Maryland FHA Lenders For Homebuyers With Bad Credit

Not all Maryland FHA Lenders have the same lending requirements on FHA loans. There are two different types of guidelines on FHA loans. There are the agency mortgage guidelines of HUD. The second guidelines are individual lender requirements that surpass the HUD agency guidelines which are called lender overlays. Many people think lenders offering FHA loans have the same lending requirements. This is not true. Mortgage companies can have higher lending requirements than the minimum HUD agency guidelines. It is perfectly legal for lenders to require higher credit scores, lower debt to income ratio, and other credit /income requirements than HUD’s minimum credit/income requirements. This is why it is important to fully understand the agency guidelines of HUD when shopping for a mortgage in Maryland.

Understanding The Difference Of HUD Guidelines Versus Lender Overlays

The Difference Of Agency Mortgage Guidelines Versus Lender Overlays

Most Maryland FHA Lenders have lender overlays on FHA loans. If you get denied from a lender in Maryland for an FHA loan but know that you meet the minimum HUD agency guidelines, you can go to a different lender that does not have lender overlays. Gustan Cho Associates is one of the very few mortgage companies licensed in multiple states with no lender overlays on FHA loans. Over 75% of our borrowers are folks who could not qualify at other mortgage companies due to their lender overlays. Mortgage companies can have lender overlays on just about anything.

FHA Credit Score Requirements

HUD requires a 580 credit score to qualify for a 3.5% down payment home purchase FHA loan. However, a mortgage company can require a 620, 640, 660 credit score. The higher credit score requirement is called a lender overlay on credit scores. HUD allows borrowers with under 580 FICO and down to a 500 credit score to qualify for an FHA loan. However, most lenders will not approve FHA loans in Maryland with under 580 credit scores. It is perfectly legal for lenders not to accept certain credit profile borrowers due to their lender overlays. Gustan Cho Associates has a large percentage of borrowers with credit scores down to 500 FICO. GCA Mortgage has zero lender overlays on FHA loans. We just go by the automated findings of the automated underwriting system.

Do All Maryland HUD-Approved Lenders Have The Same FHA Loan Requirements

Not all Maryland FHA lenders have the same lending requirements. If you have less than perfect credit and/or lower credit scores, you should select a mortgage company that has no lender overlays. Lender overlays are the second set of mortgage lending guidelines that is imposed by the individual lender that surpasses the minimum agency guidelines of HUD. There are certain Maryland FHA lenders that do not do manual underwrites, will not go below 620 credit scores, will not allow gift funds unless the borrower has a 640 credit score, will cap debt to income ratios below the maximum allowed by HUD, or have other lender overlays that may affect your mortgage approval.

The Roles Of HUD And Individual Mortgage Lenders On FHA Loans

Many consumers and real estate professionals are under the impression that since FHA loans are government-backed loans, all mortgage lenders will have the same lending requirements. This is not true. Mortgage companies that are HUD-approved lenders need to have their borrowers meet the minimum HUD agency mortgage guidelines on FHA loans. HUD sets the minimum agency mortgage guidelines for borrowers on FHA loans. The guide to HUD agency mortgage guidelines is called HUD 4000.1 FHA Handbook. It is a 900 plus page of all the rules, regulations, guidelines, and lending requirements on FHA loans. However, each individual mortgage lender can have higher lending requirements that are above and beyond the minimum HUD agency mortgage guidelines. The higher lending requirements set by the individual lenders are called lender overlays.

Buying A Home In Maryland With An FHA Loan

Advantages Of FHA Loans In Maryland

The housing market in Maryland is booming. Average home prices have escalated to $454,000. Homes have been appreciating significantly throughout the state of Maryland and seem to continue. The demand for homes is strong and remains to be strong well into 2024. The shortage of homes throughout the state along with historic low mortgage rates is the force of rising home prices.

