Florida FHA Loan Requirements: How To Get Approved With Bad Credit

In this blog, we will cover and explain the Florida FHA loan requirements in detail and advise homebuyers on how to qualify and get approved with bad credit and credit scores down to 500 FICO. Due to the lenient Florida FHA loan requirements, FHA loans are hands down the best mortgage loan program for first-time homebuyers, borrowers with credit scores down to 500 FICO, borrowers with collections and charged-off accounts, borrowers with high debt to income issues, and homebuyers recent late payments in the past 12 months.

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FHA Loans Is The Mortgage Loan Of Choice Due To Lenient FHA Loan Requirements And Guidelines

The mission of HUD, the parent of FHA, is to create lenient credit and income mortgage loan requirements and guidelines to promote the dream of homeownership becoming a reality for hard-working Americans. FHA loans are for owner-occupant primary homes only. Second homes and investment properties are not eligible for FHA financing. FHA loans are the most popular loan program in Florida. FHA loans are the easiest mortgage loan program to get an approve/eligible per automated underwriting system with lower credit scores, high debt to income ratios. large outstanding collections and/or charged-off accounts, and recent late payments in the past 12 months.

Homebuyers Still Find Florida Home Prices Affordable Despite The Surge Of Home Values

Tens of thousands of people are migrating to Florida due to dozens of reasons. The top reasons why movers choose Florida as their final home is due to the strong economy, great job opportunities, low cost of living, affordable housing, and no state income taxes. Home prices in Florida have been skyrocketing for the past several years. However, even with the surge of home values, homes prices are still reasonable compared to most other states in the nation.

Why Are So Many People Moving To Florida?

The economy is booming. First-time elected governor Ron DeSantis seems to be doing everything right to attract people from other states to call Florida home. Governor DeSantis does not have a coronavirus mask mandate in Florida. DeSantis also passed a state law that any employer mandating employees to take the controversial COVID-19 vaccine will face severe fines. Governor Ron DeSantis has issued an executive order stating it is illegal to fire any workers for not taking the coronavirus vaccine.

Thousands Of First-Responders Moving To Florida To COVID-19 Vaccine Mandates And Restrictions

Many cities throughout the country have threatened police officers and firefighters with termination if they do not abide by the city’s vaccine mandate. DeSantis offered a $5,000 recruitment bonus to police officers facing termination due to not abiding by the coronavirus vaccine mandate to come and work for any police agency in Florida. Ron DeSantis’ creative recruitment technique will not add more people to the Sunshine State but will fill the shortage of police officers the state has been facing. There is no state tax in Florida and property taxes are lower than the national norm.

Florida Strong Economy And Housing Demand Makes Owning A Home An Excellent Investment

There has been a major demand for housing throughout the state. There is a housing shortage throughout the United States. However, Florida has a higher housing shortage due to the mass migration to the state from Americans fleeing high-taxed states like New York, Connecticut, Massachusetts, Vermont, Rhode Island, California. The governor never issued a shutdown in the state due to the coronavirus outbreak. Americans love their freedom and do not like being what to do and how to live. This is the principle Governor DeSantis preaches and practices and it seems to be working. Housing demand in Florida is solid and is forecasted to remain stronger than any other state. The most popular mortgage loan program in Florida is FHA loans. Florida FHA loan requirements and guidelines are the most lenient than any other loan program for first-time homebuyers, borrowers with lower credit scores and prior bad credit, and borrowers with higher debt to income ratio.

Florida FHA Loan Requirements With 500 FICO

Homebuyers in Florida can qualify for an FHA loan in Florida with credit scores down to 500 FICO. Per HUD agency mortgage guidelines, borrowers with 500 to 579 credit scores can qualify for an FHA loan with under 580 credit scores and down to 500 FICO with a 10% down payment. To qualify for an FHA loan with a 3.5% down payment home purchase loan with a 580 credit score. Most lenders will not approve borrowers with under 580 credit scores. However, Gustan Cho Associates has no lender overlays on FHA loans and will approve borrowers with credit scores down to a 500 FICO. Timely payments in the past 12 months are key to getting an approve/eligible per automated underwriting system with credit scores under 580 FICO.

