FHA Loan with Recent Late Payments: A Guide to Qualifying in 2025
Suppose you’ve had recent late payments on your credit report. In that case, you might wonder if qualifying for an FHA loan is possible. At Gustan Cho Associates, we specialize in helping borrowers with less-than-perfect credit, including those with late payments in the past 12 months.
It’s important to note that you can qualify for an FHA loan even if you have outstanding collections and charged-off accounts.
The good news is that qualifying for an FHA loan with recent late payments is achievable, even if other lenders have turned you away. Let’s break it down into simple terms so you know your options and how to take the next steps toward homeownership.
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Can You Get an FHA Loan with Recent Late Payments?
Absolutely, qualifying for an FHA loan with recent late payments is possible. However, there are crucial factors to keep in mind. FHA loans are recognized for their more lenient credit criteria. While having late payments is not favorable, it does not mean you will be disqualified outright. Here are several important considerations:
- Automated Underwriting System (AUS) Approval: The AUS is a computerized system lenders use to determine eligibility. If you can secure an “Approve/Eligible” through the AUS, your chances of qualifying for an FHA loan with recent late payments improve significantly.
- On-Time Payments Over the Last Year: Lenders look closely at your payment history over the last year. One or two late payments don’t mean you’re out of the running, but consistent on-time payments will strengthen your application.
- Compensating Factors: Strong financial factors like higher income, cash reserves, or a larger down payment can offset the impact of recent late payments.
At Gustan Cho Associates, we work with lenders with no overlays, meaning they follow FHA’s minimum guidelines without adding stricter requirements. This is a huge advantage for borrowers who don’t fit the mold of traditional lenders.
What Are Lender Overlays?
When we talk about lender overlays, we mean extra rules that some lenders add on top of the basic FHA guidelines. For example, FHA says you can qualify for a loan with a credit score as low as 500, but many lenders won’t approve you unless your score is at least 580 or even 620. If you’ve been turned down for an FHA loan due to recent late payments, it might be because of these extra rules from the lender, not the FHA itself.
At Gustan Cho Associates, we work with lenders who don’t have these extra rules. This makes getting approved easier for people dealing with tough credit situations. If you’ve had late payments or other credit problems and are looking for an FHA loan with recent late payments, we’re here to help you find the right options.
How Do Late Payments Impact FHA Loan Eligibility?
Lenders evaluate late payments based on timing, frequency, and severity. Here’s how it breaks down:
- Late Mortgage Payments:
- If you’ve had a late payment on a previous mortgage in the past 12 months, it’s a red flag for lenders.
- However, one or two late payments may not disqualify you if you can explain the circumstances and show you’ve recovered financially.
- Late Payments After Bankruptcy or Foreclosure:
- Late payments after a bankruptcy, foreclosure, or short sale are considered more serious. These are considered “second offenses” and may require manual underwriting or compensating factors.
- Other Late Payments:
- Late payments on credit cards, auto loans, or other accounts are less impactful than mortgage late payments but are still reviewed closely.
If you’ve had a few late payments recently, the best thing you can do is make sure you start paying on time from now on. This shows lenders that you’re back on track with your money. If you’re looking for an FHA loan with recent late payments, showing you can consistently make on-time payments will really help your chances.
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How to Qualify for an FHA Loan with Recent Late Payments
If you’ve had late payments recently, here are the steps you can take to improve your chances of qualifying for an FHA loan:
1. Let the Late Payments Season
Lenders want to see a period of stability after late payments. If your late payments are more than six months old and you’ve been timely since then, your chances improve significantly. For manual underwriting, lenders may require 24 months of on-time payments.
2. Work on Rebuilding Credit
Start rebuilding your credit immediately by:
- Paying all bills on time.
- Strive to maintain your credit card balance at or below 30% of your total credit limit.
- Avoiding new credit inquiries.
3. Provide a Letter of Explanation
Explain the circumstances behind your late payments. Examples of acceptable reasons include:
- Job loss or reduced income.
- Medical emergencies.
- Divorce or family hardships.
- Business closure.
Your letter should be honest, concise, and supported by any documentation you can provide (e.g., hospital bills and termination letters).
4. Highlight Compensating Factors
When you’re looking for an FHA loan with recent late payments, some factors can help your application. Here are a few things to keep in mind:
- A low debt-to-income (DTI) ratio.
- Significant cash reserves.
- A larger down payment (e.g., 10% instead of the minimum 3.5%).
- A strong employment history.
These factors help balance concerns about recent late payments on your record.
