FHA Loan Bad Credit Mortgage Guidelines And Getting Approved

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FHA Loan Bad Credit Mortgage Guidelines And Getting Approved

This BLOG On FHA Loan Bad Credit Mortgage Guidelines And Getting Approved Was Written On September 9th, 2019

FHA Loan Bad Credit
Gustan Cho Associates Mortgage Group

FHA Loans are the most popular loan program for home buyers in the U.S.

  • Home Buyers can qualify for FHA Loan Bad Credit
  • Borrowers do not need perfect credit nor higher credit scores to qualify for FHA Loan Bad Credit. Outstanding collections and/or charged off accounts do not have to be paid to qualify for FHA Loan Bad Credit
  • HUD, the parent of FHA, has created and implemented very lax mortgage guidelines for home buyers with less than perfect credit and higher debt to income ratio to qualify and get approved for FHA Loan Bad Credit

In this article, we will cover and discuss FHA Loan Bad Credit Mortgage Guidelines And Getting Approved.

About The Federal Housing Administration

FHA Loan Bad Credit

FHA does not originate, process, underwrite, fund, or service loans.

  • FHA is a government agency under The United States Department Of Housing And Urban Development, HUD, whose role is to insure and guarantee FHA Loans originated and funded by private lenders
  • FHA insures loans that are defaulted and foreclosed and offers insurance against lender’s loss due to foreclosure

In order for FHA to insure lenders, mortgage lenders need to follow HUD 4000.1 FHA Handbook Guidelines.

Reason Why FHA Loans Are So Popular

Reason Why FHA Loans Are So Popular

As mentioned earlier, FHA is the most popular loan program in the United States.

  • Due to the government guarantee, private lenders can offer owner occupant loans with 3.5% down payment at very low mortgage interest rates
  • HUD sets the mortgage guidelines for FHA Loans
  • Home Buyers with prior bankruptcy and/or housing event and bad credit can qualify for FHA Loans

FHA mission is to promote home ownership to all hard working Americans.

Qualifying For FHA Loans After Bankruptcy

Qualifying For FHA Loans After Bankruptcy

Many consumers who filed bankruptcy think they can never qualify for a home loan. This is not true.

  • Consumers can file Chapter 7 Bankruptcy and qualify for FHA Loans after two years of their discharged date
  • Re-established credit and no late payments after Chapter 7 Bankruptcy is preferred by lenders
  • One or two late payments after Chapter 7 Bankruptcy discharged date is not a deal killer
  • Home Buyers can qualify for FHA Loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval
  • It needs to be a manual underwrite
  • There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for FHA Home Loans

Anyone with less than a two year seasoning period after Chapter 13 Bankruptcy discharged date needs to be manually underwritten.

What Is The Wait Period After Housing Event To Qualify For FHA Home Loans

What Is The Wait Period After Housing Event To Qualify For FHA Home Loans

There is a three year wait period to qualify for FHA Mortgages after a housing event.

  • The waiting period start date starts from the recorded date of foreclosure and/or deed in lieu of foreclosure
  • Wait period after short sale starts from the short sale date reflected on the Closing Disclosure
  • If borrower had mortgage included in Chapter 7 Bankruptcy, there is a three year waiting period after the recorded date of the housing event on FHA Loans
  • With conventional loans, the waiting period starts from the discharged date of Chapter 7 Bankruptcy
  • The foreclosure, deed in lieu of foreclosure, short sale needs to be finalized. However, the housing event date does not matter on Conventional Loans

The mortgage cannot be reaffirmed after the Chapter 7 Bankruptcy.

Credit Guidelines To Qualify For FHA Home Mortgages

Credit Guidelines To Qualify For FHA Home Mortgages

Minimum credit scores to qualify for 3.5% down payment FHA Home Loans is 580.

  • Home Buyers with credit scores between 500 and 579 can qualify for FHA Loans but need 10% down payment and an approve/eligible per Automated Underwriting System
  • Borrowers do not have to pay outstanding collections and charged off accounts
  • However, key in getting approve/eligible per Automated Underwriting System Approval is to have been timely in past 12 months
  • Late Payments after bankruptcy and/or housing event is really frowned upon by lenders
  • However, one or two late payments after bankruptcy and/or foreclosure is not a deal killer
  • Most lenders have lender overlays where they will automatically disqualify borrowers with late payments after bankruptcy and/or foreclosure

Gustan Cho Associates Mortgage Group has zero overlays on FHA Loans.

Direct Lender With No Overlays

Direct Lender With No Overlays

We just go off automated underwriting system approval findings

  • Borrowers with judgments and/or tax liens can qualify for FHA Loans as long as they can pay the outstanding judgment and/or tax lien prior to or at closing
  • If not, consumers can have a written payment agreement with the judgment creditor and/or IRS
  • Three months of payments is required to judgment creditor and/or Internal Revenue Service
  • Need to provide three months canceled checks and/or bank statements showing proof of payment

Borrowers cannot pre-pay the three months upfront to qualify for FHA Mortgages.

Do All Lenders Have The Same FHA Mortgage Requirements?

Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays. Mortgage Overlays are additional lending guidelines above and beyond those of HUD Guidelines. Gustan Cho Associates Mortgage Group has no overlays on FHA Loans. We just go off AUS approval. All of our pre-approvals are full loan commitments that has been fully underwritten and signed off by our mortgage underwriters. Please contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.  We are available 7 days a week, evenings, weekends, and holidays.

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