New Jersey FHA Lenders: HUD-Approved Lender With No Overlays
Not all New Jersey FHA lenders have the same mortgage lending requirement on FHA loans. Many homebuyers are perplexed when shopping for a mortgage to purchase a home. FHA loans are the most popular mortgage loan program for first-time homebuyers with little to no credit established, borrowers with prior bad credit, or homebuyers with high debt to income ratio. The U.S. Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). HUD is a large federal government agency that administers FHA loans. The mission of HUD is to promote hard-working American families to realize the dream of homeownership become a reality with little down payment and less than perfect credit. HUD has helped millions of American families able to become homeowners by making FHA loans easy to qualify without much red tape. There are several FHA loan programs for homebuyers and homeowners. We will be covering HUD’s mortgage loan requirements on FHA loans.
What Is The Role Of HUD And FHA Lenders?
HUD-approved banks and mortgage lenders originate and fund FHA loans. HUD’s role is to insure FHA loans originated and funded by mortgage lenders in the event homeowners default on their FHA loans. When borrowers default on FHA loans, the loss the lender takes is partially covered by HUD as long as the lender has followed the HUD 4000.1 FHA Handbook On FHA Loans. The HUD 4000.1 FHA Handbook is a comprehensive list of HUD agency mortgage guidelines which consist of 1,000 pages.
Types Of FHA Loans In New Jersey
FHA loans are often referred to as government-backed loans.
There are three government-backed loans:
- FHA loans
- VA loans
- USDA loans
USDA loans are only available for homes where the USDA Rural Development designates as eligible USDA rural areas. VA loans are only for active and/or retired veterans of the U.S. Armed Services with a VA certificate of eligibility.
FHA loans are called government-backed loans because in the event borrowers default and foreclose on their home loans, HUD, the parent of FHA, will partially guarantee the loss to the mortgage lender. This is why FHA loans are referred to as government-backed mortgages. There are several types of FHA loan programs. FHA mortgages are for owner-occupant homes only. Second homes and investment properties are not eligible for FHA loans.
Here are the FHA loan programs available to American homebuyers and homeowners:
- Home purchase
- Home refinance
- FHA streamline refinance mortgages
- FHA cash-out refinance mortgages
- Standard and Streamline FHA 203k Renovation Loans
- FHA Reverse Mortgages for Senior Homeowners
Understanding Lender Overlays Imposed By New Jersey FHA Lenders
If you are planning on using FHA loans to purchase a home in New Jersey, you need to realize not all New Jersey FHA lenders have the same lending requirements and guidelines. Many home buyers are under the assumption since FHA loans are government-backed mortgages by HUD, all New Jersey FHA lenders will have the same lending requirements on FHA loans. This is not true. New Jersey FHA lenders need to meet the minimum agency mortgage guidelines set by the U.S. Housing and Urban Development (HUD). HUD is the parent of FHA and is the federal agency that creates and implements the minimum agency lending requirements of FHA loans in New Jersey. However, each individual mortgage company in New Jersey can have higher lending requirements that are above and beyond the HUD minimum agency mortgage guidelines called lender overlays.
Why Are FHA Loans The Home Loan Of Choice In New Jersey
Most New Jersey homebuyers choose FHA loans as their mortgage loan of choice. FHA loans are very popular for first-time homebuyers, borrowers with prior bad credit, borrowers with credit scores down to 500 FICO, homebuyers who need a manual underwrite, borrowers who are in Chapter 13 Bankruptcy repayment plan, and borrowers with credit issues or income irregularities. It is substantially easier for borrowers with little to no credit or bad credit to get an approve/eligible per automated underwriting system on an FHA loan than any other loan program. HUD has a higher debt to income ratio caps versus conventional loans. FHA and VA loans are the only two loan programs in the nation that allows manual underwriting. Borrowers who cannot get an approve/eligible per automated underwriting system and get a refer/eligible per AUS can qualify for an FHA loan.
FHA Loans In New Jersey For Recent College Graduates With Little To No Credit Tradelines
HUD allows first-time homebuyers who are recent college graduates with no credit scores. Lenders can allow recent college graduates with no credit scores with non-traditional credit and a manual underwrite. Borrowers with large outstanding collections and/or charged-off accounts do not have to pay them off to qualify for an FHA loan. The key to getting an approve/eligible per automated underwriting system is to have been timely with all of your payments in the past 12 months.
How Can You Qualify For FHA Loans With Bad Credit In New Jersey?
HUD understands people can go through financial difficulties due to unemployment, loss of business, extended illness, divorce, loss of business, or other extenuating circumstances. People often recover. To be eligible for an FHA loan, mortgage loan applicants need to have rebuilt and re-established their credit and income profile after periods of bad credit. They need to have been timely on all of their payments for the past 12 months. Timely payments in the past 12 months after a period of bad credit show financial responsibility and the ability to repay their new mortgage loan payments.
Do All New Jersey FHA Lenders Have The Same Lending Requirements On FHA Loans?