Here are the top ten appreciating cities in the state of Maryland:

  • Mount Rainier
  • Brentwood
  • Edmonston
  • Colmar Manor
  • Hyattsville
  • Garrett Park
  • Church Creek
  • Takoma Park
  • Patuxent River
  • University Park

The average rent price is $2,275.00 in Maryland. The rental market is strong and expensive. It may be cheaper for renters to buy a home. Due to low historic mortgage rates and inflation soaring to record levels, many renters are deciding to buy a home sooner than later. FHA loans are the most popular loan program in Maryland. First-time homebuyers, borrowers with prior bad credit, borrowers with no credit, and borrowers with lower credit scores can benefit from FHA loans than any other loan program. It is easier to get an approve/eligible per automated underwriting system on FHA loans than conventional loans for first-time homebuyers or borrowers with less than perfect credit or borrowers with high debt to income ratios.

HUD 4000.1 FHA Handbook Guidelines On FHA Loans

All Maryland FHA lenders need to follow the minimum HUD agency mortgage guidelines. Below is the HUD agency guidelines on FHA loans:

  • A 580 credit score is the minimum requirement to qualify for a 3.5% down payment home purchase FHA loan
  • HUD requires a 10% down payment if the borrower has credit scores under 580 and down to a 500 FICO
  • Gift funds for the down payment and/or closing costs are allowed from family members
  • If the borrower is short with seller concession, then the lender can offer a lender credit in lieu of a higher mortgage rate to cover the down payment and/or closing costs
  • Non-occupant co-borrowers are allowed for borrowers who exceed the maximum debt to income ratio caps
  • The maximum debt to income ratio caps allowed to get an approve/eligible per automated underwriting system is 46.9% front-end and 56.9% back end
  • The main borrower can have as many non-occupant co-borrowers on the FHA loan
  • To qualify for a 3.5% down payment home purchase 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-family members to become non-occupant co-borrowers but a 25% down payment versus a 3.5% down payment is required
  • Only one to four-unit owner occupant homes are eligible for FHA loans
  • HUD does not allow second homes, or investment properties to be eligible for FHA financing
  • Borrowers need to provide a two-year employment history
  • Recent graduates of high school, trade school, community college, college, or graduate schools do not need previous 2-year employment history
  • The years spent studying in schools can be used as work experience in lieu of actual work experience
  • Gaps in employment in the past two years are allowed as long as the  gap is not longer than six months

Maryland FHA Loan Requirements After Bankruptcy And Foreclosure

FHA Loans In Maryland After Bankruptcy And Foreclosure

Homebuyers in Maryland can qualify for an FHA loan after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. It is very crucial and important for borrowers not to have any late payments after bankruptcy and/or a housing event. Gustan Cho Associates can help those who filed for bankruptcy and/or had a recent housing event help with rebuilding and re-establishing credit. We have countless borrowers rebuild their credit to have over 700 FICO in less than one year after the Chapter 7 Bankruptcy discharged date.

  • There is a two year waiting period after the Chapter 7 Bankruptcy discharge date
  • There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for an FHA loan
  • Borrowers in an active Chapter 13 Bankruptcy repayment is eligible for FHA financing via manual underwrite after being in the Chapter 13 repayment plan for at least 12 months with trustee approval
  • There is no waiting period after the Chapter 13 Bankruptcy discharged date
  • If the Chapter 13 Bankruptcy discharge has not been discharged for at least 24 months, the file needs to be a manual underwrite

FHA Guidelines On Chapter 13 Bankruptcy Versus Mortgage Lender Overlays

Many Maryland FHA lenders require a waiting period after the Chapter 13 Bankruptcy discharged date. Most require a one to a two-year waiting period after the Chapter 13 Bankruptcy discharged date. Gustan Cho Associates has no lender overlays on FHA loans. HUD states no waiting period after Chapter 13 Bankruptcy and that is what Gustan Cho Associates goes by.

Maryland FHA Lenders With No Lender Overlays On FHA Loans

As long as you meet the above Maryland FHA Loan Requirements, you will qualify and get approved for an FHA loan. Not all mortgage companies may honor just the minimum agency HUD Maryland FHA loan requirements but there are lenders like Gustan Cho Associates that have zero lender overlays on FHA loans. To qualify for an FHA Loan in Maryland with a Maryland FHA Lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or email us at [email protected] Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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