FHA Loan With Recent Late Payments

FHA Loan With Recent Late Payments in the Past 12 Months

Gustan Cho Associates are mortgage brokers licensed in 48 states

One of the most common inquiries we receive daily pertains to the eligibility for an FHA loan with recent late payments. It’s important to note that you can qualify for an FHA loan even if you have outstanding collections and charged-off accounts. Settling these accounts is not mandatory for approval; instead, securing an automated approval through the Automated Underwriting System (AUS) is the key. Timely payments made in the past 12 months are crucial to obtaining approval/eligibility for an FHA loan with recent late payments through the automated underwriting system. In the following paragraphs, we will cover qualifying for an FHA loan with recent late payments.

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Can I Get an FHA Loan With Recent Late Payments

Gustan Cho Associates frequently requests assistance from individuals who have recently sold their homes but are facing challenges in qualifying for a new mortgage to buy another property due to recent late payments on their previous mortgage. Securing a new mortgage becomes a significant obstacle for those who have experienced late mortgage payments in the last 12 months after selling their current homes. The professionals at Gustan Cho Associates specialize in assisting borrowers in obtaining mortgage approval, even if they have a history of late payments on their prior mortgage within the past 12 months.

How Far Back Do Mortgage Lenders Look at Credit History?

HUD, the parent of FHA loans, is the best mortgage loan program for borrowers with recent late payments. One of the frequently asked questions from borrowers is how far back do mortgage lenders look at credit history. Lenders understand older derogatory credit tradelines. Borrowers who have experienced recent late payments in the past 12 months can explore FHA and non-QM loans as viable mortgage options.

Mortgage lenders want to see borrowers have re-established themselves and want to see timely payments for the past 12 months. Manual underwriting requires 24 months of timely payment history.

Let’s consider the case of FHA loans. FHA loans come with more flexible mortgage guidelines. Regardless of the down payment amount on an FHA loan, you can still receive an approve/eligible from the automated underwriting system, even if there have been late mortgage payments in the past 12 months. This is in contrast to VA loans, where late payments in the previous 12 months may result in a denial of approval.

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Can I Get an FHA Loan With Bad Credit?

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Approval through the automated underwriting system is possible even with collections, charge-off accounts, repossession, and other derogatory credit tradelines older than 12 months. Timely payments in the last year are crucial for obtaining approval for an FHA loan via automated underwriting. Having one or two late payments in the past 12 months may be a good option for approval. The subsequent sections will delve into obtaining approval for an FHA loan despite recent late payments.

Borrowers can qualify for an FHA loan with a prior bankruptcy, foreclosure, deed-in-lieu, or short sale after meeting the waiting period requirements as long they can get an approve/eligible per automated underwriting system (AUS).

Securing approval or eligibility through the automated underwriting system hinges on maintaining punctuality in all your payments over the last 12 months. Both lenders and the automated underwriting system meticulously examine the borrower’s payment history, ensuring timely payments in the preceding 12 to 24 months, especially when applying for an FHA loan with recent late payments.

Importance of Timely Payments In The Past 12 Months

Most lenders are unlikely to approve mortgage loan applications from individuals who have experienced late payments within the last 12 months, even if they receive automated underwriting system (AUS) approval. You can qualify for an FHA loan with credit scores down to 500 FICO. This holds as long as you get an approve/eligible per AUS. Most lenders also hesitate to accept borrowers with recent late payments following bankruptcy or housing events such as foreclosure, short sale, or deed-in-lieu of foreclosure, even when AUS approval is involved. This is particularly relevant when seeking an FHA loan with recent late payments.

Can I Get an FHA Loan With Recent Late Payments After Bankruptcy and Foreclosure?

Lenders frown upon borrowers with late payments after bankruptcy and foreclosure. Borrowers with late payments after bankruptcy and a housing event are considered second offenders. The good news is that qualifying for an FHA loan with recent late payments is doable with a lender that has no lender overlays on FHA loans.

Gustan Cho Associates are mortgage brokers licensed in 48 states, including Washington, DC, Puerto Rico, and the United States Virgin Islands with 250 wholesale investors on traditional and non-QM and alternative financing lenders.