New Jersey FHA lenders can have lender overlays on just about anything. Not all New Jersey FHA lenders have the same lender overlays. Some lenders may have higher credit score requirements than other companies. Some New Jersey FHA lenders may have lender overlays on collections and charged-off accounts while another lender may not. Understanding the minimum agency mortgage guidelines is very important for borrowers with less than perfect credit or lower credit scores. Not all New Jersey FHA lenders will be able to do loans that HUD allows.
FHA Credit Score Versus Down Payment Requirements
The minimum credit score requirement for a homebuyer to qualify for a 3.5% down payment is 580 FICO. Most New Jersey FHA lenders require a 620 credit score or higher for borrowers on a 3.5% down payment FHA loan even though HUD’s minimum credit score requirement is 580 FICO. The higher lending requirement by lenders is called lender overlays on FHA loans. HUD allows home buyers with credit scores as low as 500 FICO to get approved on FHA loans. We will discuss qualifying for an FHA loan in New Jersey with credit scores as low as 500 in the next paragraph.
FHA Loans In New Jersey With Credit Scores Down To 500 FICO
HUD allows borrowers with credit scores down to a 500 FICO to be able to qualify for an FHA loan in New Jersey as long as the borrower has an approve/eligible per automated underwriting system or they meet manual underwriting guidelines. Per HUD agency mortgage guidelines, borrowers with under 580 FICO and down to 500 credit scores are a 10% versus a 3.5% down payment.
Comparison Of Lenders For Bad Credit Homebuyers
Most New Jersey FHA lenders will not touch any loan applicants with under a 500 credit score as part of their lender overlays. Not many lenders will qualify and approve borrowers with credit scores down to a 500 FICO. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on FHA, VA, USDA, and conventional loans. We are licensed in New Jersey. A large percentage of our borrowers are borrowers of FHA loans in New Jersey. Gustan Cho Associates has no lender overlays on FHA loans in New Jersey. We just go off the minimum HUD agency lending guidelines. As long as you get an approve/eligible per automated underwriting system, Gustan Cho Associates will approve and close your FHA loan. Over 75% of our borrowers are folks who could not qualify for a mortgage at other lenders due to their lender overlays.
New Jersey Homebuyers Getting Denied On An FHA Loan
Mortgage companies who tell borrowers they do not qualify for an FHA loan often do not tell them it is because of lender overlays. Loan officers often just tell the applicant they do not qualify for an FHA loan. Mortgage loan applicants often do not question the denial and accept the fact they do not qualify for an FHA loan in New Jersey. Borrowers do not realize they may not qualify for an FHA loan with this particular lender but may meet all lending requirements of HUD and can qualify for an FHA loan with a lender with no lender overlays.
FHA Lenders With No Lender Overlays On Government And Conventional Loans
Gustan Cho Associates has no lender overlays on FHA loans in New Jersey. Over 75% of our borrowers are folks who could not qualify at other mortgage companies due to lender overlays or due to getting a last-minute mortgage loan denial. Gustan Cho Associates has a national reputation for being able to do loans other lenders cannot. GCA Mortgage is a mortgage banker, correspondent lender, and mortgage broker. We also have alternative loan programs to FHA loans such as non-QM mortgages one day out of bankruptcy, no-doc home loans, P and L stated income mortgages, 12-month bank statement mortgages for self-employed borrowers with no income tax returns required, non-QM jumbo mortgages with credit scores down to 500 FICO, and dozens of other non-QM and specialty mortgage loan programs.
New Jersey Loan Requirements
As mentioned earlier, understanding the minimum agency mortgage guidelines on FHA loans is very important. If you get denied for an FHA loan in New Jersey and you know that you meet the HUD agency guidelines, you will know that you got denied because of lender overlays and not HUD agency guidelines. If you meet the minimum agency mortgage agency guidelines on FHA loans, you will qualify for an FHA loan with a lender with no lender overlays in New Jersey.
Here are the minimum agency mortgage guidelines in New Jersey:
- A 580 credit score is the minimum requirement to qualify for a 3.5% down payment home purchase FHA loan
- HUD requires a 10% down payment if the borrower has credit scores under 580 and down to a 500 FICO
- Gift funds for the down payment and/or closing costs are allowed from family members
- If the borrower is short with seller concession, then the lender can offer a lender credit in lieu of a higher mortgage rate to cover the down payment and/or closing costs
- Non-occupant co-borrowers are allowed for borrowers who exceed the maximum debt to income ratio caps
- The maximum debt to income ratio caps allowed to get an approve/eligible per automated underwriting system is 46.9% front-end and 56.9% back end
- The main borrower can have as many non-occupant co-borrowers on the FHA loan
- To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers need to be related to the main borrower by blood, law, or marriage
- HUD allows non-family members to become non-occupant co-borrowers but a 25% down payment versus a 3.5% down payment is required
- Only one to four-unit owner occupant homes are eligible for FHA loans
- HUD does not allow second homes, or investment properties to be eligible for FHA financing
- Borrowers need to provide a two-year employment history
- Recent graduates of high school, trade school, community college, college, or graduate schools do not need previous 2-year employment history
- The years spent studying in schools can be used as work experience in lieu of actual work experience
- Gaps in employment in the past two years are allowed as long as the gap is not longer than six months
If you meet the above agency mortgage guidelines, you will get approved for an FHA loan in New Jersey.
