FHA Mortgage Loan Guidelines Versus Lenders Investor Overlays

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This BLOG On FHA Mortgage Loan Guidelines Versus Lenders Investor Overlays Was UPDATED And PUBLISHED On May 24th, 2020

What are the FHA guidelines for mortgage loans and investor overlays for lenders

2020 brings new FHA Mortgage Loan Guidelines.

There are two different types of FHA Mortgage Loan Guidelines:

  • FHA Mortgage Loan Guidelines by HUD
  • Mortgage Lender Overlays by each individual lender

In this article, we will discuss and cover FHA Mortgage Loan Guidelines Versus Lenders Investor Overlays.

Gustan Cho Associates Has No Lender Overlays

GCA Mortgage Group has no mortgage overlays on FHA Loans:

  • As long as borrowers meet FHA Mortgage Loan Guidelines set by HUD and can get an automated approval either by Fannie Mae’s Automated Underwriting System and/or Freddie Mac’s Automated Underwriting System, we close our FHA Loans
  • Home Buyers can get FHA loan with a 3.5% down payment
  • Closing costs can be paid by the lender through lender credit and/or a sellers concession towards closing costs
  • All home buyers need to worry about is the down payment because closing costs can be paid with sellers concessions or lender credit or combination of both
  • FHA has implement new rules and regulations which may or may not affect home buyers

First of all, FHA  increase FHA Loan Limits to $331,760.

FHA Mortgage Loan Guidelines On Collections Accounts

FHA also toughen standards on collection accounts:

  • Now, all collection accounts with balances of $2,000 have new FHA Mortgage Loan Guidelines
  • Collections do not have to be paid off
  • However, 5% of the unpaid collection balance will be used towards the calculation of debt to income ratios on non-medical collections with balances of $2,000 or greater
  • This rule only applies to non-medical collection accounts

Medical collection accounts are exempt from this FHA collection guidelines and the 5% rule does not apply.

Guidelines On Credit Disputes During Mortgage Process

Borrowers cannot have a credit dispute on a derogatory item with outstanding collection balances of $1,000 greater:

  • This only applies to non-medical derogatory items with total unpaid credit balance of $1,000 or more
  • Borrowers need to retract the credit dispute in order for mortgage approval process to proceed
  • Medical credit disputes does not apply
  • Medical collection account credit disputes are exempt and does not have to be retracted
  • Non-medical collection account credit disputes are exempt and does not have to be retracted

Any non-medical collection accounts with an aggregate total of $1,000 or less are exempt from retraction of credit disputes.

Minimum Credit Standards For FHA Loan Approval

What are the minimum credit standards for FHA loan approval?

500 is the minimum credit score required to obtain a FHA insured loan

  • However, home buyers with credit scores between 500 and 579 will need to put a 10% down payment on home purchase

For those who only want to put a 3.5% down payment on a home purchase minimum of 580 credit score is required.

What Are Lender Overlays Versus FHA Guidelines

Just because borrowers meet minimum FHA Loan Guidelines by HUD does not mean every lender honors it. Each lender can have higher standards than those of FHA which are called Lender Overlays. Lenders can have overlays on credit scores, debt to income ratios, and outstanding collections/charged off accounts. Just because one FHA Lender says no does not mean that borrowers cannot qualify at other lenders with no overlays.

  • GCA Mortgage Group has no lender overlays on government and conventional loans
  • As long as HUD approves it via Automated Underwriting System and borrowers can meet conditions stipulated on AUS, FHA loan will close with us
  • Non-traditional credit lines are accepted
  • 46.9% front end debt to income ratios/ 56.9% debt to income ratios to get AUS Approval on 620 credit scores
  • Under 620, max DTI is capped at 43% to get AUS FINDINGS Approval
  • Outstanding collections and charged off accounts do not have to paid
  • Most lenders will have overlays on the debt to income ratios
  • We do not

We go the maximum debt to income ratios allowed by HUD.

