Lenders Loosen Mortgage Standards
There are more and more mortgage lenders that have been loosening their credit criterias in hopes of capturing more mortgage loan applicants. Most mortgage lenders have mortgage lender overlays which are additional internal mortgage lender guidelines above the minimum federal guidelines for FHA, Fannie Mae, Freddie Mac, USDA, and VA mortgage loan programs. For example, to qualify for a FHA insured mortgage loan with 3.5% down payment, the minimum credit score FHA requires is a FICO credit score of 580 FICO. A large percentage of mortgage lenders did not accept any mortgage loan applicants with credit scores below 640 FICO. Now many mortgage lenders who had 640 FICO credit score overlays have dropped their minimum 640 FICO credit requirement to 620 FICO and some have even dropped them to 580 FICO credit scores. Same with conventional mortgage loans. The minimum credit score required for a conventional mortgage loan is 620 FICO. Many conventional mortgage lenders have credit score overlays of 680 FICO. However, I have seen many conventional mortgage lenders in recent months where they have dropped their minimum credit score requirements on conventional mortgage loans to 640 FICO and a handful of them have even lowered it to 620 FICO.
Lenders Specializing In Home Loan With Bad Credit
If you are seeking a home loan with bad credit, you are in luck. Many mortgage brokers like myself specialize in helping home buyers seeking a home loan with bad credit. As I mortgage broker, I represent wholesale mortgage lenders and some of these wholesale mortgage lenders have no mortgage lender overlays. If a mortgage loan applicant gets an approve/eligible per DU FINDINGS and/or LP FINDINGS, the mortgage loan applicant is approved as long as he or she can document all of the information they have listed on their official mortgage loan application. One wholesale mortgage lender WILL NOT accept any mortgage loan applicant with a credit score higher than a 680 FICO credit score. Mortgage lenders have also loosened up mortgage standards on past prior credit as well. Just a couple of years ago it was unheard of a mortgage lender accepting a mortgage loan applicant with an outstanding judgment and/or tax lien. Now, many mortgage lenders will accept mortgage loan applicants with outstanding judgments and/or tax liens as long as they have a payment agreement in force and have made at least three timely payments and can provide cancelled checks for those three payments. Mortgage lenders are more understanding with open collections as well. FHA mortgage lending guidelines do not require for a mortgage loan applicant to pay off an outstanding unpaid collection to get a residential mortgage loan approval.
Mortgage Lender Overlays
Most mortgage lenders their own mortgage lender overlays concerning collection accounts where they wanted the mortgage applicant to have the collection account paid off prior to or at closing in order to fund the mortgage loan. The reason why mortgage lenders are so paranoid about outstanding unsatisfied collection accounts is because collection accounts can turn into judgments. Many mortgage lenders have now eased mortgage standards on outstanding collection accounts where it does not have to paid. However, FHA has implemented new collection account guidelines in 2014 where 5% of the outstanding collection balance needs to be used in calculating debt to income ratios on non-medical collections. Medical collections are exempt from this 2014 FHA mortgage lending guidelines. The new collection accounts mortgage standards are only for non-medical collection accounts with balances of $1,000 or greater.
FHA Back To Work Extenuating Circumstances Due To An Economic Event
Last August 15, 2013, the Department of Housing and Urban Development, also known as HUD and the government agency that is in charge of the Federal Housing Administration, has launched the FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program where it shortens the waiting period to one year after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale to qualify for a FHA insured mortgage loan. Typical traditional waiting period after a bankruptcy discharge is two years and there is a three year waiting period after a foreclosure, deed in lieu of foreclosure, or short sale. For those who qualify for the FHA Back to Work Extenuating Circumsntances due to an economic event now only needs to pass a one year waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, and/or short sale. However, not everyone qualifies for the FHA Back to Work Mortgage Loan Program. To be eligible for the FHA Back to Work Extenuating Circumstances due to an economic event, the mortgage loan applicant needs to have been out of work for at least six or more months and had a reduction of a 20% household income in order to qualify. The economic event, job loss and/or underemployment, needed to have been the catalyst in driving the mortgage loan applicant into a bankruptcy and/or foreclosure. The mortgage loan applicant needed to have had great credit and their credit scores suffered during the economic event and have since re-established credit after the economic event. The FHA Back to Work mortgage loan applicant needs to complete a one hour HUD approved housing course and obtain a certificate signed by the housing counselor and needs to wait at least 30 days prior to submitting a formal mortgage loan applicantion. The mortgage loan applicant’s credit needs to be pulled after the 30 days of the HUD approved housing counseling course as well.