Can I Qualify For FHA Loan With Recent Late Payments

One of the most common inquiries I get on a daily basis is if you can qualify for FHA Loan With Recent Late Payments. You can qualify for an FHA loan with outstanding collections and charged-off accounts. You do not have to pay outstanding collections and/or charged-off accounts and still qualify for an FHA loan as long as you can get an automated approval per AUS.

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The Importance of Timely Payments After Period of Bad Credit for AUS Approval

You can qualify for an FHA loan with a prior bankruptcy, foreclosure, deed in lieu of foreclosure, short sale after meeting the waiting period requirements as long as you can get an approve/eligible per automated underwriting system (AUS). You can qualify for an FHA loan with credit scores down to 500 FICO. This holds true as long as you can get an approve/eligible per AUS. The key in getting an approve/eligible per automated underwriting system is to be timely on all your payments in the past 12 months. Lenders and the automated underwriting system closely review the borrower’s payment history with a strong emphasis on timely payments in the past 12 to 24 months.

Importance Of Timely Payments In The Past 12 Months

Most lenders will not accept any mortgage loan applicants who had any late payments in the past 12 months: This holds even with an automated underwriting system (AUS) approval. Majority of lenders with not accept any borrowers with late payments after bankruptcy and/or housing events (Foreclosure, Short Sale, Deed In Lieu Of Foreclosure). This holds true even with an AUS Approval.

Can You Get Approved For an FHA Loan With Recent Late Payments After Bankruptcy and Foreclosure?

Lenders frown upon borrowers with late payments after bankruptcy and/or foreclosure. Borrowers with late payments after bankruptcy and/or a housing event are considered second offenders. The good news is that qualifying for FHA Loan With Recent Late Payments is doable with a lender that has no lender overlays on FHA loans. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans. The team at Gustan Cho Associates has helped many borrowers qualify for FHA Loan With Recent Late Payments as well as late payments after bankruptcy and foreclosure.

FHA Loan With Recent Late Payments Solutions: Positive Credit After Late Payments

The best way to qualify for FHA Loan With Recent Late Payments is for the late payment to season. Again, most lenders want to see timely payments in the past 12 months. However, one or two late payments in the past 12 months is not a deal killer. This holds true as long as the borrower can get an Approve/Eligible per AUS

Bad Credit And Recent Late Payments

The best chance of getting an AUS Approval is to have positive re-established credit after the date of the last activity of the late payment: Lenders do understand borrowers can have had periods of bad credit because of extenuating circumstances.

Examples of extenuating circumstances are the following:

  • due to loss of business
  • loss of employment
  • divorce
  • medical reasons

The Importance of Re-Establishing Credit After Bad Credit To Get Pre-Approved For A Mortgage

However, lenders want to see borrowers has recovered from the periods of bad credit:

  • Lenders want to see borrowers have re-established credit and not have any late payments after the period of bad credit
  • The majority of lenders will not approve any borrowers who have had any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • The majority of lenders do not want to see any late payments in the past 12 months
  • A large percentage of lenders will want to see timely payments on all of the credit tradelines for a period of 24 months
  • Just because a borrower has the minimum credit score does not mean the borrower will qualify for an FHA Loan

If the borrower has a credit score of over 640 plus a FICO credit score but has a few late payments in the past 12 months, the borrower may not qualify for an FHA loan.

Homebuyers With Prior Bad Credit But Timely Payments In The Past 12 Months Can Get Mortgage Approval

Borrowers with lower credit scores, but timely payment history in the past 12 months have a better chance of qualifying for an FHA loan than borrowers with higher credit scores but late payments in the past 12 months. One or two late payments in the past 12 to 24 months is not good, but not always a deal killer.. The answer to the question of whether borrowers can qualify for FHA Loan With Recent Late Payments, the answer is yes. However, the deal needs to make sense. We will go over the case scenarios on how to qualify for an FHA Loan With Recent Late Payments on this blog.

FHA Loan With Recent Late Payments: Place Yourself On The Lenders Side

Having a late payment in the past 12 months will not disqualify you from getting an FHA Loan. However, timely payments in the past 12 months are viewed favorably and any late payments in the past 12 months will be scrutinized by lenders. To qualify for a 3.5% down payment FHA home purchase mortgage loan, the minimum credit score required is 580 FICO.

FHA Loans with Under 600 FICO

A 580 credit score is considered a very low credit score. If your credit scores are 580 FICO, the chances are that most lenders will want you to have timely payments for the past 12 months. However, if borrowers have a higher credit score, like credit scores over 640 FICO, and had one late payment in the past 12 months, that should be no problem in getting an automated approval.