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 and late payments after bankruptcy and foreclosure.

Rebuilding Credit With Positive Credit After Late Payments

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

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Can I Buy a House With Bad Credit?

The best chance of getting an AUS Approval is to have positive re-established credit after 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

Certain non-QM mortgage lenders are willing to accept applicants with late payments within the past 12 months. This discussion will explore the eligibility criteria for an FHA loan despite recent late payments in the past 12 months. If the borrower has a credit score of over 640 plus a FICO credit score but has had a few late payments in the past 12 months, the borrower may not qualify for an FHA loan.

The Importance of Re-Establishing Credit After Bad Credit

Lenders want to see borrowers recover from 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. Most lenders will not approve borrowers who have had any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Most lenders do not want to see any late payments in the past 12 months. Many lenders will want timely payments on all credit tradelines for 24 months. Just because a borrower has the minimum credit score does not mean the borrower will qualify for an FHA loan.

Can I Buy a House With Prior Bad Credit But Timely Payments

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. The team at Gustan Cho Associates are experts in helping borrowers with low credit scores and recent  late payments qualify for a mortgage.  FHA loans are the best mortgage loan option for borrowers with late payments in the past 12 months.

If you have multiple late payments, you can put a larger down payment instead the 3.5% minimum down and you may get an approve/eligible per automated underwriting system on an FHA loan.

One or two late payments in the past 12 to 24 months are not good but not always a deal killer. The answer to the question of whether borrowers can qualify for an FHA loan with recent late payments, the answer is yes. However, the deal needs to make sense. This blog will review the case scenarios for qualifying for an FHA loan with recent late payments.

What Is The Lowest Credit Score For an FHA Loan?

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

The lowest credit score you can have to qualify for an FHA loan is 500 credit scores. If your credit scores are under 580 FICO, HUD requires you to have a 10% down payment versus a 3.5% down payment

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, getting an automated approval should be no problem.

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.

How Do Underwriters Look at Recent Late Payments?

Lenders have frowned upon a late mortgage payment in the past 12 months. 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 Approval on an 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. Mortgage lenders fully understand people can have periods of bad credit during their lives due to unemployment, illness, business loss, divorce, death in the family, and other extenuating circumstances.

Would you lend them the money if a borrower comes to you for a loan and has been late with their payments in the past twelve months?

Lenders want to see borrowers have rebuilt and re-established themselves and have timely payments in the past 12 months. But they have re-established themselves and proven that they have been paying all of their bills timely since they recovered. You will most likely feel comfortable giving them a loan.

Get approval on an FHA Loan with recent late payments

Manual Underwriting Guidelines on FHA Loan With Recent Late Payments

FHA and VA loans are the only two mortgage loan programs for manual underwriting. Mortgage underwriters have a lot of underwriter discretion on manual underwriting. Manual underwriting guidelines normally mandate timely payments in the past 24 months. Mortgage underwriters have  a lot of underwriter discretion on manual underwrites with recent late payments as long as borrowers have strong compensating factors and letters of explanation.  Some of the questions and concerns you may have is why they were 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 to Getting Approved For an FHA Loan With Recent Late Payments

There may be solutions for mortgage Borrowers who had recent late payments in the past 12 months. 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. If the creditor will take the late payment history off the credit report. Same with any other creditor, such as an auto 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.

FHA loans are non-QM loans are two mortgage loan programs that will permit borrowers with late payments in the past 12 months get a mortgage loan approval with a larger down payment.

Many homebuyers just sold their home but cannot get a mortgage because they had a late mortgage payment in the past 12 months. Homebuyers are willing to put in a large down payment but cannot get a new mortgage because they were late on their mortgage and other monthly payments in the past 12 months. The good news is FHA loans normally will render an approve/eligible per the automated underwriting system if the borrower puts a 10% to 20% down payment versus a 3.5% down payment on late payments in the past 12 months, including late mortgage payments.

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How Can I Get An AUS Approval on an FHA Loan with Recent Late Payments

Almost all mortgage loan programs, except non-QM loans, will not accept any borrower with multiple late payments in the past 12 months, especially housing late payments. Fannie Mae and Freddie Mac’s automated underwriting system most likely renders an approve/eligible per AUS with late payments in the past 12 months, including late mortgage 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 the automated underwriting system (AUS). Still, it will most likely get you an approve/eligible per AUS on an FHA mortgage loan.

