Mortgage Loans For Borrowers With Credit Scores Under 600 FICO

This BLOG On Mortgage Loans For Borrowers With Credit Scores Under 600 FICO Was Updated On June 13, 2017

Many home buyers do their due diligence on FHA Guidelines On Credit Scores and find out that FHA has Mortgage Loans For Borrowers With Credit Scores Under 600 FICO.

  • However, when, they consult with multiple local lenders and their local banks in the area, they find out that these lenders do not approve Mortgage Loans For Borrowers With Credit Scores Under 600 FICO. 
  • HUD, the parent of FHA, only requires a 580 FICO credit score.
  • Most mortgage loans require a credit score of 640 FICO or higher. 
  • There are lenders that will qualify a mortgage loan borrower with a minimum credit score of 620 FICO. 
  • Folks who are planning on purchasing a home and getting a mortgage loans need to really be alert and wary with their credit scores. 
  • Too much credit balance on a credit card will drop your scores. 
  • If you really want to boost your credit scores, you should have a minimum of a $10.00 balance on your credit card. 
  • Never have a zero balance on your credit card because by having a paid off credit can actually hurt your credit scores. 
  • Current home mortgage rates are still at an all time low and a bad credit score will cost you, the mortgage loan borrower a higher mortgage interest rate when applying for a loan. 
  • I am a Florida mortgage lender and Illinois mortgage lender and can help mortgage loan borrowers who have had prior bad credit and who have credit scores under 600. 
  • I have mortgage loan programs for mortgage loan borrowers who have credit scores as low as 530 FICO.

Mortgage guidelines for borrowers with credit scores under 600 FICO

There are certain criterias for mortgage loan borrowers with credit scores under 600 that need to have.

  • They need a history of paying their bills on time for a minimum of 6 months and they could not have a 30 day late payment history in the past 12 months. 
  • They cannot have a history of overdrafting a check for the past 12 months. 
  • If you do have a 30 day late payment on your mortgage over the past year, you might be able to qualify for a mortgage but you would need a good excuse. 
  • If you are late 30 days more than twice on your mortgage loan payment, the chances are that you will not qualify for a home mortgage loans until you show a history of paying your mortgage payment on time for at least one year.

Some of the excuses that mortgage loans underwriters will accept for late mortgage loans payments. Some extenuating circumstances are the following:

  • Loss of business or unemployment
  • Injuries
  • Documented medical problems
  • Other extenuating circumstances such as acts of Gods such as Earthquakes, Hurricanes and/or Tornado.

These reasons must be documented in order for the mortgage underwriter to be able to use as an exception on a manual downgrade or refer/eligible per automated underwriting system per AUS FINDINGS. The borrower must be back on track and back on their feet with steady income and a promising outlook in continued employment for the next three years.

Conventional Loans

Conventional mortgage loans are often called conforming loans because they need to conform to Fannie Mae and/or Freddie Mac Guidelines. Conventional Loans are for the following:

  • One to four unit owner occupant homes
  • One to four unit vacation homes/second homes
  • One to four unit non-owner occupant investment homes

Conventional Loans are not guaranteed by the government like a government agency like HUD, USDA, VA.

  • Conventional Loans have tougher underwriting guidelines than FHA loans.
  • Minimum credit scores to qualify for conventional loans is 620 FICO.
  • With an FHA mortgage loan, you are eligible to qualify with a credit score as low as 580 FICO for a 3.5% down payment mortgage loan. 
  • For those borrowers with bad credit whose scores range from 530 to 580, they need to put down 10% down pay for a mortgage loan.
  • Owner occupant conventional loans require 3% down payment for first time home buyers and 5% down payment for seasoned home buyers.
  • First time home buyers are those who did not have any home ownership in the past three years.

Credit Scores Qualifying for Mortgage

Here the the actual FHA Guidelines On Credit Scores versus whether or not a mortgage lender will accept FHA Mortgage Loans For Borrowers With Credit Scores Under 600 FICO.