Can I Qualify for an FHA Loan With Recent Late Payments and Low Credit Scores

Borrowers with marginal credit scores, like 580 credit scores with more than one 30-day late payment in the past 12 months, can become an issue. Borrowers may need to wait until the late payment has been seasoned. I have recently closed on a borrower who was just out of a Chapter 13 Bankruptcy discharge. The borrower had a recent 30-day mortgage late payment on her credit report and ended up closing her FHA home loan.

Can You Qualify for an FHA Loan with Recent Late Payments?

A mortgage late payment in the past 12 months is really frowned upon by lenders. This borrower also had a late payment on her car payment during the Chapter 13 Bankruptcy repayment period. Why was I able to get this borrower mortgage loan approved and closed? Because this borrower had to compensate factors and her credit scores were over 650 FICO credit scores. The borrower had plenty of reserves and had verification of rent.

How To Get An Approval On FHA Loan With Recent Late Payments

Mortgage borrowers can qualify for FHA Loan With Recent Late Payments, however, the deal needs to make sense. Place yourself as a lender and if a borrower were to come to you with prior bad credit. But has re-established themselves and has proven themselves that they have been paying all of their bills timely since they have recovered. You will most likely feel comfortable giving them a loan. However, if a borrower comes to you for a loan and has been late with their payments in the past twelve months, would you lend them the money?

How Do Lenders View Borrowers With Recent Late Payments in the Past 12 Months?

Some of the questions you may ask and concerns you may have is why were they late?  One recent late payment may be accepted with a good letter of explanation, but what if the borrower had multiple late payments recently and was employed. Would you feel comfortable lending the applicant your hard-earned money?

Solutions on Getting Approved For An FHA Loan With Recent Late Payments

Mortgage Borrowers who had recent late payments in the past 12 months, there may be solutions.

For mortgage Borrowers who had recent late payments in the past 12 months, there may be solutions. Borrowers who were late on a credit card payment with good payment history may try to contact them to see if they can give a one-time break. See if the creditor will take the late payment history off the credit report. Same with any other creditor, such as an auto loan lender, or installment loan lender. Many times, creditors will give consumers a one-time break. Creditors may remove the late payment of the consumer credit report. Borrowers who had multiple late payments in the past 12 months may need to wait at least six months before applying for a mortgage loan.

FHA Loans Is The Best Mortgage Loan For Borrowers With Late Payments

The team at Gustan Cho Associates gets many inquiries about qualifying for an FHA mortgage loan with recent late payments. HUD, the parent of FHA, is hands down the best mortgage loan program for borrowers with lower credit scores and less than perfect credit. There are instances where homeowners have sold their homes and have a lot of cash proceeds from the sale. They are willing to put a large down payment but cannot get a new mortgage because they were late on their mortgage and/or other monthly payments in the past 12 months.

How Can I Get An Automated Underwriting Approval on an FHA Loans with Recent Late Payments In The Past 12 Months?

Almost all mortgage loan programs with the exception of non-QM loans, will not accept any borrower with multiple late payments in the past 12 months, especially housing late payments. However, Fannie Mae and/or Freddie Mac’s automated underwriting system most likely render an approve/eligible per AUS with late payments in the past 12 months, including mortgage late payments with a 10% to 20% down payment or more. Putting over 20% down payment on a home purchase on a VA loan will not get you an approve/eligible per automated underwriting system (AUS) but it will most likely et you an approve/eligible per AUS on an FHA mortgage loan.

How Can I Get An Automated Mortgage AUS Approval With Recent Mortgage Late Payments?

There are many different types of mortgage options for homebuyers with bad credit. Most mortgage loan programs will accept prior bad credit. Outstanding collection and charged-off accounts do not have to be paid off to qualify for an owner-occupant primary home mortgage. However, the key million dollar question is PRIOR BAD CREDIT. Prior bad credit is acceptable per agency guidelines on government and conventional loans. HUD, VA, USDA, Fannie Mae, Freddie Mac all have their own algorithm formula programmed on Fannie Mae Desktop Underwriter and Freddie Mac Loan Prospector’s automated underwriting system on its parameters on rendering approve/eligible per AUS.

How Can I Get An AUS Approve/Eligible on an FHA Loan With Recent Late Payments In The Past 12 Months?

