HUD Mortgage Guidelines on FHA Loans for 2022

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss the HUD mortgage guidelines on FHA loans for 2022.  HUD is the parent government agency for FHA. FHA is not a lender. It is a subsidiary of HUD that insures lenders if borrowers default on their FHA Loans. In order for lenders to get FHA Insurance, all of their FHA Loans need to meet HUD Mortgage Guidelines. For any loan lenders fund that does not meet HUD Mortgage Guidelines, FHA will not insure the loan. HUD 4000.1 FHA Handbook is a 1,000-page handbook listing all of the guidelines lenders need to meet on FHA Loans they originate and fund in order for them to be insurable. Also, lenders cannot sell FHA Loans on the secondary market if the loans do not meet HUD Mortgage Guidelines. 

FHA Versus Conventional Loan Mortgage Guidelines

FHA Versus Conventional Loan Mortgage Guidelines

In general, FHA Loans have much more lenient mortgage guidelines than conforming loans. Many have heard of the C’s which are credit, capacity, and collateral. The automated underwriting system is a sophisticated highly technologically advanced system that renders automatic approvals and denials on home loans. AUS can analyze the 3 C’s of any borrower and render a decision in a matter of seconds. Gustan Cho Associates only goes by AUS Findings. Gustan Cho Associates has no overlays on government and conventional loans. Many lenders will look at AUS FINDINGS but can have higher lending standards.

FHA Versus Conventional Loan Credit Score Requirements

FHA Loans normally have lower mortgage rates for borrowers with lower scores and bad credit than conventional loans due to the government guarantee. The minimum down payment on FHA Loans is 3.5% for borrowers with at least 580 credit scores. Borrowers with under 580 and down to 500 credit scores can qualify for FHA Loans with a 10% down payment with AUS Approval. First Time Home Buyers can qualify for conventional loans with a 3% down payment versus a 5% down payment for home buyers with prior homeownership. First-time home buyers are defined as any buyers who have not owned a home in the past 3 years. Minimum credit scores on conventional loans are 620. These higher standards lenders can have above and beyond AUS FINDINGS are called lender overlays.

HUD Mortgage Guidelines For Bad Credit

Homebuyers can qualify for FHA Loans with bad credit and after bankruptcy and foreclosure:

  • There is a three-year waiting period after the recorded date of foreclosure and/or deed in lieu of foreclosure
  • There is a three-year waiting period after a short sale date to qualify for FHA Mortgages
  • Waiting period start date is three years from the FHA Case Number assignment date
  • There is a two-year waiting period after the Chapter 7 Bankruptcy date

HUD Mortgage Guidelines On Chapter 13 Bankruptcy

HUD Mortgage Guidelines On Chapter 13 Bankruptcy

Borrowers can qualify for FHA Loans during the Chapter 13 repayment plan with Trustee Approval but with manual underwriting. The borrower needs to be one year into a Chapter 13 Bankruptcy repayment plan to qualify. Chapter 13 does not need to be discharged. There is no waiting period after the Chapter 13 Bankruptcy discharge date. All payments to Trustees and creditors need to have been made timely in the past 24 months to meet manual underwriting guidelines. HUD Mortgage Guidelines allow up to 46.9% front end and 56.9% back end DTI to get an AUS Approval. Manual underwriting can be as high as 40% front end and 50% back end DTI with 2 compensating factors.  Borrowers need to meet all guidelines from FHA Handbook, AUS Conditions, and Overlays by the lender.

Mortgage Rates On FHA Versus Conforming Loans

Due to government guarantees, all government loans have lower interest rates than conventional loans. Not all lenders have the same mortgage rates. Lenders can also have their own loan level pricing adjustments. The following factors affect mortgage rates on home loans:

  • Borrowers credit scores
  • Loan amount balance
  • Down payment and loan to value
  • Type of property
  • Owner occupant versus investment property loans
  • Single Family Home Versus Condominium Versus Multi-Unit Property
  • State property is located
  • 30-year versus 15-year fixed-rate mortgages
  • Fixed-rate mortgages versus adjustable rate mortgages

Times When Borrowers Need To Go With Conventional Versus FHA Loans

There are times when borrowers need to go with conventional versus FHA Loans. HUD does allow IBR Payments on student loans. HUD requires 0.50%  of outstanding student loan balances to be used as hypothetical monthly debt on deferred and/or IBR student loan payments. Conventional Loans also allow Income-Based Repayment on high-balance student loans as long as it reports to a consumer credit report.

HUD Mortgage Guidelines on Prior Home Loan Included in Bankruptcy

HUD Mortgage Guidelines on Prior Home Loan Included in Bankruptcy

Other times when borrowers need to go with conventional versus FHA Loans is when they have a prior mortgage included in bankruptcy. Conventional Loans have a four-year waiting period after the discharge date of Bankruptcy if the borrower had a mortgage included in Bankruptcy. The housing event finalization date does not matter. However, FHA requires a three-year waiting period after the recorded date of foreclosure and/or short sale on mortgage included in Bankruptcy. The discharged date of bankruptcy does not matter. Please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response with any questions on this topic matter. Or email us at [email protected] The Team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.