bankruptcy being discharged.

Can You Apply For FHA Home Loans While In Chapter 13 Without Bankrutpcy Being Discharged?

FHA and VA are the only two home mortgage programs that allow borrowers to qualify for a mortgage during the Chapter 13 Bankruptcy repayment plan. However, most lenders do not want to touch anyone during their Chapter 13 Repayment plan even though HUD and the VA say no problem. Borrowers in an active Chapter 13 Bankruptcy repayment plan can qualify for an FHA loan during the repayment plan without the Chapter 13 being discharged with Trustee Approval. Gustan Cho Associates never had a case where the bankruptcy trustee did not approve a home purchase and mortgage during the Chapter 13 bankruptcy repayment plan. However, the borrower needs to be in the Chapter 13 repayment plan for 12 months before they are able to qualify. Timely payments during the Chapter 13 repayment plan are required.

Read More on FHA Loans During Chapter 13 Bankruptcy Repayment Plan

FHA Loans After Chapter 13 Bankruptcy Discharged Date

There are no waiting period requirements after the Chapter 13 Bankruptcy discharged date. If the Chapter 13 Bankruptcy has not been discharged for two years, it needs to be a manual underwrite. We will discuss more on manual underwriting in the next paragraph.

Read More on FHA Loans After Bankruptcy 

What Is Manual Underwriting on FHA Home Loans?

Many lenders do not want to touch manual underwriting mortgages as part of their lender overlays. FHA and VA have similar mortgage guidelines on manual underwriting and qualifying for a mortgage during Chapter 13 Bankruptcy repayment plan. There are no waiting period requirements after the Chapter 13 Bankruptcy discharge date on both FHA and VA loans.

Read More on Manual Underwriting Guidelines on FHA Loans

Manual Underwriting While In A Chapter 13 Bankruptcy

All FHA home loans during the Chapter 13 Bankruptcy repayment plan need to be manually underwritten. There are no waiting period requirements after the Chapter 13 Bankruptcy discharge date. However, if the Chapter 13 Bankruptcy has not been discharged for at least two years, it needs to be a manual underwrite. Over 25% of our home mortgages at Gustan Cho Associates Are FHA And VA Manual Underwriting.

Read More on Manual Underwriting During Chapter 13 Bankruptcy 

Read More on AUS Versus Manual Underwriting

Property Type Guidelines on FHA Home Loans

There are several types of FHA home loans. All FHA home loans are for owner-occupant homes. HUD does not allow second homes and/or investment properties to be financed with an FHA loan. Only one to four-unit residentially-zoned owner-occupant primary homes are eligible for FHA loan financing. Homebuyers can upgrade and/or downgrade with another home purchase after one year and purchase another home. In the event the homeowner wants to keep the exiting home, they can without needing to refinance the original FHA loan. HUD allows borrowers with an FHA loan to keep the loan if they turn the home into a rental property. This holds true as long as they have lived in the home for 12 months from the date it closed.

What Happens If You Don’t Live In Your FHA Home?

Homebuyers can purchase a two to four-unit multi-family home with a 3.5% down payment home purchase FHA loan with a 580 credit score. The multi-family homebuyer needs to live on one of the units and can rest out the remaining units and collect rental income. HUD requires homeowners to live in the purchased home for at least 12 months. If you decide to keep the exiting home as a rental and decide to get another owner-occupant home after 12 months, you can keep the exiting home without needing to refinance your original FHA loan. HUD allows you to keep your FHA loan on investment homes as long as you used it as a primary owner-occupant home for at least 12 months.

Types of FHA Home Loans

Homebuyers of primary owner-occupant homes have several options on FHA home loans. We will be covering and discussing the various loan programs available and the mortgage options borrowers have with FHA loans on purchase and refinance transactions. Below are the types of FHA home loans and the link to the updated detailed information blog on Gustan Cho Associates:

The  Importance Of Understanding The Minimum FHA Home Loan Requirements

It is very important to understand where you stand by fully understanding the minimum FHA home loan requirements and the function of HUD and FHA. FHA loans are the most popular loan program for first-time homebuyers, homebuyers with a recent bankruptcy or are under a Chapter13 Bankruptcy repayment plan, borrowers with less than perfect credit, those with higher debt to income ratios, and borrowers with credit scores down to 500 FICO. Many borrowers of FHA loans get conflicting reports on FHA home loan requirements from multiple lenders. Mortgage companies do not have a uniform lending standard on FHA loans. Every lender can have different FHA home loan requirements because they are allowed to have lender overlays on FHA loans. There are mortgage companies like Gustan Cho Associates with zero lender overlays on FHA loans.

