This guide covers the frequently asked questions about FHA home loans. We will discuss qualifying and getting approved for FHA loans. Not all lenders have the same lending requirements on FHA home loans. Our viewers will learn why Gustan Cho Associates can do loans other lenders can’t do. HUD, the parent of FHA, is the agency that insures FHA loans:
HUD, the parent of FHA, is the federal agency administering FHA home loans. The role of HUD is to insure HUD-approved private lenders in the event FHA loans default and go into foreclosure.
We prepared this guide on FHA home loans for homebuyers, homeowners, loan officers, and realtors. This guide on FHA home loans covers what an FHA loan is, who benefits from using FHA home loans, and the HUD lending requirements and guidelines. We will explain the steps of the mortgage process and go over lender overlays on FHA home loans. The following paragraphs will cover FHA home loans’ benefits and lending requirements.
What Are FHA Home Loans?
FHA home loans are originated, processed, underwritten, and funded by private lenders. HUD, the parent of FHA, insures FHA home loans. For many homebuyers, HUD acts like a giant federal mortgage insurance agency of private lenders. If a borrower defaults on an FHA loan and the loan goes into foreclosure, HUD partially insures the loss due to the foreclosure.
HUD, the parent of FHA, insures lenders against loss if the borrower defaults on their FHA home loans. This only holds if the lender followed every aspect of HUD 4000.1 FHA Handbook agency guidelines.
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 requiring lower credit scores than conventional ones. HUD is the government agency that administers FHA home loans. Homebuyers with credit scores down to 500 FICO can qualify for FHA home loans. FHA loans are not just for borrowers with bad credit:
FHA loans are backed by a government agency. Conventional loans are not government-backed loans. Mortgage rates on FHA loans are lower than conventional 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. A government agency does not back conventional loans. You normally need higher and better credit scores to qualify for a conventional loan.
What Are The Rules For FHA Home Loans?
HUD is the parent of FHA. HUD is the federal agency that sets the agency mortgage guidelines for FHA home loans. Only owner-occupant primary homes are eligible for FHA loans. You can’t finance a second home or investment property with FHA home loans.
There are various types of FHA loan programs homebuyers are eligible for, which we will cover later in this guide. FHA is a government agency under the U.S. Housing and Urban Development (HUD). HUD and FHA are not lenders.
HUD’s role is to insure home loans that meet HUD Guidelines to banks and lenders that originate, fund, and service home loans. These loans must meet all of the FHA Home Loan Requirements if the homeowner with an FHA loan defaults on their loans and the lender loses money. Due to the government guarantee, most lenders aggressively want to lend to homeowners who need FHA loans.
How Does HUD Insure Private Lenders?
For HUD to insure lenders, mortgage lenders must ensure 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 at low down payments to first-time homebuyers, borrowers with less than perfect credit, and lower credit scores.
FHA home 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 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 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 service 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 if the borrower defaults. HUD will partially guarantee the lender on the loss from the defaulted loan. Due to the government guarantee, lenders can offer
How Do I Qualify For FHA Home Loans?
HUD, the parent of FHA, does not originate, process, underwrite, fund, or service FHA loans. Private lenders originate FHA loans. It is called FHA home loans because HUD insures FHA loans if 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 discussing 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 have nothing to do with originating, processing, underwriting, or funding FHA loans. In this guide on frequently asked FHA home loans, we will discuss and cover FHA loan requirements and guidelines. We will also discuss 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. Borrowers need to understand the minimum agency HUD mortgage guidelines. Lenders love government-backed mortgage loans because if the loan defaults, it is insured, thus minimizing the risk to the lender.
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 overlays.
Gustan Cho Associates is one of the few mortgage companies licensed in multiple states with no lender overlays on FHA loans. Over 80% of our borrowers at Gustan Cho Associates could not qualify at other lenders due to their lender overlays.
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.
Homebuyers can qualify for an FHA loan and get approved if they meet the minimum agency mortgage guidelines.
To qualify for a 3.5% down payment loan FHA loans, credit scores must 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.
Difference Between AUS Versus Manual Underwriting
Many 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 are normally lower on manual underwrites. Timely payments in the past 24 months are very important in manual underwriting.
Compensating factors are positive factors borrowers have to offset their weaker credit profiles. Strong compensating factors are key for manual underwriting borrowers with higher debt-to-income ratios. The maximum debt-to-income ratio on manual underwriting is 40% front end and 50% back end with two compensating factors.
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. For borrowers who can only afford a 3.5% down payment on a new home purchase, Gustan Cho Associates will help you boost your credit scores to 580 FICO.
We are experts in helping borrowers increase their credit scores with several quick fixes. Our licensed or support personnel team can help you repair your credit and improve your scores to 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 has questions on FHA home loan requirements, please get in touch with us at Gustan Cho Associates at 800-900-8569 or email us at email@example.com. Text us for a faster response. The team at Gustan Cho Associates is available seven 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 do not have the 10% down payment, Gustan Cho Associates can help them get to a 580 credit score. There are many down payment assistance loan programs for FHA home loans.