Almost all AUS algorithms will not render an automated underwriting system approval per AUS with the exception of HUD. The team at Gustan Cho Associates specializes in being able to approve and close mortgage loans other lenders cannot. We spend countless hours and hours trying to figure out creative ways of getting mortgage approvals for our borrowers with prior credit/income issues who can easily have the ability to purchase and pay their new home loan. We found out that HUD will most likely render an approve/eligible per AUS with al larger than the minimum down payment. The larger down payment trick does not get you an AUS approval on VA, USDA, or conventional loans, but it will with an FHA mortgage loan borrower.

Mortgage Options For Homebuyers With Bad Credit

Here are the types of loan programs:

  • FHA loans
  • VA Loans
  • USDA Loans
  • Conventional Loans
  • Reverse Mortgages
  • FHA 203k Loans
  • Jumbo Mortgages
  • Non-QM Loans
  • Bank Statement Loans For Self Employed Borrowers

However, the two most popular mortgage loan programs today are FHA Loans and Conventional Loans. In this article, we will cover and discuss FHA Mortgage Loan Versus Conventional Loan Programs.

Conventional Versus FHA Mortgage Loans

Conventional loans have tougher lending criteria than FHA mortgage loans.

Conventional loans have tougher lending criteria than FHA mortgage loans. Conventional Loans are not insured and guaranteed by the government like FHA Loans, VA Loans, and USDA Loans are. For example, to qualify for a conventional loan, borrowers need higher credit scores than FHA loans. Most conventional loans have caps on their debt-to-income ratios at 50%. Most conventional loan programs do not require that collections be paid off prior to funding the loan on primary owner occupant home financing. Conventional loans do allow non-occupant co-borrowers.

Conventional Loan Non-Occupant Co-Borrower Guidelines

Conventional Loans do allow non-occupant co-borrowers that are not related to main borrowers by law, marriage, blood. One great thing about conventional loans is that if home buyers put a 20% down payment, there is no mortgage insurance requirement. Whereas with FHA loans, the mortgage insurance premium is a requirement throughout the life of the loan of a 30 year fixed rate FHA Loan. There is no upfront mortgage insurance premium with conventional loans. The private mortgage insurance premium can be substantially less than the standard 0.85% annual FHA mortgage insurance premium for borrowers with higher credit scores.

Down Payment Requirements On Conventional Loans

There are two different types of minimum down payment conventional mortgage loan programs.

  • The 3% minimum down payment conventional loans for first time home buyers
  • The 5% minimum down payment conventional mortgage loan program
  • The minimum credit score requirement on conventional loans is 620
  • Conventional mortgage loans are credit score sensitive
  • The lower a borrower’s credit scores, the higher mortgage rates will be

The waiting period restrictions after filing bankruptcy and/or having a foreclosure are much longer for conventional loans than it is for FHA mortgage loan programs.

FHA Loan With Recent Late Payments And High Debt To Income Ratio

Even if you have stellar credit scores and perfect credit, there are times where FHA loans are the only option in order to get a deal done. Remember that FHA loan is for those who are owner-occupants and are not allowed for second homes or investment homes. One example where the FHA mortgage loan program is the only option is if borrowers’ debt to income ratios exceed the conforming conventional debt to income ratio caps of 45% to 50%.

Fannie Mae Debt to Income Ratio Requirements on Conventional Loans

Most conventional loan debt to income ratios are capped at 50%. HUD AUS will accept an approve/eligible per automated underwriting system up to 46.9% front-end and 56.9% back-end debt to income ratios. Gustan Cho Associates has no lender overlays on government and conventional loans. If a home buyer has perfect credit but debt ratios exceed the conventional loan limit, they would have no other choice but to go with FHA loans.

Two To Four Unit Multi-Family Property Down Payment Requirements

Any owner-occupied property up to 4 units is considered residential property. The minimum down payment for a single-family home for a conventional loan is 3% or 5%. However, for any residential property of 2 units or more, the minimum down payment for a conventional loan jumps to 15% or more. HUD requires a 3.5% down payment for two to four-unit multi-family homes. Although the borrower might qualify for a single-family home, they will not qualify for a multi-unit residential property without putting down the required 15% or more down payment. FHA loans are the only option to go in the event if the home buyer is limited with their down payment and cannot put down 15% or more on two to four-unit multi-family homes. With the FHA mortgage loan program, a 3.5% down payment will be sufficient.

FHA Lenders For Bad Credit Borrowers With Credit Scores Down To 500 FICO

Borrowers who need to qualify for FHA Loan With Recent Late Payments with a mortgage company with no lender overlays, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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