How Can I Get An Automated AUS Approval With 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, and Freddie Mac all have their algorithm programmed on Fannie Mae Desktop Underwriter and Freddie Mac Loan Prospector’s automated underwriting system for rendering approve/eligible per AUS.

There are many instances where Fannie Mae AUS will render a refer/eligible, but Freddie Mac AUS will render an approve/eligible per automated underwriting system (AUS) or vice versa. Changing from DU to LP may be another solution for getting an automated approval on a file where otherwise you would not have gotten an AUS approval.

How Can I Get An AUS Approve/Eligible on an FHA Loan With Recent Late Payments?

Almost all AUS algorithms will not render an automated underwriting system approval per AUS except for 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 or income issues who can easily have the ability to purchase and pay their new home loan. We found that HUD will most likely render an approve/eligible per AUS with all 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

FHA Loan With Recent Late PaymentsHere 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 and Conventional loans. This article will cover and discuss FHA mortgage loan Versus Conventional loan programs.

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Conventional Versus 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. For example, borrowers need higher credit scores than FHA loans to qualify for a conventional loan. 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 before 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 allow non-occupant co-borrowers that are not related to main borrowers by law, marriage, or blood.

One great thing about conventional loans is that if home buyers put in a 20% down payment, there is no mortgage insurance requirement.

Whereas with FHA loans, the mortgage insurance premium is required throughout 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 conventional payment 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. After filing for bankruptcy and foreclosure, the waiting period restrictions are much longer for conventional loans than for FHA mortgage loan programs.

FHA Versus Conventional Loans on Debt-To-Income Ratio

Even if you have stellar credit scores and perfect credit, there are times when FHA loans are the only option to get a deal done. Remember that an FHA loan is for owner-occupants who cannot access second or investment homes. FHA loans are the best mortgage loan option for borrowers with a high debt-to-income ratio. The front-end debt-to-income ratio is 46.9%, and the back-end is 56.9% on FHA loans.

Conforming conventional debt-to-income ratio caps is 45% to 50% back-end. There is no front-end debt-to-income ratio 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 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%. 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 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. A 3.5% down payment with the FHA mortgage loan program will be sufficient.

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

Borrowers who need to qualify for an FHA loan with recent late payments with a mortgage company with no lender overlays, don’t hesitate to contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

FAQ: FHA Loan With Recent Late Payments In The Past 12 Months

1. Can I Qualify For FHA Loan If I Have Made Some Late Payments Recently? It is indeed possible to qualify for an FHA loan despite recent late payments on your credit history. The guidelines for FHA loans are more flexible than those of other loan programs, making it possible to be approved even with late payments in the last 12 months.

To get approval, it is important to secure automated approval via the Automated Underwriting System (AUS) and emphasize timely payments in the past year.

2. How Far Back Do Mortgage Lenders Look at Credit History? Mortgage lenders, particularly those offering FHA loans, focus on recent payment history, typically within the past 12 months. While older derogatory credit tradelines may be considered, timely payments over the past year are crucial for approval. Manual underwriting, which may require a longer history of timely payments (up to 24 months), is another factor to consider.

3. Can I Get an FHA Loan With Bad Credit? Yes, FHA loans are accessible to borrowers with lower credit scores, including those with recent late payments. If certain conditions are met, automated underwriting systems might approve candidates with a credit score of 500 or lower. These conditions may include having an approved or eligible status and exhibiting on-time payments during the prior 12 months.

4. How Do Underwriters Look at Recent Late Payments? Underwriters scrutinize recent late payments, particularly within the past 12 months, as they evaluate mortgage loan applications. While late payments, even after bankruptcy or foreclosure, may not necessarily disqualify borrowers, lenders prefer to see timely payments and evidence of credit rebuilding since the adverse credit events.

5. What Is the Lowest Credit Score for an FHA Loan? If a borrower’s credit score is below 580, they may be required to make a larger down payment to be eligible for an FHA loan. However, the minimum requirement for a credit score is 500. Making timely payments in the past year can considerably improve the chances of approval, even if the credit score is lower.

