Manual Underwriting Credit Guidelines on VA And FHA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss manual underwriting credit guidelines on VA and FHA loans. VA and FHA allow for manual underwrites. Fannie Mae and Freddie Mac do NOT allow manual underwriting on conventional loans. Manual Underwriting is when borrowers cannot get an approve/eligible per an automated underwriting system. Case files yielding refer/eligible per automated underwriting system findings are eligible for manual underwriting on FHA and VA home loans. Not all lenders do manual underwriting on FHA and/or VA loans.

Are VA and FHA Manual Underwriting Guidelines The Same?

The manual underwriting guidelines on FHA and VA loans are very similar to one another. An approve/eligible per AUS approved borrower can get downgraded to a manual underwrite if the lender (normally this is often done with lenders with lender overlays) deems it necessary due to many-layered risk. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans. A large percentage of our borrowers are FHA and/or VA manual underwriting files. The team at Gustan Cho Associates are experts in helping borrowers in need of manual underwriting.

Manual Underwriting Guidelines on FHA and VA Loans

General credit requirements on Manual Underwriting Credit Guidelines on VA And FHA loans. The underwriter must look at the borrowers’ overall pattern of credit. No late payments in the past 24 months. Isolated derogatory payments due to extenuating circumstances are acceptable with proper documentation. Lenders do not need to consider the credit profile of the non-borrowing spouse. Even in community property states.  Gustan Cho Associates often will accept timely payments in the past 12 months versus 24 months. In this article, we will cover and discuss the manual underwriting guidelines on VA and FHA mortgages.

Manual Underwriting Guidelines on Late Payments

Payment history in the past 24 months will be evaluated. Late Payments after bankruptcy and/or housing event or prior bad credit will be reviewed by mortgage underwriters. Late payments after bankruptcy and/or foreclosure can be a deal-breaker. Late payers after bankruptcy and/or a housing event are considered second offenders and the chances are not good for a home mortgage approval. One of two late payments after bankruptcy and/or foreclosure is not always a deal killer. However, most lenders will not qualify any borrowers with late payments after bankruptcy and/or foreclosure. There are strategies for getting approved with late payment after bankruptcy. Contact us at Gustan Cho Associates if you have late payments after bankruptcy and need mortgage approval at [email protected] or call us at 262-716-8151. Text us for a faster response.

What Does an Underwriter Look at For a Mortgage?
Mortgage Underwriter

Many borrowers do not know what a mortgage underwriter checks during the underwriting process of the home loan. What checks do underwriters do? The mortgage underwriter will review and analyze the borrower’s income, assets, liabilities, reserves, credit profile, credit history, the ability to repay, job longevity and stability, and the subject property before they make a final decision on whether to approve or deny a mortgage loan application. The underwriter will evaluate the borrowers’ payment history in the following order:

  1. the borrower’s employment history and income
  2. the borrower’s job stability and whether or not the borrower’s employment is likely to continue for the next three years
  3. check whether the borrower had stable consistent income for the past two years
  4. look for compensating factors
  5. the borrower’s payment history in the past 24 months
  6. the history of the previous housing expense(mortgage or rent)
  7. installment debts
  8. revolving accounts
  9. the overall payment history of the borrower with emphasis on the credit utilization ratio

Manual Underwriting Guidelines on Verification of Rent

The underwriter will consider acceptable housing payment if the borrower has made mortgage or rent payments on time for the last 12 months. Cannot have any more than 2 times 30 day late payments in the last 24 months. The underwriter may approve the borrower if they have no major derogatory payments on revolving accounts in the last 12 months. Major derogatory tradelines are considered. Major derogatory credit is one times 90 days late payments and/or 3 late payments in the past 12 months. 60-day late payments are frowned upon by mortgage underwriters.

Manual Underwriting Credit Guidelines on Collection Accounts

What Are The Manual Underwriting Credit Guidelines On Collection Accounts

Outstanding collection and charged-off accounts do not have to be paid off to qualify for FHA and/or VA Loans. However, recent outstanding collections and/or collections are carefully looked at on manual underwriting. Collection accounts for manual underwriting credit guidelines require the following: Mortgage Underwriters must determine if collection accounts were a result of:

  • the Borrower’s disregard for financial obligations without extenuating circumstances
  • the Borrower’s inability to manage debt will be considered;
  • or extenuating circumstances

Underwriters must analyze the borrower’s documentation provided for consistency with other credit tradelines and information. This is required to determine if borrower derogatory credit tradelines should be considered in the underwriting analysis.

Credit Disputes That Do Not Have To Be Removed For Mortgage

All recent non-medical credit disputes have to be removed for the mortgage process to continue. Non-exempt non-medical credit disputes, charged-off accounts, late payments, and other derogatory credit tradelines all need to be removed for the mortgage process to continue. There are credit disputes that are exempt where borrowers do not have to remove them. The following are credit disputes that are exempt from being removed and the mortgage process can continue without the credit disputes:

  • disputed medical collection accounts no matter what the outstanding balance
  • credit disputes which are being disputed due to identity theft, credit card theft, or unauthorized use
  • consumers need to provide documentation of identity theft and/or fraudulent activities and disputing credit tradelines
  • accepted documents to identity theft and/or fraud is to provide the lender with a copy of the police report and/or documents provided by creditors to document and/or verify above
  • non-medical credit disputes that are older than 24 months are exempt to be removed and the disputes can remain

Credit Disputes During Mortgage Process Will Halt The Mortgage Process
Credit Disputes During Mortgage Process

If credit reports show borrowers are disputing derogatory credit tradelines, borrowers need either to retract it and/or provide a letter of explanation as to why the tradelines are in dispute. If a credit dispute is due to fraud and/or identity theft, borrowers need to provide a police report and/or other documentation to prove the dispute is legitimate. Any non-medical collections if the overall outstanding balance is under $1,000 are exempt from retraction of credit dispute. Any late payment credit disputes with an outstanding balance under $1,000 are exempt from retraction.

