FHA loans are one of the most popular mortgage loans and have very lenient mortgage lending guidelines. The U.S. Department of Housing and Urban Development, HUD, is the parent of the Federal Housing Administration, FHA, and many changes have been implemented on FHA insured mortgage loans after the real estate and mortgage meltdown of 2008. FHA loans are great for first time home buyers, home buyers with prior bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, home buyers with prior bad credit, home buyers with no credit, home buyers with high debt to income ratios, self employed or 1099 wage earners, and home buyers with credit issues. A home buyer can qualify for a FHA loan with a minimum credit score of 500 FICO. However, if you are a home buyer with a credit score between 500 FICO and 579 FICO, you need a 10% down payment.
FHA Loan Requirements
FHA allows home buyers to purchase a home with a 3.5% down payment as long as the home buyer’s credit scores is at least 580 FICO. FHA allows for home buyers with prior bad credit, judgments, tax liens, charge offs, and other credit issues. You can have unsatisfied collection accounts and still qualify for a FHA loan without having to pay off old collection debts. FHA ignores medical collection accounts and charge offs. FHA also has relaxed debt to income ratio requirements. Maximum front end debt to income ratios required is 46.9% and maximum back end debt to income ratios required is 56.9%. FHA also allows down payments and closing costs to be gifted. 100% of the down payment and closing costs can be gifted to a FHA loan borrower from a family member and/or relative. FHA also allows for non-occupant co-borrowers to be added on the FHA loan in the event if the main borrower has little or no documented income.
FHA Mortgage: FHA Mortgage Lenders
FHA is not a mortgage company nor does it have anything to do with FHA loans. FHA’s main role is to insure FHA loans to FHA approved mortgage lenders. FHA approved mortgage lenders are private mortgage lenders like banks, credit unions, and mortgage companies. These FHA approved mortgage lenders need to be approved with FHA in order for FHA to insure their mortgage loans.
If I Meet FHA Lending Guidelines, Can I Get Loan With Any FHA Approved Mortgage Lenders?
No. If you meet FHA lending guidelines, you are eligible to qualify for a FHA loan but that does not mean any FHA approved FHA mortgage lender will approve you. Even though you meet all of the FHA guidelines, every FHA mortgage lender will have their own set of FHA lending guidelines that are above and beyond the minimum lending FHA federal guidelines. For example, even though FHA minimum credit score requirements is 580 FICO credit score to qualify for a 3.5% down payment, most banks will not take any mortgage loan applicant who does not have a 640 FICO credit score. This additional lending requirements imposed by each individual mortgage lender is called a mortgage lender overlay, also known as overlays. Do not get discouraged if one mortgage lender denies you a FHA loan due to their overlays. As long as you meet minimum FHA mortgage lending guidelines, there will be a mortgage lender that will give you a FHA mortgage loan. There are mortgage lenders, like myself, who specialize in funding loans and have no mortgage lender overlays. I just go off DU FINDINGS and/or LP FINDINGS.
Typical FHA Lender Overlays
If you do not qualify for a FHA loan with a particular FHA approved mortgage lender, ask the mortgage loan originator why you do not qualify for the FHA loan. Ask the mortgage loan originator if you do not meet FHA mortgage lending guidelines or if you do not meet the particular mortgage lender’s FHA lender overlays. If, for example, the mortgage loan originator tells you that the reason you do not qualify is because of your low credit score of 580 FICO and their minimum credit score requirements is set at 640 FICO, you know that you do not qualify with that particular lender due to their own internal FHA lender overlays.
Debt To Income Ratios On FHA Loans
Besides minimum credit score FHA lender overlays, other common FHA lender overlays that disqualify many FHA loan applicant are debt to income ratios. FHA allows up to a 46.9% front end debt to income ratios and 56.9% debt to income ratios. Many FHA approved mortgage lenders have FHA lender overlays on debt to income ratios. For example, one FHA mortgage lender may have FHA lender overlays with regards to debt to income ratios where any mortgage loan applicants under a 640 FICO credit score may only have maximum debt to income ratios of 31% front end debt to income ratios and no greater than 43% debt to income ratios. FHA guidelines on debt to income ratios are as follows: If your credit scores are lower than 620 FICO, your front end debt to income ratios are capped at 31%. The back end debt to income ratios is capped at 43%. If your credit scores are greater than 620 FICO, your front end debt to income ratios are capped at 46.9% and back end debt to income ratios is capped at 56.9%.
Collection Accounts And FHA Loans
Other FHA lender overlays imposed by some FHA approved mortgage lenders are collection accounts. FHA does not require a mortgage loan borrower to pay off old collection accounts to qualify for a FHA loan. However, mortgage lenders can have FHA lender overlays that all collection accounts need to either have zero balances or have it paid off. The reason many mortgage lenders want old collection accounts with balances paid off is due to the fact that a collection account with a credit balance might turn into a judgment.
Three credit tradelines that has been seasoned for at least 12 months is normally required to get an approve eligible per DU or LP FINDINGS. However, some FHA approved mortgage lenders may require that credit tradelines need to be seasoned for at least 24 months.
FHA lending guidelines does not require judgments to be completely paid off. Having a written payment plan that has been seasoned at least 2 months is fine. Many mortgage lenders will not accept this and will want judgments paid off.
How Do I Find FHA Lender With No FHA Lender Overlays?
As long as you get an approved/eligible per DU FINDINGS and/or LP FINDINGS, you will get a mortgage lender that will approve your mortgage loan even if some mortgage lenders do not qualify you due to their FHA lender overlays. The Money Store has no mortgage lender overlays and is licensed in most of the 50 states. If you are not in any of these states but need a no overlay mortgage lender, please call us at 262-716-8151 or contact us at www.gustancho.com and we will direct you to someone that can help you.