3.5% Down Payment Mortgage Approval With 580 FICO Credit Score
The Federal Housing Administration, a subsidiary of the United States Department of Housing and Urban Development ( HUD ) insures residential mortgage loans to FHA approved mortgage lenders against default from FHA mortgage loan borrowers. FHA is not a mortgage lender but a government entity that insures mortgage loans against default. In order for a mortgage loan borrower to get a FHA loan from a FHA mortgage lender, the mortgage lender needs to follow FHA Guidelines in order for the mortgage loan to be insurable. FHA is probably the most mortgage loan program. FHA loans enables home buyers who have less than perfect credit and higher debt to income ratios the opportunity to become homeowners and realize the dream of homeownership. FHA Loans have much lenient mortgage lending guidelines than conventional mortgage loan programs. Home buyers can qualify for a 3.5% down payment FHA mortgage loan with credit scores as low as 580 FICO whereas you need a credit score of 620 FICO to qualify for a conventional loan.
What If Told By A Lender That You Need 640 FICO To Qualify For FHA Loan?
Over half of my mortgage loan borrowers are folks who did not qualify with other mortgage lenders. Many of these mortgage loan borrowers are told that they were told by their local bank, credit unions, or other mortgage companies that they did not qualify for a FHA loan because their credit scores were under 640 FICO. Many FHA approved mortgage lenders have something called mortgage lender overlays where it is mortgage lending guidelines that is imposed by their own institution that is above and beyond the minimum FHA lending guidelines set by HUD. Minimum FHA guidelines on credit is 580 FICO to qualify for a FHA insured mortgage loan. However, a mortgage lender can not accept the 580 FICO credit score and set their own lending overlays and decide to set it at 620 FICO or 640 FICO. However, I am a no mortgage lender with no lender overlays and if you meet the minimum HUD lending guidelines and get an approve/eligible per DU FINDINGS or LP FINDINGS, I will get your mortgage loan approved and closed as long as you meet all conditions stated on the automated underwriting system. If you are told that you do not qualify for a FHA loan, please contact me at 262-716-8151 or visit me at www.gustancho.com.
Negatives With Having Credit Scores Under 620 FICO
If you have credit scores under 620 FICO but have at least a 580 FICO credit score you can get mortgage approval with 580 FICO Credit Score, however, your debt to income ratio cap will be limited and lower than if you were to have credit scores of 620 FICO or higher. If your credit scores are at 620 FICO or higher, your maximum front end debt to income ratio is capped at 46.9% and you back end debt to income ratio is capped at 56.9% DTI. If your credit scores are under 620 FICO with no compensating factors, your debt to income ratios will be capped at 43% DTI. If you were to have at least one compensating factor, your debt to income ratio can possibly go as high as 47% DTI. If you have at least two compensating factors, you may go up to 50% debt to income ratios.
What Are Compensating Factors?
Compensating factors are positive factors that the mortgage loan applicant has. Examples of compensating factors are at least 3 months reserves ( principal, interest, taxes, insurance ), verification of rent ( VOR ), larger down payment, residual income, and income that you have but are not using to qualify for the mortgage loan.
Manual Underwriting On Mortgage Approval With 580 FICO Credit Score
If your credit scores are under 620 FICO and your debt to income ratios are higher than 43% DTI, you can still get a mortgage loan approval but only as a manual underwriting since the Automated Underwriting System will not approve you via automated approval. Not all mortgage lenders do manual underwriting but I do. If you have credit scores under 620 FICO but at least 580 FICO and need a mortgage loan approval, please contact me at 262-716-8151 or visit me at www.gustancho.com.