This Article Is About FHA Loan Guidelines Alabama For First-Time Homebuyers and borrowers with bad credit.

Due to the lenient FHA loan guidelines Alabama, FHA loans are the most popular loan programs in Alabama. HUD, the parent of FHA, created FHA loans to help hard-working Americans be able to purchase a home with a 3.5% down payment and lower credit scores. For borrowers with less than perfect credit with outstanding collections and/or charged-off accounts, it is easier to get an approve/eligible per automated underwriting system than any other loan program. FHA loans are more forgiving than conventional loans for borrowers with high debt to income ratios and credit issues. FHA loans are ideal for borrowers with a brand new full-time job who have recently graduated high school or college with no work experience. Many college graduates do not have credit scores. HUD allows borrowers with no credit scores to use non-traditional credit versus traditional credit. Non-traditional credit tradelines are tradelines that do not report on consumer credit reports. Examples of non-traditional credit tradelines include utility bills, cell phone bills, college tuition, insurance payments, and other creditors that do not report to the three credit bureaus. FHA loans are the best loan program for borrowers with prior bad credit with outstanding collections and charged-off accounts. HUD, the parent of FHA, fully understands people can go through periods of bad credit where they cannot pay their bills timely. Loss of employment, loss of business, divorce, health issues, and other extenuating circumstances happen to the best of us. With extenuating circumstances comes the loss of income which means people often cannot pay their bills. However, most people eventually recover. HUD and other mortgage agencies require borrowers have re-build and re-established their credit after the period of bad credit.

FHA Loan Guidelines Alabama On Credit Scores And Prior Bad Credit

Alabama homebuyers are eligible for an FHA loan with a 3.5% down payment for a home purchase. The minimum credit score required for a 3.5% down payment home purchase FHA loan is 580 FICO. Borrowers with under 580 credit scores are eligible to qualify for an FHA loan.  Credit score requirements for borrowers with scores between 500 to 579 FICO, per HUD, the down payment requirement is 10% versus a 3.5% down payment on a home purchase.  FHA loans are the home mortgage of choice for borrowers with outstanding collections, charged-off accounts, lower credit scores, late payments, and prior bad credit. You need to have been timely on all of your monthly payments for the past 12 months to get an approve/eligible per automated underwriting system on an FHA loan.

FHA Loan Is The Most Popular Loan Program Due To Lenient FHA Loan Guidelines Alabama

One of the reasons why FHA loans are so popular is due to the low down payment requirements and lower credit score requirements. Borrowers can qualify for an FHA loan with credit scores down to 500 FICO. Conventional loans require higher credit standards. The minimum credit score to qualify for a conventional loan is 620 FICO. A 620 credit score is considered very low for conventional loans. The automated underwriting system will often not approve borrowers with credit scores of 620 unless the borrower has strong compensating factors. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on FHA, VA, USDA, and conventional loans.  Gustan Cho Associates has a national reputation for being able to do loans other mortgage companies cannot do. Over 75% of our borrowers are folks who could not qualify at other mortgage lenders due to that lender overlays or due to getting a last-minute mortgage loan denial. Gustan Cho Associates is an FHA-approved lender in Alabama with zero lender overlays. FHA loans are traditional loans and not subprime mortgages. HUD and FHA do not originate, underwrite, fund FHA loans. HUD, the parent of FHA is the federal agency that insures lenders who have borrowers default on their FHA loans. The agency will partially insure the loss due to borrower default and/or foreclosure. Due to the government guarantee, lenders are more than eager to originate FHA loans with a 3.5% down payment at competitive mortgage rates.

Understanding Agency Mortgage Guidelines Versus Lender Overlays

There are two different types of mortgage lending guidelines. The first and most important are the agency lending guidelines by HUD. Lenders need to meet the minimum agency mortgage guidelines if they want the FHA loan insured in the event of default. The second type of lending requirement is the lender overlays. Lender overlays are the individual mortgage lending guidelines by the lender.  Lender overlays are higher lending requirements that are above and beyond the minimum lending requirements imposed by HUD on FHA loans. Mortgage companies can have lender overlays on just about anything. We will cover lender overlays more in detail in the following paragraphs.