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 and 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.
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 is a one-time 1.75% FHA mortgage insurance premium added to the FHA loan balance. Mortgage borrowers are also responsible for paying an annual FHA mortgage insurance premium of .055% of the loan amount for the term of a 30-year fixed-rate mortgage for the life of the FHA loan.
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 Lenders Have Different Mortgage Guidelines on FHA Loans
Yes, each mortgage lender has requirements 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 you meet the minimum HUD Agency Guidelines, but you do not qualify with just them due to their lender overlays.
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. HUD has the most lenient guidelines than any other mortgage loan program. Homebuyers with bad credit can qualify for FHA home loans.
Homebuyers need to understand the basic HUD agency guidelines on FHA loans. You know you qualify for an FHA loan if you meet the minimum HUD agency guidelines.
Each independent mortgage lender can have higher lending requirements above and beyond the minimum HUD agency guidelines. Just because a borrower qualifies for an FHA loan does not mean they qualify with every lender.
Are Mortgage Brokers or Mortgage Bankers Best For Bad Credit?
Lenders like Gustan Cho Associates have 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 only deal with their products.
Mortgage brokers have lower commissions than mortgage bankers. Therefore, you will get better mortgage rates with brokers. Mortgage brokers can offer government loans, conventional loans, non-QM loans, and other alternative mortgage options where mortgage bankers can’t.
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 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, some lenders have no lender overlays, like Gustan Cho Associates.
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 must have all their borrowers meet the minimum HUD Agency Guidelines.
Each lender can set their lending requirements on FHA loans called lender overlays.
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 210 wholesale lenders. We wholesale mortgage lenders and investors with no lender overlays on FHA loans.
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.
Gustan Cho Associates is one of the few national mortgage companies with no lender overlays on FHA 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 2023 are at $726,200. The 2023 FHA loan limit is capped at $472,030.
What Is The FHA Upfront Mortgage Insurance Premium?
The FHA Upfront Mortgage Insurance Premium is 1.75% of the FHA loan balance normally rolled into the balance of FHA home loans. The FHA upfront mortgage insurance premium is often called 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%, normally added to the loan balance.
What Is FHA Mortgage Insurance Premium?
Besides the one-time FHA upfront mortgage insurance premium (FHA UFMIP), there is a 0.55% 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 fund to pay lenders for borrowers who default or foreclose on their FHA 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 realize their dream of homeownership with little down payment and lenient credit guidelines with an FHA home purchase loan.
One important thing borrowers need to remember 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 by Gustan Cho Associates.
What Are The Types of FHA Home Loans?
The following types of FHA loans is available for homebuyers:
FHA 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 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.
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 created the HUD 4000.1 FHA Handbook and sets the lending requirements and loan limits for FHA loans. In the following sections, we will cover and discuss the types of FHA home loans, the benefits of FHA loans, and the eligibility requirements for homebuyers and homeowners.
What Is The HUD 4000.1 FHA Handbook?
The HUD 4000.1 FHA Handbook comprises over 1,000 pages of every aspect of FHA lending requirements. HUD updates it as changes in FHA loan requirements change 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, updated periodically, consists of over 1,000 pages of HUD agency guidelines that lenders must 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 mortgage lender can have lending requirements that are above and beyond the minimum HUD guidelines of the 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.
Homebuyers with credit scores under 580 and down to 500 FICO are eligible for an FHA loan. A 10% down payment is required for borrowers with 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 must have been timely on all your payments for the past 24 months. You cannot have late payments in the past 12 months and need verification of rent on all manual underwriting loans.
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 under 580 FICO are limited to a 31% front-end and 43% back-end debt-to-income ratio.
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. Many borrowers are told by lenders they need to pay unpaid debts to qualify for FHA home loans. Again, it goes back to not all lenders being the same regarding FHA home loans.
HUD, the parent of FHA, does not require outstanding collections that do not have to be paid to qualify.
It is up to the individual mortgage company to determine 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 for you 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.
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 or profit and-loss write-off accounts on credit bureaus. Collection accounts normally turn into charged-off accounts. 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 or zombie debt collectors.
Credit card charged-off accounts are normally good for five 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.
FHA Loans After a Housing Event
A housing event is a foreclosure, a 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.
Suppose the borrower had a home foreclosure, deed-in-lieu of foreclosure, or short sale. In that case, there is a three-year waiting period from the recorded date of the foreclosure or deed-in-lieu of foreclosure or the date of the sheriff’s sale.
The waiting period start date is when the home deed 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 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 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.
What Is The Waiting Period After Short-Sale on FHA Home Loans?
After a short sale, a three-year waiting period is required to qualify for an FHA loan. However, if the borrower was not late with a monthly mortgage payment leading up to the short sale date, there is no waiting period requirement.
