HUD Credit Guidelines On FHA Home Loans On Purchase And Refinance

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This ARTICLE On HUD Credit Guidelines On FHA Home Loans On Purchase And Refinance Was PUBLISHED On June 29th, 2020
HUD Credit Guidelines on FHA loans are very lenient.
  • Borrowers with credit scores as low as 500 FICO can qualify for FHA loans
  • However, any borrowers with credit scores under 580 and down to 500 credit scores will need a 10% versus a 3.5% down payment
  • To qualify for a 3.5% down payment FHA home purchase loan, the borrower needs at least a 580 credit score
  • HUD, the parent of FHA, is lenient with borrowers with bad credit and low credit scores
  • As with other loan programs, borrowers with lower credit scores will have loan level pricing adjustments on mortgage rates
  • The lower the credit score, the higher the rate
  • Borrowers with under 620 credit scores will get higher mortgage rates and possibly be charged discount points
  • Therefore, it is important to boost credit scores prior to applying for a mortgage

In this ARTICLE, we will discuss and cover HUD Credit Guidelines On FHA Home Loans On Purchase And Refinance.

HUD Credit Guidelines On Credit Scores And Payment History

The role and mission of HUD are to promote homeownership for first-time homebuyers and buyers with less than perfect credit and lower credit scores.

  • HUD, the parent of FHA, is not a lender. It is a federal agency that insures FHA loans originated and funded by private lenders
  • Lenders can offer home mortgages to homebuyers with a 3.5% down payment with at least 580 credit scores
  • HUD takes a step further and allows borrowers with under 580 FICO and down to 500 credit scores to be eligible to qualify for FHA loans with a 10% down payment

Per HUD Credit Guidelines, outstanding collections and charged-off accounts do not have to be paid to qualify for FHA loans.

Qualifying For FHA Loans After Bankruptcy And Foreclosure

Borrowers can qualify for FHA loans after bankruptcy and/or foreclosure after meeting the mandatory waiting period requirements.

Borrowers who cannot get an approve/eligible per AUS but get a referred/eligible can be eligible for FHA loans with a manual underwrite. Manual underwriting guidelines apply.

HUD Credit Guidelines And Eligibility Requirements To Qualify For FHA Loans

The following are the minimum agency mortgage lending guidelines to be eligible for FHA loans:

  • The borrower needs a minimum of a 580 credit score to qualify for a 3.5% down payment FHA home purchase mortgage
  • Borrowers with credit scores between 500 and 580 FICO are eligible for an FHA loan with an approve/eligible per automated underwriting system with a 10% down payment
  • Outstanding collections and charged-off accounts do not have to be paid
  • There is a two-year waiting period after Chapter 7 bankruptcy discharged date
  • There is a three-year waiting period after a foreclosure, a deed in lieu of foreclosure, short-sale
  • Borrowers can qualify for an FHA loan during Chapter 13 repayment period after one year into the repayment plan with Trustee approval and manual underwriting
  • There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for an FHA loan
  • If the Chapter 13 Bankruptcy discharge has not been seasoned for at least two years, the file is downgraded to a manual underwrite
  • HUD allows gifted funds to be used for the down payment and/or closing cost on a home purchase
  • Non-occupant co-borrowers are allowed
  • There is no limit on the amount of non-occupant co-borrowers
  • Non-traditional credit can be used for borrowers with no traditional credit tradelines

HUD allows borrowers with no credit scores, one credit score, or two credit scores to qualify for FHA loans.

HUD Credit Guidelines On FHA Loans With No Credit Scores

Most borrowers have three credit scores.

  • Experian, Transunion, and Equifax are the three credit bureaus
  • Lenders will use the middle credit score of the borrower
  • If the borrower has one credit score, lenders will use that credit score
  • If the borrower has two credit score, the lender will use the lower of the two credit scores
  • However, some borrowers have no credit scores
  • Borrowers with no credit scores can qualify for an FHA loan as long as they can get a refer/eligible per automated underwriting system
  • However, the borrower needs three non-traditional credit tradelines
  • Non-traditional credit tradelines are creditors that do not report the three credit bureaus

Borrowers need to provide canceled checks and/or bank statements to prove they have been timely in the past 12 months with the creditor.

Common Examples Of Non-Traditional Credit Tradelines

Borrowers with non-traditional credit tradelines need to provide documentation they have made timely payments for the past twelve months. Here are examples of non-traditional credit tradelines:

  • Rental verification which shows 12 months canceled checks and/or bank statements of your rental payments to your landlord documenting the on-time rent payments
  • 12 months canceled checks and/or bank statements for on-time payment history for your utility companies (gas, electric, water, etc)
  • 12 months canceled checks and/or bank statements showing payment history for your cell phone or internet provider
  • 12 months canceled checks and/or bank statements reflecting payment history for your homeowner’s insurance
  • Timely on-time payment history for your property taxes for the past 12 months
  • Timely on-time payment history for your automobile insurance and/or medical insurance

Or other on-time payments on non-traditional credit tradelines for the past 12 months. Three non-traditional credit tradelines are required for borrowers with no credit scores to qualify for FHA loans. All no credit score FHA loan underwriting are manual underwrites.

Documents Required To Start FHA Mortgage Process

There is a list of important documents required to start the mortgage process:

  • Borrowers and all co-borrowers ocial security number or card: Copies of the front and back
  • Driver’s license or some other form of state ID and/or valid U.S. passport
  • Borrowers and all co-borrowers pay stubs for the past 30 days and W2s (for wage earners)
  • Federal income tax returns (for wage earners and self-employed borrowers)
  • Most recent 60 days of bank Statements
  • Account statements for any other liquid financial accounts with funds that will be used for the down payment and/or closing costs
  • Form HUD-92900-A – this is an addendum to the 1003 loan application
  • Written verification of employment and verbal employment verification prior to closing
  • Real estate purchase sales contract for purchases
  • Most recent mortgage statement and copy of the deed for refinances

Per HUD guidelines the borrower needs to meet all minimum agency mortgage guidelines on FHA loans. To qualify for an FHA loan with bad credit, low credit scores, or no credit scores, please contact us at GCA Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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