5. Consider Manual Underwriting
If an Automated Underwriting System (AUS) doesn’t approve your FHA loan with recent late payments, you can still explore manual underwriting. In manual underwriting, a person looks closely at your application and considers all the details. They might approve your loan if you show reasons why you had those late payments and present other strong points in your favor. This means that even if you’ve had some bumps in the road, there might still be a path to getting your loan approved.
Real-Life Story: FHA Loan Approval with Recent Late Payments
Let me tell you about Sarah. She had a tough time because she missed a mortgage payment and was late on her car payment while going through Chapter 13 Bankruptcy. Even with these bumps in the road, we were able to help Sarah get an FHA loan with recent late payments. Here’s how we did it:
- We pointed out that Sarah made all her other payments on time for the last 10 months.
- She had $15,000 saved up, which showed she was responsible with her money.
- We wrote a clear letter explaining how she has been getting back on track financially.
Because of these positive things and a little extra effort from the underwriters, Sarah was able to close on her dream home with the FHA loan she needed.
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What’s New for FHA Loans in 2025?
As of 2025, FHA guidelines remain flexible for borrowers with credit challenges. However, there are a few updates you should know:
- Increased Loan Limits:
- FHA loan limits have been adjusted to reflect rising home prices. Check the limits for your area to see how much you can borrow.
- Stricter Scrutiny on Housing Payments:
- Lenders are placing greater emphasis on housing payment history. This means even one late mortgage payment will require a solid explanation.
- Focus on Financial Stability:
- Borrowers with recent late payments are encouraged to demonstrate financial stability through compensating factors like reserves and low DTI ratios.
Get Approved for an FHA Loan with Gustan Cho Associates
At Gustan Cho Associates, we understand that life happens. Whether you’ve had late payments due to a job loss, medical emergency, or other circumstances, we’re here to help. Our team specializes in working with borrowers who other lenders have turned away.
- No Lender Overlays: We follow FHA guidelines without imposing additional restrictions.
- Flexible Options: We offer FHA loans, non-QM loans, and other financing solutions for borrowers with challenging credit.
- Personalized Support: Our mortgage experts will guide you every step of the way.
Don’t let recent late payments stop you from getting the home you’ve always wanted. If you’re thinking about an FHA loan with recent late payments, reach out to Gustan Cho Associates at 800-900-8569 or email us at alex@gustancho.com. We’re here for you every day of the week, even on evenings and holidays.
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Frequently Asked Questions About FHA Loans with Recent Late Payments:
Q: Can I Qualify for an FHA Loan with Recent Late Payments?
A: Yes, you can qualify if you meet FHA’s minimum guidelines and secure AUS approval. Manual underwriting is also an option if your case is more complex.
Q: How Far Back Do Lenders Look at Late Payments?
A: Lenders typically focus on your payment history from the past 12 months. Older late payments are less significant but still reviewed.
Q: Will One Late Payment Disqualify Me?
A: Not necessarily. If you have strong compensating factors and provide an explanation, one late payment may not prevent you from getting approved.
Q: What’s the Minimum Credit Score for an FHA Loan?
A: A minimum of 500 credit score is required to qualify for an FHA loan if you’re making a down payment of 10%. However, if you opt for a lower down payment of 3.5%, you will need a 580 credit score, no less.
Q: Should I Wait Before Applying?
A: If your late payments are recent, waiting six months to a year while rebuilding your credit can improve your chances of getting approval.
Q: What if I had Late Payments During a Financial Hardship?
A: If you’ve experienced late payments because of financial difficulties, such as losing your job or facing a medical crisis, lenders might be more understanding if you provide proper documentation to clarify your circumstances.
Q: Can I Qualify with a Larger Down Payment Despite Late Payments?
A: Yes, putting down a larger amount, such as 10% or more, can improve your chances of approval for an FHA loan if you have recently made late payments.
Q: How do Lenders View Late Payments After Bankruptcy?
A: Late payments after bankruptcy are considered serious. However, with a strong recovery plan and compensating factors, you may still qualify for an FHA loan with recent late payments.
Q: Are Late Rent Payments Considered?
A: Yes, late rent payments are reviewed during the underwriting process. Consistently paying your rent on time in recent months can strengthen your application.
Q: What is Manual Underwriting, and How Can it Help Me?
A: Manual underwriting is when a person looks closely at your loan application instead of using a computer system. This can be helpful if you have an FHA loan with recent late payments but also have good reasons, like having extra cash saved up or a steady job. It allows the underwriter to see the whole picture of your financial situation.
This blog about “FHA Loan With Recent Late Payments in the Past 12 Months” was updated on January 23rd, 2025.
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