  • Credit scores above 640 FICO on a credit report is typically a low credit score, however, most borrowers will not have trouble qualifying for FHA Loans.
  • Credit scores and credit payment history will help an underwriter make a positive decision, if other elements of an individual’s file can be approved such as income and/or if purchasing a home down payment.
  • Also when refinancing with a credit score below 600, low loan to value can also help the automated underwriting system generate a good risk rating on behalf of the borrower and render an approve/eligible per AUS FINDINGS.
  • In many cases sub for Mortgage Loans For Borrowers With Credit Scores Under 600 FICO credit scores can also be approved per AUS FINDING with compensating factors such as low debt to income ratios,  longevity on the job, second job that borrower has been on for at least 12 months but not used to qualify, and reserves.

Are Mortgage Loans For Borrowers With Credit Scores Under 600 FICO Considered High Risk Borrowers?

Credit scores are not the only factor that determines the eligibility of a borrower.

  • Credit scores under 600 FICO is generally classified as poor credit.
  • However, with no credit have low credit scores not because they have bad credit such as late payments, collections, charge off accounts but just because they have no credit tradelines.
  • When a borrower gets an AUS FHA APPROVAL and and the mortgage underwriter goes over and checks off the conditions of the automated findings, the FHA underwriter is actually validating and approving credit score under 600, the mortgage underwriter is actually taking many other factors into consideration.
  • By applying a deeper analysis and if the mortgage applicant has compensating factor and gets an automated underwriting system AUS Approval, the approved credit, even sub 600 FICO credit score is being considered “good credit and credit worthy” rather than “bad credit of the mortgage loan applicant”.
  • This is simply because the individual borrower has been evaluated and their credit worthiness has been based upon what caused the score to drop below 600 in the first place.
  • Evaluating and applying other life factors and/or extenuating circumstances on a manual underwrite, an mortgage loan underwriter can make a risk determination about the individual file and borrower.

All in all FHA Mortgage Loans For Borrowers With Credit Scores Under 600 FICO is done all the time by members of The Gustan Cho Team as long as the borrower can get an approve/eligible per AUS.

FHA Loans With Bad Credit

The Gustan Cho Team at Gustan Cho Associates helps borrowers get approved for FHA Loans with bad credit. However, having bad credit is one thing but almost all lenders do expect timely payments in the past 12 months.

  • FHA is not a mortgage lender
  • FHA is a subsidiary of HUD and its role is to insure FHA Loans to banks and lenders who originate and fund FHA Loans in the event of default

HUD Guidelines Versus Lender Overlays

HUD Guidelines Mortgage Loans For Borrowers With Credit Scores Under 600 FICO versus lender overlays are different.

  • Again it is the money sources and/or investors providing funds for the lender overlays.
  • Lender overlays are mortgage lending requirements that is of higher standards than those of FHA.
  • It is not illegal for a lender not to honor the minimum FHA 580 FICO credit score requirement.
  • FHA requires 580 minimum FICO credit scores to qualify for a 3.5% down payment FHA home purchase loans.
  • Lenders requiring 640 credit score requirements is only because it is the requirements of their lending company and not FHA Guidelines On Credit Scores.
  • FHA allows borrowers with under 580 FICO credit scores and down to 500 FICO credit scores to qualify for FHA Loans, however, any borrowers with under 580 FICO credit scores, 10% down payment is required.
  • There are lenders with no lender overlays, like The Gustan Cho Team, that they specialize in originating and funding FHA insured mortgages with credit scores under 640. 
  • FHA approved lenders will go below 600 generally do not have any or minimal overlays.
  • There are a very select few that will approve borrowers with credit scores of 500 to 579 FICO.
  • In the few cases seen, a score of 500 is required for a refinance and a credit score of at least 531 is required for a purchase.

FHA Loans With Low Credit Scores

FHA guidelines and requirements are different and vary from lender to lender. Most mortgage companies will have lender overlays on FHA Mortgage Loans For Borrowers With Credit Scores Under 600 FICO

  • The Gustan Cho Team has no lender overlays on FHA Loans
  • Non-QM Loans and  “no-ratio” and/or “no income check” mortgages are now back.

Home buyers with less than perfect credit and need a loan officer who specializes in FHA Loans with no lender overlays, contact Gustan Cho at 800-900-8569.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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