The Role Of HUD On FHA Loan Programs

The U.S. Department of Housing and Urban Development (HUD) is a large federal agency in charge of the Federal Housing Administration (FHA). HUD nor FHA originate, process, underwrite, fund, or service FHA loans. The role of HUD is to promote homeownership for American families by creating and implementing lenient realistic lending requirements, called HUD agency guidelines, so any hard-working person can qualify for a Florida FHA loan. A Florida FHA loan is originated, processed, underwritten, and funded by banks and private mortgage companies. Lenders need to be qualified as HUD-approved lenders in order to work on FHA loans. If a lender follows all the HUD agency guidelines on a borrower for an FHA loan, the lender will get insured by HUD if the borrower were ever to default on their FHA loan.

Why Not All Mortgage Companies Have The Same Florida FHA Loan Requirements

The lender needs to follow the HUD minimum agency mortgage guidelines on FHA loans in order for the FHA loan in question to be insured in the event of default. Due to the government guarantee, lenders aggressively promote to originate and fund FHA loans with only a 3.5% down payment with a 580 FICO at a competitive rate. Since the HUD-agency mortgage guidelines are very lenient, most mortgage companies have higher lending requirements which are called lender overlays. Every borrower needs to meet the minimum HUD agency mortgage guidelines. However, lenders can have higher standards that surpass the minimum HUD agency mortgage guidelines. This is why many lenders require a 620 to 660 credit score on a 3.5% down payment home purchase Florida FHA loan when HUD’s minimum credit score requirement is 580 FICO. The higher credit score requirement is called a lender overlay on credit scores.

Understanding Agency Guidelines Versus Lender Overlays On Florida FHA Loan

Lenders need to make sure every borrower meets the minimum HUD agency mortgage guidelines. However, most lenders have higher lending requirements that is above and beyond the minimum HUD agency Guidelines on FHA loans which are often referred to as lender overlays. All borrowers, especially folks with marginal credit or credit issues from the past, need to get familiar with HUD’s minimum agency mortgage guidelines. Not all lenders will have the same lending guidelines on FHA loans. One lender may tell you their minimum credit score is 640 FICO while another lender may say it is 660 FICO when HUD guidelines state it is a 580 FICO to qualify for a 3.5% down payment FHA loan.

Florida FHA Loan Requirements On Getting An Automated Approval On FHA Loans With Recent Late Payments In The Past 12 Months

HUD, the parent of FHA, is the giant government agency that administers the agency mortgage guidelines of FHA loans. FHA loans are hands down has the most lenient mortgage guidelines when it comes to getting an approve/eligible per automated underwriting system with lower credit scores, large outstanding collections and/or charged-off accounts, and more importantly, recent late payments in the past 12 months. FHA loans are probably the only loan program that will accept and approve borrowers with recent late payments in the past 12 months. However, a larger down payment is key in getting an approve/eligible per automated underwriting system with recent late payments and lower credit scores.

How To Get An AUS Approval With Credit Scores Down To 500 FICO And Recent Late Payments On FHA Loans

An experienced loan officer will know how to manipulate the automated underwriting system to get an AUS approval. The worst the borrower’s credit profile, the more down payment the borrower needs to put down to get an AUS approval. For example, if a borrower has a 500 FICO and recent late payments that have been seasoned less the 12 months, a 15% to 20% down payment may do the trick to get an approve/eligible per automated underwriting system.

FHA Loans Versus VA Loans On 500 Credit Score Borrowers With Late Payments

Gustan Cho Associates has no lender overlays on government and conventional loans. We do not have any higher lending requirements above and beyond the minimum agency mortgage guidelines. FHA and VA loans are the only two mortgage loan programs that allow borrowers with credit scores down to 500 FICO. However, all government and conventional loan programs consider recent late payments in the past 12 months a deal killer. However, FHA loans are the only loan program that will render an approve/eligible per automated underwriting system (AUS Approval) if and only if the borrower puts a substantial down payment. A borrower with a 500 credit score and recent late payments in the past 12 months can probably get a guaranteed AUS approval with a 20% down payment. Not VA loans, though. VA loans do not care the amount of down payment a veteran will put down if the borrower has late payments in the past 12 months.

FHA And VA Manual Underwriting Guidelines On Late Payments In The Past 12 Months

FHA and VA manual underwriting guidelines require borrowers to have timely payments in the past 24 months. Therefore, any borrowers with any late payments in the past 24 months will not qualify for an FHA and/or VA manual underwriting. HUD and VA have the exact manual underwriting guidelines. VA loans do not have a minimum credit score requirement but will not care how much money you put down as a down payment if you have a recent late payment in the past 12 months. VA loans will not approve borrowers’ late payments in the past 12 months no matter how large the down payment the borrowers put down. However, FHA loans are totally different. With a large down payment such as a 20% down payment, the chances are very favorable homebuyers with credit scores down to 500 FICO and recent late payments in the past 12 months will get an approve/eligible per AUS on FHA loans.