Qualifying For An FHA Loan In New Jersey After Bankruptcy
FHA 203k Loans are an acquisition and construction loan all in one closing. Homebuyers who are interested in buying a fixer-upper, foreclosures, or homes that do not meet construction guidelines for residential loans would need to go with an FHA 203k Loan. Lenders will not lend on homes that are in need of repairs or are in poor condition or are not habitable. FHA 203k loans allow homes buyers to purchase homes in need of either minor or major repairs and homes that are not habitable. Most lenders have tougher mortgage guidelines on 203k Rehab Mortgages than standard regular FHA Loans due to the added layer of risk. Lenders consider home buyers buying fixer-uppers as risky and may impose mortgage overlays.
FHA 203k Loan Requirements Versus Overlays From Mortgage Lenders
Lender overlays are additional guidelines in addition to the minimum FHA guidelines:
- Almost all lenders have mortgage lender overlays on FHA 203k Loans due to the risk factors
- Most lenders require a minimum credit score of 640
- Gustan Cho Associates Mortgage Group can help borrowers qualify for FHA 203k Loan With Low Credit Scores and Bad Credit
Depending on the loan amount, I have helped borrowers with credit scores as low as 580 credit scores qualify for FHA 203k Loans.
About FHA 203k Loans New Jersey
New Jersey is one of the hardest-hit states after the 2008 Real Estate Market Crash.
- The real estate market in New Jersey has started recovering in early 2012
- Home values throughout the state of New Jersey have started rising and many areas of New Jersey have seen double-digit housing price increases
- Due to this substantial housing value increase, both HUD and FHFA have increased FHA and Conforming Loan Limits for two years in a row
- It is almost impossible to purchase a brand new build home in New Jersey for a reasonable price
Fortunately, for homebuyers of fixer-uppers who are willing to put the time and have the patience in rehabbing their home, they can take advantage of HUD’s 203k Renovation Loan.
FHA 203k Streamline Loan Requirements
There are two types of FHA 203k Loans.
The first type of FHA 203k Loan is the FHA 203k Loan Streamline which limits the rehab loan amount to $35,000
Homeowners can do any type of remodeling to their home with an FHA 203k Loan Streamline such as the following:
- kitchen remodeling
- bathroom remodeling
- attic remodeling
- any type of home improvements except for structural improvements and room additions
Standard FHA 203k Loan Requirements In New Jersey
The second type of FHA 203k Loan is the full FHA 203k Loan. There is no maximum construction amount allowed. As long as the home will appraise out on an after improved value and the FHA loan is within the maximum FHA loan limit after improved. Homeowners can do all the types of repairs that can be done with a 203k Streamline PLUS structural improvements and room additions with a full 203k.
Down Payment Requirements On Buying A Home With An FHA 203k Loan
One of the greatest perks with FHA 203k Loans is that all you need is a 3.5% down payment on a home purchase of the after improved value.
For example, here is a case scenario:
- buyer is purchasing a fixer-upper for $100,000.
- need a construction loan for $100,000.
- after improved value of the property is $200,000.
- will need 3.5% of the $200,000 after improved value plus closing costs.
- Most homebuyers do not need to worry about the closing costs because closing costs can be covered by seller concessions or lenders’ credit.
Most FHA 203k borrowers just need to worry about the 3.5% down payment. The down payment on FHA loans can be 100% gifted by family members and/or relatives. This holds true as long as a gift letter is signed by the donor. Needs to state that the gift is only a gift and not a loan and does not need to be paid back.
New Jersey home buyers of fixer-uppers, foreclosures, or homes that need major renovations and need an FHA 203k loan, contact us at Gustan Cho Associates at 262-716-8151 or email us for a faster response. Text us for a faster response. Homebuyers can also email us at [email protected] The team at GCA Mortgage is available 7 days a week, including holidays and weekends to answer your questions. Or you may APPLY NOW online at www.gustancho.com and by clicking APPLY NOW on the top right of our website.
Starting The FHA Loan Process In New Jersey With A Lender With No Overlays On FHA Loans
If you have any questions about the content in this article or need to qualify for an FHA loan in New Jersey with a mortgage company with no lender overlays, please contact us at Gustan Cho Associates at 262-716-7151 or email us at [email protected] Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. GCA Mortgage are mortgage bankers, correspondent lenders, and mortgage bankers. Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays or due to getting denied for a mortgage loan at the last minute. Gustan Cho Associates is able to broker non-QM and specialty loan programs such as non-QM mortgages, no-doc loans, P and L stated income loan programs, asset-depletion loans, 12-month banks statement loan programs for self-employed borrowers with no income tax returns required, and dozens of other alternative mortgage loan programs.