FHA Versus VA Loans On Collections And Charged Off Accounts

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FHA Versus VA Loans On Collections And Charged Off Accounts

This BLOG On FHA Versus VA Loans On Collections And Charged Off Accounts Was UPDATED On November 7th, 2018

Many home buyers go with FHA Versus VA Loans even though they qualify for VA Home Loans:

  • This is because most Lenders have overlays on VA Loans
  • Borrowers do not realize that VA does not have minimum credit score requirements
  • VA also does not have debt to income ratio requirements
  • A perfect example, a particular lender has minimum credit score requirements of 580 credit scores to qualify for a FHA Loan
  • However, the same lender requires a 620 FICO on VA Loans
  • The 620 credit score requirement is not a VA Guideline
  • BUT that particular lender has overlays on VA Loans
  • Unfortunately, many borrowers do not realize that with some lenders, it is easier to qualify for FHA Versus VA Loans
  • We will discuss FHA Versus VA Loans on this BLOG

Requirement Of FHA Versus VA Loans

FHA is hands down the most popular mortgage loan program in the United States.

  • There are far more FHA Versus VA Loans that is originated and funded in the United States
  • Every American can qualify for FHA Loans
  • BUT not every American can qualify for VA Loans
  • Need to be a Veteran with a Certificate of Eligibility to qualify for VA Loan Program

HUD Guidelines To Qualify For A FHA Loan

Minimum Credit Scores Required to qualify for FHA Loan with a 3.5% down payment is 580 FICO:

  • Borrowers with under Credit Scores can still qualify for FHA Loan but needs 10% down payment
  • Borrowers who have credit scores between 580 and 619 FICO, maximum debt to income ratio requirements is 43% DTI
  • If you have credit scores of at least 620 FICO, back end debt to income ratio can be as high as 56.9% DTI
    • Front end debt to income ratios are capped at 46.9% DTI to get an approve/eligible per Automated Underwriting System
  • HUD Guidelines:
    • Outstanding Collections and Charge Offs do not have to paid to qualify 
  • Can qualify for two years after a Chapter 7 Bankruptcy discharge date
  • Can qualify three years after the recorded date of a foreclosure and deed in lieu or sheriff’s sale
  • Can qualify three years after the short sale date of short sale that is reflected on the HUD-1 Settlement Statement
  • Deferred Students Loans are no longer exempt from the calculations of deferred student loans that has been deferred for more than 12 months

VA Guidelines To Qualify For Home Loans

Not everyone can qualify for a VA Loan.

To qualify for a VA Loan, borrowers need to be a Veteran with an honorable discharge and a valid Certificate of Eligibility also referred to as COE by the United States Department of Veteran Affairs:

  • There are no minimum credit score requirements to qualify for VA Loans
  • However, most lenders will have a minimum credit score requirement on VA Loans
  • Gustan Cho Associates has no overlays on government and conventional loans
  • Many lenders require 620 minimum credit score requirement even though the Department of Veterans Affairs does not have minimum credit scores
  • Most Lenders will require a 620 to 640 FICO Credit Scores
  • Credit Score requirements by Lenders are Overlays and not a requirement
  • There is no debt to income ratio requirements
  • There is VA Residual Income Requirements
  • Residual Income is the money that is left over after  borrower has after paying his or her mortgage payments, minimum revolving credit card debts, auto loans, and installment debts
  • The residual income is what is the money that is left over to pay for groceries, child care, school, utilities, and other expenses
  • The Residual Income Requirement is what plays a factor in getting an approve/eligible per AUS Findings on VA Loans With Low Credit and VA Loans With Higher Debt To Income Ratios
  • Outstanding Collections and Charge Off Credit Accounts do not have to paid off to qualify
  • Can qualify two years after a Chapter 7 Bankruptcy discharged date
  • Can qualify two years after the recorded date of a foreclosure or deed in lieu of foreclosure
  • Can qualify two years after a short sale date which is reflected on the HUD-1 Settlement Statement of the short sale
  • Deferred Student Loans that has been deferred for more than 12 months are exempt from debt to income ratio calculations

VA Loans With Low Credit Scores And High Debt To Income Ratio

Borrowers with a Certificate of Eligibility who were told by the lenders they do not qualify for FHA Loans and not a VA Loan, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. VA Loans are the easiest mortgage programs to qualify for. Home buyers told they only qualify for a FHA Loan and not VA Loan, the chances are that the lender has a lot of Overlays on VA Loans.

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