6. How Can I Get Approval on an FHA Loan With Recent Late Payments? To secure approval for an FHA loan with recent late payments, borrowers should focus on demonstrating positive credit behavior since the late payments occurred. This may include timely payments, communication with creditors to resolve late payments, and providing explanations for any extenuating circumstances leading to late payments.

This blog about FHA Loan With Recent Late Payments In The Past 12 Months was updated on April 10th, 2024.

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23 Comments

  1. I live in illinois and recently had a chapter 13 discharged. I was approved for a 140 thousand dollar loan , however it feel through. My question is I”ve had a couple late credit card payments since the pandemic hit, can you tell me my chances of getting approved for another FHA loan?

    1. Depends on the extenuating circumstances. In general, you cannot have late payments during Chapter 13 bankruptcy repayment period for the past 24 months.

  2. I am on chapter 13 program and made it through underwriting up to the point with a closing date that got moved 3 times now. The lender is very understanding to my situation, it just I have late payments showing on my chapter 13 in the past 12 months. My attorney had provided a letter that there are some delay on posting dates to the trustee and the lender accepted the letter and was able to move on to the loan process. I have applied for moratorium for 3 mos. During the pandemic shutdown. I was approved for 215k and the court approved me to incur a debt. The closing got delayed again due to HUD requesting my payment history to approved my loan. I am now a bit alarmed that my loan will not pass through the HUD review and this might be the end of my home purchase journey.
    What are my chance of getting this loan being approved? Do you have a client that dealt with the same situation in the past?

    1. We are experts in handling your type of situation. Please reach out to us at gcho@gustancho.com or call us at 262-716-8151. Or text us for a faster response. What state are you in?

  3. I live in mass bur looking to move to New Hampshire would you be able to help. Have some late fees but have been no late fees for 12 months

    1. Unfortunately, we are not licensed in New Hampshire yet. I will refer you to my Associate George Makoutz. Please contact George Makoutz at 410-598-5296

  4. First time Homebuyer credit score barely made it and got me qualified but have 1 late payment for a self lender account that I didn’t need. That one account has me late great payment history on everything else. I feel like my hard work has stopped because of one account. Do you service alabama

  5. So my lender is saying i had several late payments. My credit score is 653. No bad accounts. Income is 90 plus. Have 30 grand for down payment because my current house will be sold in less than a week. I have proof i paid but it was after the due date because of covid death,and surgery. Are they going to deny my loan. O was pre approved and passed underwriting before this came up. Please help

  6. I am attempting to purchase a new home but my current lender (Midland) is reporting that I was 120 days in late in July 2020 which is not correct. I did go through a modification process last year and have been current on my mortgage. I’ve called and the customer service rep stated this was not reported correctly and I had to send my request in writing to have it changed. My question is what happens if they do not honor my request? Can I still qualify for a new mortgage loan? My score and credit is otherwise perfect.

  7. Hello, Mr. Cho,

    I’d be happy to put together a quote for you with some ideas on what we could do for you. A couple of things I need to know first, are (1) in what state would we be building for you and what’s the zip code? (2) will your RV fit in a 12′ tall door, or do you need a 14′ tall garage door?

    Please let me know and I’ll put something together for you.

    Robin Campbell
    Building Specialist
    813-521-7576

    1. The steel building is for my property in Brighton Wisconsin 53168. Once we decide on a building, I can pull the permit which takes less than a week. I just had a 16×24 two story barn shed installed from Tuff Shed and it took less than a week for the permit. I will go measure the height of the motor home shortly. It is a full large Class A motorhome so I am assuming it needs to be a 14 ft. high door. I will follow up shortly with confirmation. If you can give me some options on design and how it would make it look nice. A lot of these steel buildings look like hillbilly tin shacks. Whatever options I have would be greatly appreciated. Thank you ?

  8. I had a loan I was in forbearance for over 1 yr until my house was sold. Now turns out I was reported 90 day’s on the mortgage when I was to be in the forbearance program. I have disputed this with Carrington mortgage pending to hear from them. Never received any correspondence as I moved state.. any advice on getting a new fha loan

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