One of the most common daily inquiries is whether you qualify for an 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 get approved for an FHA loan. This holds as long as you get an automated approval per AUS. To get approve/eligible per the automated underwriting system, timely payments in the past 12 months are key.
The team at Gustan Cho Associates gets many inquiries for help from homebuyers who recently sold their homes but cannot qualify for a new mortgage to purchase another home due to late payments on their prior mortgage. It is a hurdle to get another mortgage after selling your current home with you had late mortgage payments in the past 12 months. The team at Gustan Cho Associates are experts in helping borrowers get approved for a mortgage after having a prior mortgage late payments in the past 12 months.
Let’s take the example of VA loans. VA loans have lenient mortgage guidelines. However, no matter how much down payment you put on a VA loan, you will not get an approve/eligible per the automated underwriting system on a VA loan with late mortgage payments in the past 12 months. However, you will with an FHA loan. Certain non-QM mortgage lenders will accept late payments in the past 12 months. We will cover qualifying for an FHA loan with recent late payments in the past 12 months. FHA and non-QM loans are the two mortgage loan options borrowers with recent late payments in the past 12 months have.
Can I Get an FHA Loan With Bad Credit?
You can have collections, charge-off accounts, repossession, and other derogatory credit tradelines older than 12 months and get approve/eligible per the automated underwriting system. To get approved for an FHA loan via an automated underwriting system, timely payments in the past year are a must. One or two late payments in the past 12 months are not always a deal killer. In the following paragraphs, we will cover getting approved for an FHA loan with recent late payments.
You can qualify for an FHA loan with a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or 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 as long as you get an approve/eligible per AUS.
The key to getting approve/eligible per the 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, emphasizing 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 housing events (Foreclosure, Short Sale, Deed-In-Lieu Of Foreclosure). This holds even with AUS Approval.
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 210 wholesale lending partners 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
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
- medical reasons
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.
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.
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.
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 favorably, 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. However, 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. However, 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. However, 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?
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.
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 Mortgage 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 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.
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/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
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 and Conventional loans. This article 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 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 email@example.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.
Related> Having Two FHA Loans At The Same Time
January 24, 2023 - 12 min read