Florida FHA Loan Requirements On 500 Credit Score Mortgage Approval

HUD allows borrowers with credit scores down to 500 FICO to be eligible for an FHA loan. Per HUD guidelines, borrowers with credit scores between 500 to 579 FICO requires a 10% down payment. Most lenders will say you do not qualify for a Florida FHA loan with a 500 FICO. They will not tell you that you meet HUD guidelines and can qualify for an FHA loan with a 500 credit score at another lender with no lender overlays. They will simply say you do not qualify. This is why it is important to understand the basic agency guidelines on FHA loans which we will cover in this article.

The Importance Of Understanding What Lender Overlays Mean

Lenders can have lender overlays on just about anything. One lender may have a lender overlay on gift funds where borrowers cannot get gift funds for their down payment or closing costs unless they have a 640 credit score while another lender may not have this lender overlay. Charged-off accounts are fine per HUD guidelines. However, many lenders require the charge off be paid off or the borrower needs to enter into a written payment plan with six-month seasoning. This is why it is so important to find a lender with no lender overlays if you have less than perfect credit, lower credit scores, or prior credit issues. There are so many types of lender overlays a mortgage company can implement. Each lender has its own lender overlays. Some are petty and ridiculous. Gustan Cho Associates is a mortgage company licensed in multiple states with zero lender overlays on FHA loans.

HUD Agency Mortgage Guidelines On FHA Loans

Here are Florida FHA Loan Requirements:

Minimum credit score requirement of 580 to qualify for 3.5% down payment Florida FHA Loan
Homebuyers with credit scores under 580 and down to 500 FICO can qualify for FHA Loans with a 10% down payment
Maximum 46.9% front-end and 56.9% back-end debt to income ratio to get an approve/eligible per automated underwriting system
Manual underwriting for borrowers who can’t get an approve/eligible per AUS but gets a refer/eligible
Gift funds are allowed for the buyer’s down payment and closing costs
Borrowers with no credit scores can qualify for a Florida FHA loan with non-traditional credit
Non-traditional credit is alternative credit tradelines that do not report to the credit bureaus such as cell phone bills, utilities, education bills, and other payments not reporting to the three credit bureaus but the borrower has made timely payments for the past 12 months
Up to a 6% seller concession
Lender credit for borrowers who are short with closing costs
Non-occupant co-borrowers allowed
For a 3.5% down payment FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers need to be related to the main borrower by blood, law, or marriage

HUD allows non-occupant co-borrowers to be added to the main borrowers on FHA loans who are not related to the main borrower by law, marriage, blood, but if that is the case, then a 25% down payment is required.

Florida FHA Loans After Chapter 7 Bankruptcy And Foreclosure

Florida homebuyers can qualify for an FHA loan after Chapter 7 Bankruptcy and Foreclosure after meeting the required waiting period requirements.

There is a two year waiting period after the Chapter 7 Bankruptcy discharged date to qualify for a Florida FHA loan
There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for a Florida FHA loan

Timely payments after bankruptcy and foreclosure are required. Borrowers should have rebuilt and re-established credit after bankruptcy and/or a housing event.

Florida FHA Loans During And After Chapter 13 Bankruptcy

Borrowers can qualify for a Florida FHA loan during Chapter 13 Bankruptcy repayment plan after they have made 12 timely payments with trustee approval and needs to be a manual underwrite

There is no waiting period after the Chapter 13 Bankruptcy discharged date
Needs to be a manual underwrite if the discharge has not been seasoned for at least 24 months

Outstanding collection and charge-off do not have to be paid off to qualify for FHA Loans.

Florida Loan Requirements On Outstanding Collections And Bad Credit

Home Buyers can now qualify for FHA Loans with credit scores down to 500 FICO, prior bad credit, outstanding collection and charged-off accounts, higher debt to income ratio, and prior bankruptcy and/or housing event. HUD, the parent of FHA, is the government agency that is in charge of creating and implementing the agency mortgage guidelines on FHA loans. You do not have to pay outstanding collections and/or charged-off accounts to qualify for an FHA loan in Florida per HUD agency guidelines. However, each individual mortgage lender can have their own individual higher lending standards called lender overlays. This is exactly why it is so very important for borrowers to fully understand the basics of HUD guidelines. If a borrower meets the minimum HUD mortgage guidelines, they will get approved for an FHA loan with a lender with no lender overlays. Gustan Cho Associates is one of a few lenders that do not have any lender overlays on FHA loans.