Can I Get a Mortgage If I Have Unsatisfied Judgements?

Judgment refers to any debt or monetary liability of consumers. Mortgage borrowers can qualify for home loans with outstanding judgments with a written payment plan and three months of payment seasoning. A Judgment is considered resolved if borrowers have entered into a valid agreement with the creditor to make regular payments on the debt/ Borrowers need to have made timely payments for at least three months of scheduled payments. Judgments will not supersede the VA and/or FHA-insured mortgage lien. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.

Mortgage Guidelines on Outstanding Judgments

Qualifying For A Mortgage With Outstanding Judgments and Tax-Liens

Borrowers with Judgments have three options to qualify for a mortgage loan:

  1. Option #1: Pay the outstanding judgment and record on public records the paid settlement agreement
  2. Option #2: Settle for less than the face judgment amount and pay the judgment: Record the paid judgment release letter on public records and save all of your paperwork
  3. Option #3: Enter into a written payment plan with the judgment creditor and make three continuous on-time monthly payments

Can I Get Mortgage Loans With Outstanding Tax Liens?

The same mortgage guideline that applies to judgments applies to tax liens on FHA and USDA Loans. The borrower can enter into a written payment agreement with the Internal Revenue Service. Needs three months of payment seasoning. Cannot pre-pay the three months upfront in order to qualify. The three months of payments need to be seasoned. Conventional loans and VA loans have different types of guidelines on tax liens. Fannie Mae and Freddie Mac allow borrowers who have outstanding tax debts but not tax liens. Borrowers with tax debts are eligible for conventional loans if they have a written payment agreement with the IRS. The borrower needs to make at least one payment before and/or at closing before they can close on conventional loans. You cannot have a tax lien on conventional loans.

Tax-Liens on FHA Versus Conventional Loans

Tax liens are not allowed on conventional loans. You can still qualify for conventional loans if you owe the IRS money. However, you need to get a written payment agreement. You only have to make one month’s payment prior to closing on your repayment agreement. VA loans allow borrowers with outstanding tax liens to be able to qualify. You need a written payment agreement. The VA requires 12 months of timely payments on the written payment agreement in order for you to qualify for a VA loan with an outstanding tax lien.

VA And FHA Mortgage Guidelines During And After Chapter 13 Bankruptcy

Getting a loan while in Chapter 13 is allowed on VA and FHA Loans. There is no waiting period to qualify for FHA and VA Loans during the Chapter 13 Bankruptcy repayment plan. There is no waiting period to qualify for VA and FHA Loans after the Chapter 13 Bankruptcy discharged date.

VA and FHA Loans After Chapter 13 Bankruptcy Discharged Date With Manual Underwriting

VA and/or FHA Loans that have not been seasoned two years after the bankruptcy discharged date needs to be manually underwritten. A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining a VA and/or FHA-insured Mortgage. This only holds true if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed. Lenders must determine that during this time, the Borrower’s payment performance has been satisfactory. Lenders need to make sure all required payments have been made on time. Borrowers need written permission from bankruptcy court trustees to enter into the mortgage transaction.

Manual Underwriting Credit Guidelines After Foreclosure

Manual Underwriting Credit Guidelines After A Housing Event

Getting a mortgage after a short sale, Foreclosure or Deed in Lieu for homebuyers and homeowners is possible if they meet the minimum waiting period requirements. A Borrower is generally not eligible for a new FHA loan if the borrower had a short sale, foreclosure, or a DIL of foreclosure in the three-year period prior to the date of case number assignment. This three-year period date starts on the date of DIL or the date that the Borrower transferred ownership of the Property to the foreclosing Entity/designee.

Manual Underwriting Credit Guidelines on Extenuating Circumstances

Manual underwriting credit guidelines on extenuating circumstances are very specific. Lenders may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower. Examples of acceptable manual underwriting credit guidelines on extenuating circumstances are medical issues, injury at work, major auto accidents, and changing to a lower paying job due to company and/or business closure. Other acceptable manual underwriting credit guidelines on extenuating circumstances are serious illness or death of the main household wage earner. Exceptions to the manual underwriting credit guidelines on extenuating circumstances are pretty cut and dry with exceptions to the manual underwriting credit guidelines on extenuating circumstances very unlikely. Borrowers have re-established good credit since the foreclosure with no late payments.

Manual Underwriting Credit Guidelines on Bad Credit Due To Divorce
Manual Underwriting Credit Guidelines

Manual underwriting credit guidelines on extenuating circumstances do not apply to bad credit due to divorce. Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a Borrower’s Mortgage was current at the time of the Borrower’s divorce, the ex-spouse received the Property and the Mortgage was later foreclosed. The inability to sell the Property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance. Gustan Cho Associates will exempt verification of rent if borrowers have been living rent-free with family. Rent Free Letter Form provided by Gustan Cho Associates needs to be completed and sign. This letter can be used in lieu of Verification Of Rent.

Best Mortgage Lenders For FHA And VA Manual Underwriting

Gustan Cho Associates are one of the very few national five-star lenders with no lender overlays on government and conventional loans. We are also experts in Manual Underwriting Credit Guidelines. To qualify with an experienced lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

This guide on Manual Underwriting Credit Guidelines Was UPDATED on June 25th, 2022