HUD Derogatory Credit Mortgage Guidelines On FHA Mortgages

HUD Derogatory Credit Mortgage Guidelines on FHA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers HUD derogatory credit mortgage guidelines on FHA loans. Over 80% of our borrowers at Gustan Cho Associates were turned down by other lenders. Not all lenders have the same FHA Lending Requirements. All mortgage companies need to meet HUD Agency Mortgage Guidelines. Dale Elenteny, a senior loan officer at Gustan Cho Associates, explains the difference between HUD agency guidelines versus lender overlays by mortgage companies as follows:

Lenders can have higher lending standards on FHA Loans that surpass the minimum HUD 4000.1 FHA Guidelines. The higher lending requirements imposed by mortgage companies are called lender overlays.

Just because a borrower does not qualify with one lender does not mean they cannot qualify with a lender with no overlays like Gustan Cho Associates. Gustan Cho Associates is one of the few national lenders with no FHA loan overlay. In the following paragraphs, we will discuss HUD derogatory credit mortgage guidelines on FHA loans.

HUD Derogatory Credit Mortgage Guidelines Versus Lender Overlays

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In the above paragraph, we explained what lender overlays are. Not all lenders have the same overlays. A lender needs to meet the minimum HUD Guidelines for FHA Loans. However, the mortgage company can set any lender overlays they want. In this paragraph, we will discuss the minimum HUD derogatory credit mortgage guidelines versus typical lender overlays imposed by lenders on FHA loans.

The minimum credit score requirement on a 3.5% down payment FHA Home Purchase Loan is 580 FICO. However, many lenders will have lender overlays on credit scores where they require 620 to 640 credit scores. Borrowers with under 580 and down to 500 FICO are eligible to qualify for FHA Loans with a 10% down payment.

Most lenders will not take on borrowers with under 580 credit scores. Gustan Cho Associates are one of the few lenders that will accept borrowers down to 500 FICO. Outstanding collections and charged-off accounts do not have to be paid. Many lenders will require borrowers to pay outstanding collections and charged-off accounts even though HUD Guidelines do not require it.

HUD Derogatory Credit Mortgage Guidelines on Manual Underwriting

Not all lenders entertain manual underwriting on VA or FHA loans. Late payments in the past 12 months are not deal killers if the borrower can get an approve/eligible per the automated underwriting system (AUS). Per HUD derogatory credit mortgage guidelines, you need to have been timely for the past 12 months to qualify for manual underwriting on FHA loans. Borrowers can qualify for FHA loans during Chapter 13 repayment with trustee approval. Many lenders will not accept borrowers during Chapter 13 repayment and require a discharge. There is no waiting period after the Chapter 13 Bankruptcy discharge date to qualify for FHA loans. Lenders can require a one to two-year waiting period after the Chapter 13 Bankruptcy discharge date.

HUD Derogatory Credit Mortgage Guidelines on Judgments and Tax-Liens

HUD Derogatory Credit Mortgage Guidelines On Judgments And Tax-LiensBorrowers with judgments and tax liens do not have to pay the derogatory items to qualify for FHA loans. Borrowers with judgments and tax liens can get a written payment agreement with the judgment creditor or IRS and set up a minimum monthly payment plan. Three months of payments need to be made.

After the borrower can provide three months of canceled checks or bank statements, the borrower can qualify for an FHA loan. Borrowers can also negotiate with the judgment or Internal Revenue Service for a lesser amount than the face value of the judgment or tax lien. It needs to be on paper.

Once payment is made on the negotiated settlement, they can qualify for an FHA loan. The negotiated payment on the judgment or IRS tax lien can be paid to the title agent at closing. Per HUD derogatory credit mortgage guidelines, HUD is the only federal agency that allows borrowers with federal tax lien to be eligible for FHA loans. You can qualify for conventional loans with outstanding tax debts with a written payment agreement with the Internal Revenue Service. However, Fannie Mae and Freddie Mac does not allow borrowers with an executed tax lien to be eligible for conventional loans. For more information on this article or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.

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