What Are FHA Loan Guidelines?
FHA Loan Guidelines Explained:
FHA Loan Guidelines are the requirements and standards set by the Federal Housing Administration, commonly known as FHA, for FHA approved mortgage lenders to follow in order for FHA to insured FHA Loans they originate. FHA Loans are the most popular mortgage loan programs in the United States and has much more lenient mortgage lending guidelines than other mortgage loan programs. FHA Loans are the loan program of choice for first time home buyers and home buyers with prior bad credit and lower credit scores. FHA allows 100% gift funds for the down payment on a home purchase and also allows non-occupant co-borrowers to be added to qualify for additional income. More than one non-occupant co-borrower can be added on the mortgage loan on FHA Loans. FHA Loan Guidelines on debt to income ratios depends on the mortgage loan borrower’s credit scores.
FHA Loan Guidelines On Credit Scores
FHA Loan Guidelines On Credit Scores are generous. To qualify for a 3.5% down payment home purchase FHA insured mortgage loan, the minimum credit score required is 580 FICO. Mortgage Borrowers with credit scores under 580 FICO credit scores can qualify for FHA Loans, however, they will need 10% down payment.
If a mortgage loan borrower has credit scores of under 620 FICO credit scores, the maximum debt to income ratio permitted to get an approve/eligible per DU FINDINGS is 43% DTI. FHA mortgage loan borrowers with credit scores of 620 FICO or higher can qualify for FHA insured mortgage loans with debt to income ratios as high as 56.9% DTI. FHA allows for manual underwriting on mortgage loan applicant’s who cannot get an automated approval. All manual underwriting and borrowers with credit scores under 620 FICO credit scores require borrowers to provide verification of rent. Rental verification is only valid if the mortgage loan borrower can provide 12 months of canceled checks and/or bank statements which has been paid timely to the landlord. If the mortgage loan borrower is renting from a registered property management company, a VOR can be used in lieu of canceled checks and/or bank statements.
FHA Loan Guidelines On Collection Accounts
FHA does not require for FHA mortgage borrowers to pay off outstanding collection accounts and charge offs. FHA exempts medical collection accounts and charge off accounts from debt to income ratio calculations no matter how much the unpaid outstanding balance is. However, if a FHA borrower has a total of $2,000 in unpaid outstanding non-medical collection accounts, then FHA requires that 5% of the unpaid outstanding collection account balance be used in calculation of the borrower’s debt to income ratios.
FHA Loan Guidelines On Credit Disputes
FHA does not allow credit disputes on non-medical collection accounts with a total aggregate unpaid outstanding collection balance of greater than $1,000. All non-medical credit disputes with outstanding balances needs to be retracted and removed on the borrower’s credit report in order for the mortgage process to proceed. Zero balance derogatory non-medical items are permitted with credit disputes.
FHA does not count charged off collection accounts and exempts them from debt to income calculations but you cannot have any credit disputes on charge off accounts. Charge off account disputes needs to be retracted before the mortgage loan process can proceed.
FHA does not care about credit disputes on outstanding medical collection accounts, no matter how much the outstanding unpaid balance is. You can have credit disputes on medical collection accounts.