Does The Down Payment Assistance Program Work?

Home Buyers looking to buy a home can also explore Down Payment Assistance (DPA) programs. Down payment assistance gets recorded as a second mortgage on your property until the final terms and conditions have been met and satisfied. Most Down Payment Assistant Programs require a lot of red tapes. DPA is normally a loan and needs to get paid back once the homeowner sells their home. Florida Down Payment Assistance Programs can help home buyers with the down payment on FHA Loans but there is approval rate on DPA is not too high. The Team at Gustan Cho Associates is licensed in multiple states and can help homebuyers with advice in getting qualified for FHA loan programs and DPA. Although the funding for such programs is limited, it’s still possible for homebuyers to qualify for and obtain the needed help.

Negative Of DPA Programs

Many homebuyers who got approved with a down payment assistance program were unfortunate and lost the homes they had under contract because, by the time they were about to close on their homes, the down payment assistance funds ran out. Homebuyers should understand that there are risks with taking up a down payment assistance loan program. Most DPA programs are not on a federal or state level. DPA programs are on a county per county level. Candidates of DPA programs may need higher lending standards such as higher credit score requirements, lower debt to income ratio, or meet a maximum income cap. It is up to the homebuyer whether or not to participate in a particular down payment assistance program.

Carefully Read And Understand Conditions Of DPA Programs

Borrowers who plan on participating in a DPA program for their Florida FHA loan should carefully review the particular DPA program. Every DPA program is different. DPA programs are not uniform. Each DPA has its own rules, requirements, and guidelines. Besides getting qualified and meeting the minimum Florida FHA loan requirements and guidelines, the borrower needs to meet lender overlays of the agency offering the down payment assistance. Every down payment assistance agency has its own guidelines for its DPA program. Below is a general DPA agency guideline that most DPA agencies normally follow:

Preference is given to first time home buyers
Need to have income that is no larger than 80% of the area’s median income in the county they plan on purchasing
Most DPA Programs require a 640 FICO Credit Score
Owner Occupant Homes only
There are terms and conditions of the funds of the down payment assistance.

DPA programs have terms and conditions of the funding the borrower gets. There may be conditions on the terms where if a homeowner sells the home within 7 to 10 years, the down payment assistance funds need to get paid back. Carefully read and fully understand the terms and conditions of the down payment assistance program.

Best Florida FHA Lenders: How To Qualify And Get Approved For An FHA Loan With Bad Credit

If you are buying a home in Florida and need a lender with a solid 5-star reputation of being able to do loans other lenders cannot do, Gustan Cho Associates is the team for you and your family. We have a national reputation of not having any lender overlays on government and conventional loans. We are licensed in multiple states. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays or have gotten a last-minute mortgage loan denial.

How To Qualify For An FHA Loan To Purchase A Home In Florida When Moving From A Different State

Being able to work with a mortgage professional who handles tough files daily is very important if you are buying a home in Florida and are relocating from another state. We will not leave you hanging if you are relocating to Florida from a different state. Your pre-approval is as good as gold. You will not just close your loan, but you will close it on time. If you want to qualify and get pre-approved, please contact us at Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates is a mortgage banker, correspondent lender, and mortgage broker. We have our in-house underwriters and ops staff for FHA, VA, USDA, conventional loans.

Non-QM And Alternative Specialty Mortgage Loan Programs In Florida

Gustan Cho Associates is a mortgage banker and correspondent lender on government and conventional loans with a business model of not having lender overlays. We just go off the automated findings of AUS. Gustan Cho Associates has a hybrid business model where we are mortgage bankers on government and conventional loans but we also have the ability to broker non-QM loans, no-doc home loans, non-QM jumbo mortgages with credit scores down to 500 Fico, non-QM mortgages one day out of bankruptcy and foreclosure, asset-depletion, condotel financing, P and L stated income loans, bank statement loans for self-employed borrowers, and dozens of other specialty and alternative mortgage loan programs. On the correspondent side, Gustan Cho Associates offers traditional 90% LTV jumbo mortgages with up to a 50% debt to income ratio cap and credit scores as low as 660 FICO.