Mortgage Loans For Borrowers With Credit Scores Under 600 FICO


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 November 28th, 2018

Many home buyers do their due diligence on FHA Guidelines On Credit Scores and find out HUD 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
  • Most mortgage loans require a credit score of 640 FICO or higher
  • There are lenders that will qualify borrowers 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 scores
  • Consumers needing to boost credit scores should have a minimum of a $10.00 balance on credit card
  • Never have a zero balance on credit card
  • This is because by having a paid off credit can actually hurt consumer credit scores
  • Current home mortgage rates are still at an all time low
  • Bad credit score will yield borrowers higher mortgage interest rates
  • Gustan Cho Associates at Loan Cabin Inc. can help borrowers who have had prior bad credit and who have credit scores under 600
  • We have mortgage loan programs for borrowers who have credit scores as low as 500

Mortgage guidelines for borrowers with credit scores under 600 FICO

There are certain criterias for 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 over drafting a check for the past 12 months
  • If you do have a 30 day late payment on 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 loan payment, the chances are you will not qualify for a home mortgage loans
  • This holds true until you show a history of paying your mortgage payment on time for at least one year

Extenuating Circumstances For Late Payments

Some of the excuses that mortgage 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

Government Versus Conforming Loans

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 the following:
    • 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
    • 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 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

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
  • HUD 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 HUD Guidelines On Credit Scores
  • FHA allows borrowers with under 580 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 overlays, like Gustan Cho Associates at Loan Cabin, that 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 overlays
  • There are a very select few that will approve borrowers with credit scores of 500 to 579 FICO

FHA Loans With Low Credit Scores

HUD 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 at Loan Cabin Inc. 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 us at 262-716-8151 or text us for faster response. Or email us at

  1. Nancy Billing says

    I bring good news for everyone seeking mortgage during this period, I used Alex Carlucci I have read in a housing article about them on Gustan Cho Associates for both my husband and I, and they asked for some personal details. Alex Carlucci and the CEO of Gustan Cho Associates at Loan Cabin Inc. NMLS 165733 Massimo Ressa went through each line of item and was not really interested in my story of how and why I was late or couldn’t pay – while they charged me a little payment, In 48-72 hours we finished our services with Karen Cordes, the head underwriting manager of Loan Cabin Inc. and most of the late payments were updated to be in good standing while the charge-offs were removed and our credit scores raised to the high 750 and 785 because Karen Cordes and Gianna Dilla did a rapid rescore. Loved everything they stood for and most importantly the attentiveness, professionalism and care. Angie Torres of Gustan Cho Associates was a great processing manager. Dale Elenteny was phenomenal with all mortgage guidelines. Mike Gracz who is the National Sales Manager of Gustan Cho Associates helped out a lot. Thank you The Gustan Cho Team at Loan Cabin Inc.

Leave A Reply

Your email address will not be published.