Minimum FHA Loan Guidelines Alabama For Homebuyers

HUD sets the agency mortgage guidelines on FHA loans. It is the role of guide to create and modify agency mortgage guidelines on FHA loans. Here is a list of the HUD’s minimum agency guidelines required on FHA loans.

• Homebuyers need to be owner-occupant primary home buyers
• Second homes and investment properties do not qualify for FHA loans
• One to four-unit owner occupant homes are eligible for FHA loans
• HUD-approved condos are eligbile for FHA financing
• Non-Warrantable condos that is not HUD-approved can get an exception through FHA spot loans
• HUD requires a minimum of 580 credit score to qualify for a 3.5% down payment FHA loan
• Borrowers with credit scores down to 500 FICO can qualify for FHA loans with a 10% down payment
• Per HUD agency mortgage guidelines, borrowers with under 580 and down to a 500 FICO requires a 10% versus a 3.5% down payment on FHA loans
• Borrowers can accept gift funds from family members for the down payments and/or closing costs
• Non-occupant co-borrowers are allowed
• There is no limit on the number of non-occupant co-borrowers that can be added to the main borrower
• The maximum debt to income ratio caps allowed to get an approve/eligible per automated underwriting system is 46.9% front-end and 56.9% back end
• To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers need to be related to the main borrower by blood, law, or marriage
• HUD allows non-family members to become non-occupant co-borrowers
• The down payment required is a 25% down payment versus a 3.5% down payment if the non-occupant co-borrower is not related to the main borrower by blood, law, marriage
• As mentioned earlier, recent graduates of high school, trade school, community college, college, or graduate schools do not need previous 2-year employment history
• The years spent studying in schools can be used as work experience in lieu of actual work experience
• Gaps in employment in the past two years is allowed

FHA loans have the most lenient mortgage guidelines than any other loan program. As long as the borrowers can meet the above minimum agency mortgage guidelines, they can qualify for an FHA loan in Alabama.

FHA Loan Guidelines Alabama After Bankruptcy And Foreclosure

Homebuyers can qualify for an FHA loan after bankruptcy and/or a housing event after meeting the mandatory waiting requirements.

• Borrowers can qualify for an FHA loan after meeting the two-year waiting period after the Chapter 7 Bankruptcy discharged date
• Mortgage borrowers can qualify for an Alabama FHA loan after meeting the three year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for an FHA loan
• Borrowers in an active Chapter 13 Bankruptcy repayment is eligible for FHA financing
• Needs to be a manual underwrite
• Need to be in the Chapter 13 repayment plan for at least 12 months
• Borrowers need to get bankruptcy trustee approval
• There is no waiting period after the Chapter 13 Bankruptcy discharged date
• If the Chapter 13 Bankruptcy discharge has not been discharged for at least 24 months, the file needs to be a manual underwrite

The above list of agency mortgage guidelines is the minimum lending requirement to qualify for an FHA loan in Alabama. If a lender tells you something otherwise, it means that the lender has lender overlays. Not all lenders have the same requirements on FHA loans. Just because one lender says no does not mean that you cannot qualify for an FHA loan with a different lender with no lender overlays. Gustan Cho Associates has zero lender overlays on FHA loans.

Qualifying For A Mortgage With A Lender With No Overlays

As long as you meet the above FHA Loan Guidelines Alabama, you will qualify and get approved for an FHA loan. Not all mortgage companies may honor just the minimum agency HUD Alabama FHA loan requirements but there are lenders like Gustan Cho Associates that have zero lender overlays on FHA loans. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies due to their lender overlays or got a last-minute mortgage loan denial. If you have any questions about the content of this blog or need to qualify for a mortgage with a mortgage company with no lender overlays on FHA loans, please contact us at Gustan Cho Associates at 800-900-8569 or email us at gcho@gustancho.com. Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates has a national reputation of being able to do loans other lenders cannot do due to its no lender overlay business model. Helping borrowers with 500 FICO is typical for our loan officers at Gustan Cho Associates.