Understanding Why FHA Home Requirements Is Different Among Lenders

Why FHA Home Requirements Is Different Among Lenders

The Federal Housing Administration is a governmental agency that insures mortgage loans to mortgage lenders against default. The Federal Housing Administration has its own rules and requirements that lenders need to adhere to in order to be insured by HUD. The Federal Housing Administration has its minimum guidelines. The mortgage lender can set overlays that are more strict than the minimum FHA home loan requirements. An FHA-insured loan is a great option for homebuyers who do not meet the tougher conventional mortgage loan underwriting guidelines. It is a great loan program for those who have had recent bad credit. It is a great program for first-time homebuyers as well. As long as borrowers meet the minimum FHA home loan requirements, they will get approved for an FHA loan. The key is which lender will offer them a loan with no lender overlays on FHA loans. We will cover and discuss how to qualify for an FHA loan for first-time homebuyers, borrowers with prior bad credit, and borrowers with credit scores down to 500 FICO.

How Can I Qualify For An FHA Loan With Bad Credit?

What are the FHA home loan requirements to get an FHA loan? Borrowers need to consult with the lender and be able to have a 3.5% down payment. The down payment needs to be documented as to where it was derived. Gifts from family are allowed. The borrower will qualify for a 96.5% FHA home loan plus closing costs. Closing costs can be paid by the borrower. Or the seller can contribute up to 6% of the purchase price to help the borrower pay closing costs. The lender can assist with the closing costs with a lender credit in lieu of a higher interest rate. The property the borrower will qualify for is a one to four-unit residential owner-occupied property. By owner-occupied, the home needs to be the borrower’s principal residence. Cannot be a rental home or an investment home.

Who Is Eligible To Qualify For An FHA Loan?

The FHA home loan requirements are the following:
  • Borrowers must have a valid social security number
  • Be a lawful resident of the United States
  • Show two-year residential history
  • Be of legal age
  • Have a 580 credit score to qualify for a 3.5% down payment home purchase FHA loan
  • The maximum front-end debt to income ratio cannot exceed 46.9% and a back-end DTI cannot exceed 56.9% to get an approve/eligible per AUS
  • Outstanding collections and charged-off accounts do not have to be paid
  • The down payment and closing costs can be gifted
  • Non-occupant co-borrowers that are related to the main borrower by blood, marriage, law are allowed on a 3.5% down payment FHA loan
  • Non-occupant co-borrowers not related to the main borrower by blood, marriage, law are allowed but need a 25% down payment
  • Be employed for at least two years
  • Show two years of employment history
  • Show that they have consistent document income
  • Provide promising future employment with a consistent income to be able to pay for their new FHA Loan
  • Meet minimum credit and debt to income ratio requirements
  • The borrower needs to apply for a mortgage application as part of the FHA loan requirement

Need to state all income, assets, debt, and credit information.

Documents Required To Start The Mortgage Process on FHA Loans

FHA loan requirement is the borrower must submit the following docs:

  • two years of tax returns
  • two year W2s
  • recent bank statements
  • other credit information like bankruptcy papers, divorce decree, child support, etc.

Mortgage Options For Bad Credit

Homebuyers can qualify for an FHA loan two years after the Chapter 7 Bankruptcy discharge date

There are other mortgage options for bad credit borrowers besides FHA home loans. Non-QM loans are a great option for borrowers with bad credit. You can qualify for non-QM loans with late payments in the past 12 months. Non-QM mortgages one day out of bankruptcy and foreclosure has no waiting period requirements. However, non-QM loans require a minimum of a 20% down payment versus a 3.5% down payment on FHA home loans. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop. This is because we offer not just government and conventional loans, but also offer every non-QM loan program available in today’s market.

Read More on Non-QM Loans


Home Purchase Mortgage Programs Listed By Each Individual State:

Alabama | Arkansas | Alaska | Arizona | California | Colorado | Connecticut | Delaware | Florida | Georgia | Hawaii | Idaho | Illinois | Indiana | Iowa | Kansas | Kentucky | Louisiana | Maine | Maryland | Michigan | Minnesota | Mississippi | Missouri | Montana | Nebraska | New Hampshire | New Jersey | Nevada | New Mexico | North Carolina | North Dakota | Ohio | Oklahoma | Pennsylvania | Rhode Island | South Carolina | South Dakota | Tennessee | Texas | Washington | Utah | Oregon | Texas | Vermont | Virginia | Washington DC | Washington | West Virginia | Wisconsin | Wyoming | Puerto Rico | Massachusetts | New York