FHA Mortgage Loan Guidelines Versus Lender Overlays
2022 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
HUD Guidelines Versus The Lending Requirements Of Individual Mortgage Lenders
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 an FHA loan with a 3.5% down payment. Closing costs can be paid by the lender through lender credit and/or a seller’s concession towards closing costs. All home buyers need to worry about is the down payment because closing costs can be paid with seller’s concessions or lender credit or a combination of both. FHA has implemented new rules and regulations which may or may not affect home buyers.
2022 FHA Loan Limits For Standard And High-Cost Counties In The United States
First of all, HUD increases the 2022 FHA Loan Limits to $422,680. The increase was the sixth year in a row with consistent annual loan limits. HUD normally follows the Federal Housing Finance Agency’s (FHFA) conforming loan limit increase. The FHFA increased the 2022 conforming loan limit on single-family homes in standard traditional areas with the national average median prices to $647,200. The 2022 conventional loan limit increase was a substantial increase from the 2021’s $548,250. The increase was FHFA’s highest increase in one year in FHFA’s history. HUD follows in FHFA’s lead on annual loan limit increases.
FHA Loans 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 a total unpaid credit balance of $1,000 or more
- Borrowers need to retract the credit dispute in order for the mortgage approval process to proceed
- Medical credit disputes do not apply
- Medical collection account credit disputes are exempt and do not have to be retracted
- Non-medical collection account credit disputes are exempt and do 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.
FHA Credit Requirements
500 is the minimum credit score required to obtain an FHA-insured loan. However, home buyers with credit scores between 500 and 579 will need to put a 10% down payment on a 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 pay. 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 Loan Requirements On Non-Traditional Credit For Borrowers Without A Credit Score
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 is credit that does not report to three credit bureaus.
Non-Traditional Versus Traditional Credit Tradelines Explained
Examples of non-traditional credit tradelines are the following:
- 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 is in less than 30 days or 21 days or less days if the borrower is transferring a case file from a different lender with an appraisal that can be transferred..
The Qualification And Pre-Approval Part Is The Most Important Step Of The Mortgage Process
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
- A maximum of 6% of sellers concession towards buyers 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 a family member to be non-occupant co-borrower
Home Buyers with no down payment, gift funds are allowed by:
- family member
- Or a very close friend who you have known for at least five years
Non-QM Mortgages One Day Out Of Bankruptcy and/or A Housing Event
Gustan Cho Associates now offers non-QM loans one day out of bankruptcy and/or foreclosure. There is no waiting period after bankruptcy and/or foreclosure, deed in lieu of foreclosure, short sale. The down payment required on non-QM is normally 10% to 30% down payment on a home purchase. The down payment depends on the borrower’s credit scores, payment history, type of property, and how long has the economic event has been seasoned. For example, if the homebuyer was discharged from bankruptcy within the past 12 months, there is a 30% down payment. As the bankruptcy and/or housing event seasons, the down payment requirements on non-QM loans reduce. Many people recover from a bankruptcy and/or a housing event sooner than others. In today’s bullish housing market and low mortgage rates, homebuyers do not have to wait out the waiting period after bankruptcy and/or foreclosure and be priced out of the housing market.
Non-QM Loans has no waiting period after the following:
- Deed In Lieu Of Foreclosure
- Short Sale
- Late housing payments in the past six months
Non-QM Loans require a 10% to 30% down payment is required. There are certain credit score requirements on certain non-QM and alternative financing loan programs. No-doc mortgages for primary homes require a 20% down payment with a 660 credit score.
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 the 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. An 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.