The waiting period start date is when the deed of the property has been transferred from the borrower’s name to either the lender’s or the new borrower’s name.
The waiting period start date is when the property was sold at the sheriff’s sale. 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.
Can I Qualify For an FHA Loan After a 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 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 or the Closing Disclosure (CD).
Can I Qualify For An FHA Loan After Bankruptcy?
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. Homebuyers can qualify for home loans after bankruptcy.
There are two 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 rebuild and re-establish credit.
FHA Loans After Chapter 7 Bankruptcy
Homebuyers can qualify for an FHA loan two years after the Chapter 7 Bankruptcy discharge date. Lenders expect rebuilt and re-established credit after the discharge date—no late payments after the discharge date of Chapter 7 Bankruptcy. ] Homebuyers can qualify for an FHA loan after Chapter 7 Bankruptcy after two years from the discharge date.
The team at Gustan Cho Associates has helped countless borrowers get their credit scores to over 700 FICO after the Chapter 7 Bankruptcy discharge date.
FHA loans require a two-year waiting period 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 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 must ensure they are always on time.
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. It needs to be a manual underwrite.
There is no waiting period after the discharge date of a Chapter 13 Bankruptcy to qualify for FHA home loans.
If the Chapter 13 Bankruptcy has not been seasoned for two years, it must be a manual underwrite. Government and conventional loans have waiting period requirements after bankruptcy. The waiting period requirement depends on the individual mortgage loan program.
FHA Home Loans While In Chapter 13 Without Bankruptcy 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 there is no problem.
Borrowers in an active Chapter 13 Bankruptcy repayment plan can qualify for an FHA loan during the repayment plan without 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 must be in the Chapter 13 repayment plan for 12 months before qualifying. Timely payments during the Chapter 13 repayment plan are required.
FHA Loans After Chapter 13 Bankruptcy Discharged Date
Manual underwriting guidelines apply. Homebuyers can qualify for FHA home loans during a Chapter 13 Bankruptcy repayment plan without the bankruptcy being discharged. There are no waiting period requirements after the Chapter 13 Bankruptcy discharge date. If the Chapter 13 Bankruptcy has not been discharged for two years, it must be manually underwritten. We will discuss more on manual underwriting in the next paragraph.
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 a Chapter 13 Bankruptcy repayment plan. There are no waiting period requirements after the Chapter 13 Bankruptcy discharge date on both FHA and VA loans.
Manual Underwriting While In a Chapter 13 Bankruptcy
All FHA home loans during the Chapter 13 Bankruptcy repayment plan must 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 must be manually underwritten. Over 25% of our home mortgages at Gustan Cho Associates Are FHA And VA 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 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 or downgrade with another home purchase after one year and purchase another home.
If 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 since 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 in one of the units and can rest out the remaining units and collect rental income.
HUD, the parent of FHA, require homebuyers of owner-occupant primary homes with FHA loans to live in the home for at least 12 months before they vacate to another owner-occupant home.
If you decide to keep the exiting home as a rental and 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 if you use 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 for FHA home loans. We will discuss the various loan programs available and borrowers’ mortgage options 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:
- FHA LOANS FOR FIRST-TIME HOMEBUYERS
- HIGH-BALANCE FHA JUMBO LOANS
- FHA MANUAL UNDERWRITING GUIDELINES
- USING FHA LOANS TO FINANCE A MIXED-USE PROPERTY
- FHA ONE-TIME CONSTRUCTION LOANS
- FHA 203K LOANS
- FHA REVERSE MORTGAGES
The Importance Of Understanding The Minimum FHA 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 homebuyers.
FHA home loans are popular for first-time homebuyers, homebuyers with a recent bankruptcy or are under a Chapter 13 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. Mortgage companies like Gustan Cho Associates have zero lender overlays on FHA loans.
Understanding Why FHA Loan Requirements Is Different Among Lenders
The Federal Housing Administration is a governmental agency insures mortgage loans against default to mortgage lenders. The Federal Housing Administration has its own rules and requirements that lenders need to adhere to to be insured by HUD. The Federal Housing Administration has its minimum guidelines.
The mortgage lender can set more strict overlays 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 with 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 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. The borrower can pay closing costs. 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 instead of a higher interest rate. The borrower will qualify for a one to four-unit residential owner-occupied property. By owner-occupied, the home needs to be the borrower’s principal residence. It 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 related to the main borrower by blood, marriage, or law are allowed on a 3.5% down payment FHA loan.
- Non-occupant co-borrowers not related to the main borrower by blood, marriage, or 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 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 decrees, child support, etc.
Mortgage Options For Bad Credit
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 have no waiting period requirements.
Non-QM loans require a minimum of a 20% down payment versus a 3.5% on FHA home loans.
The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays. Gustan Cho Associates has a national reputation for being a one-stop mortgage shop. We offer government and conventional loans and every non-QM loan program available today.
Home Purchase Mortgage Programs Listed By Each Individual State:
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