Borrowers with under 600 FICO

Borrowers with Credit Scores under 600 FICO

Borrowers with credit scores under 600 FICO

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 are unemployment, injuries, medical problems, and other valid reasons like acts of Gods such as Hurricanes and/or Tornados.  These reasons must be documented in order for the mortgage underwriter to be able to use as an exception and you must be back on your feet with steady income and a promising outlook in continued employment.

Lending Guidelines on Conventional Loans

Conventional mortgage loans have tougher underwriting guidelines than FHA mortgage underwriting.  If your credit scores fall below 600 FICO, the chances are that you ARE NOT going to qualify for a conventional loan and will be better off with a FHA mortgage loan. Conventional loans require a minimum credit score of 620 FICO.  It may be possible to get a conventional loan but you might have to put as much as 20% down for you to qualify with somewhat competitive mortgage rates.  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.

Credit Scores and Qualifying for Mortgage

Credit scores below 600, but above 550, usually encompass something currently good on a credit report that 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. In many cases sub 600 credit scores can also be approved if debt to income ratios are low, and time on job and/or number of years in same line of work are strong.

Mortgage for borrowers with under 600 FICO

 Strangely enough many credit analysts consider credit scores below 600 to be “bad” credit. If this is so, then certain FHA lenders are consistently financing people with so called “bad credit”. However in actuality, when an FHA underwriter approves a credit score under 600, he/she is actually taking many other factors into consideration. By applying a deeper analysis, the approved credit, even sub 600 score, would more likely be considered “good” rather than “bad”. This is simply because the individual has been evaluated and their credit worthiness has been based upon what caused the score to drop below 600 in the first place. In turn, by evaluating and applying other life factors manually and mentally, an FHA underwriter can make a determination about the more human side of things rather than solely and simply relying on an algorithm generated by Transunion, Experian and/or Equifax.
To sum it up, whether it’s bad luck or just the randomness of life itself, some people have 800 credit scores and some have scores below 600 or even less. Whatever the reason, if your credit score is below 600, and if you have re-established some credit and can prove stable income, there are a distinct few lenders that will consider the human factors of your life seriously consider your file for approval.

How does FHA Loans work?

There is a common misconception about how the financing of an FHA loan actually works.  Most people think that the government is actually lending them the money.  Although the lender must be approved by the federal government to make FHA loans, the government is actually only insuring the loan.  It is the lender that must provide the funds for the loan.

As such, most lenders are subject to the guidelines that are placed on them by the investor source providing the money.

Wall Street seems to be controlling much of this.  Since the fall of the subprime market, mortgage back securities and their decision makers have adopted much stricter guidelines for financing “credit challenged” borrowers; even for FHA insured financing.

Mortgage lender overlays

HUD does not reference any credit score requirement for approving financing for an FHA insured mortgage.  Again it is the money sources and/or investors providing funds for the lenders that is placing these 640 credit score requirements on the system.

There are lenders providing FHA insured mortgages with credit scores under 640.  Some FHA approved lenders will go below 600.  There are a very select few that will approve borrowers with credit scores of 500 and up. 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 insured mortgages seem to have become more popular in today’s market.  There are several reasons for this.

Although these mortgages have not replaced many of the programs lost with the fall of the subprime market, FHA insured mortgages are provided quality financing for many people whom might have otherwise become prey from the less desirable subprime interest rates and pricing.

FHA mortgage lending guidelines

FHA guidelines and requirements are different from the many of the former subprime programs in that:

1)      First and foremost, FHA insured mortgages provide low interest rates for many folks with less than perfect credit.  This loans are usually provided with a 30 year fixed rate mortgage.

2)      FHA insured mortgages can provide 96.5% financing for folks trying to purchase a home.  Negotiate a sellers concession to pay toward closing costs (up to 6% of the purchase price), and borrowers with challenged credit can often find themselves purchasing their dream home for as little as 3.5% down.

3)      FHA’s primary concern seems to be housing payment history.  If your mortgage and/or rent has been paid on time for the past 12 months, you are usually off to a good start in the underwriting process.  However, the are other criteria to meet.

4)      Credit score is not supposed matter per FHA guidelines so credit score below 640, 600 or even 580, should not matter.  However much of the private sector money that actually funds FHA insured mortgages often puts minimum credit scores before other qualifying requirements.  As such, finding the right lender will be key if your credit score falls under 580, 600, or even 640.

5)      Income must always be provable and real.  IRS form 4506 is required to be signed.  As well the IRS form 4506 is processed on virtually every FHA insurance loan underwritten.  Transcripts from the IRS are pulled on just about every FHA insured file to confirm borrower income and actual income tax filings for the past 2 years.

6)      Self employed borrowers are also required to provide a YTD P&L Statement (year to date profit and loss) prepared by a verifiable CPA.

7)      Debt to Income ratios are usually strictly set at 43% back end, with FHA compensating factors making allowances up to 46% if reserves can be provided.

8)      If previous mortgage payment history is perfect and LTV is low, (less than 65%), sometimes stable income will qualify for 50% DTI on an FHA insurance refinance.

9)      Non-occupying co-borrowers, in effect acting as FHA co-signers can often be added to the loan to improve debt ratio on borrowers that are in the 55% DTI range without the co-signer/co-borrower.

10)  Stated income, “no-ratio” and/or “no income check” mortgages are strictly forbidden on any FHA insured mortgage.

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.

Comments are closed.