FHA Mortgage Loan Guidelines On Non-Traditional Credit

Sometimes home buyers have no traditional credit, therefore no credit scores:

  • We can help those with no credit scores and no credit tradelines
  • Non-traditional credit lines are allowed in lieu of traditional credit tradelines

Non-traditional credit are credit that do not report to three credit bureaus.

Example Of No-Traditional Credit Tradelines

Example of non traditional credit tradelines are the following:

  • utilities
  • cell phone
  • insurance payments
  • rental verification
  • Other credit where the creditors do not report it to the three credit reporting agencies

Closing at GCA Mortgage Group in 21 days or less.

Importance Of Pre-Approvals

What does pre-approval mean?

All pre-approvals are full loan commitments fully underwritten and signed off by our underwriters:

  • No overlays and all guidelines are based on Automated Underwriting System FINDING
  • Since we have no mortgage lender overlays, all mortgage approvals close because they already have been fully underwritten and signed off by our mortgage underwriters
  • Again, our approvals are based on Automated Underwriting System FINDING
  • So once borrowers get AUS approve/eligible and our pre-approval signed off by our underwriters, they can rest assured mortgage loan will close
  • Sellers can pay for buyer’s closing costs with sellers concessions
  • Maximum of 6% of sellers concession towards buyer’s closed is allowed for FHA loan
  • 30 year and 15 year fixed rate mortgage loans available with no pre-payment penalty
  • Can flip homes into FHA loan without the 91 day waiting period
  • If main borrowers do not qualify based on income, non-occupant co-borrower allowed to qualify
  • No income is required from the borrower if they can get family member to be non-occupant co-borrower

Home Buyers with no down payment, gift funds are allowed by:

  • family member
  • Or very close friend who you have known for at least five years

No Waiting Period After Housing Event

GCA Mortgage Group now offers non-QM loans where there is no waiting period after a housing event.

Non-QM Loans has no waiting period after the following:

  • Foreclosure
  • Deed In Lieu Of Foreclosure
  • Short Sale

There is a one year waiting period after Chapter 7 Bankruptcy discharged date.

Non-QM Loans require 20% down payment is required and minimum credit scores required to qualify for non-qm loans is 640.

  • Borrowers with 660 credit scores can put down 15% down payment
  • 10% down payment required by borrowers with 680 credit scores

FHA Mortgage Loan Guidelines: Non-QM Loans Versus FHA Back To Work

HUD launched the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program back in August 2013.

  • This loan program launched by HUD , the parent of FHA, turned out to be a major flop and distaste
  • This loan program shortened the waiting period for those who have had a prior bankruptcy or foreclosure to a one year waiting period
  • The FHA Back to Work Extenuating Circumstances due to economic event mortgage program was all manual underwrites
  • Mortgage borrowers needed to have been out of work for at least six months
  • Had to have a reduction of at least 20% in their household income
  • The fact that borrowers have been unemployed or underemployed needs to be the cause of the mortgage loan applicant for being out of work
  • The applicant’s credit history needed to have been good and the credit would have suffered during the period of the mortgage applicant’s economic event period
  • After gaining full employment, the credit needed to have been re-established
  • There should not be any late payments after the recovery of the bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • Lenders wanted proof and feel comfortable that borrowers will be employed for the next three years
  • A one hour HUD approved counseling course is required and a certificate of completion with the housing course counselor, signed and dated, needs to be provided
  • This counseling certificate is only good for six months
  • A FHA Back to Work Mortgage loan applicant cannot apply for a formal FHA Back to Work Mortgage loan until 30 days after the housing counseling course date of completion

When FHA Back To Work Mortgage was launched, the program was hot. Unfortunately, this loan program turned out to be a major disaster. Most of the pre-approved borrowers never closed their loans. Stress was an understatement during the mortgage process. The program ended in 2014 but not until countless of home buyers went through the stress and nightmare of their lifetime. Fortunately, non-qm loans launched in 2017 turned out to be a major success. No waiting period after foreclosure, deed in lieu of foreclosure, and short sale with our new NON-QM Loan Program.

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