FHA Loans are loans that is insured by the Federal Housing Administration. The Federal Housing Administration will insure private lenders against defaults if they are a FHA approved mortgage lender and follow FHA guidelines.
FHA Loans Are The Most Popular Loan Program In The United States
FHA Loans are an extremely popular mortgage loan vehicle for first time home buyers, for those with prior bad credit, and those who have filed a bankrutpcy and/or had a foreclosure in the past and home loan borrowers with prior bad credit, low credit scores, and high debt to income ratios. FHA allows mortgage loan borrowers with unpaid collections, judgments, and tax liens to be able to qualify for a home loan with 3.5% down payment and a minimum credit score of 580 FICO. FHA also allows for a mortgage loan applicant to add non-occupant co-borrowers on the FHA Loan in order to meet minimum income qualification requirements.
Basic FHA Guidelines
There are hundreds, if not thousands, of FHA guidelines and sub-guidelines. However, we will concentrate on the main FHA mortgage lending guidelines for FHA Loans.
Some of the basic FHA guidelines are the following:
1. Minimum 3.5% down payment on real estate purchase transactions.
2. Mandatory upfront mortgage insurance premium of 1.75% of the loan amount and an annual mortgage insurance premium of 1.35% of the mortgage loan balance amount for the life of the loan.
3. Maximum debt to income ratio of 56.9% with borrowers with over 620 FICO credit scores.
4. Minimum credit scores of 530 FICO. 10% down payment required for those with credit scores between 530 FICO and 580 FICO. 3.5% down payment for credit scores of over 580 FICO.
5. Mandatory 3 year waiting period after the recorded date of a foreclosure and/or deed in lieu.
6. Mandatory 3 year waiting period after a short sale to qualify for a residential FHA mortgage loan.
7. Mandatory 2 year waiting period after the discharge date of a personal Chapter 7 bankruptcy.
8. Open collections okay.
Mortgage lenders overlays on FHA Loans
Just because you have an Approved Eligible from Fannie Mae’s Automated Underwriting System for a FHA mortgage loan does not guarantee that you will get a mortgage approval from a FHA mortgage lender. Many FHA mortgage lenders have mortgage underwriting overlay on FHA Loans. An overlay is an extra or extras requirements above and beyond that those of FHA underwriting guidelines. For example, just because the minimum credit score to qualify for FHA Loans is 530 FICO does not mean that you will be guarantee mortgage approvals. Many FHA mortgage lenders have credit score overlays on FHA Loans and a majority of them require credit scores of 620 or higher, and some even have overlays of credit scores of 640 FICO or higher.
Overlays On Debt To Income Ratios
Other FHA overlays that mortgage lender might have is lower debt to income ratios. Although FHA guidelines on back end debt to income ratios are 56.9%, many mortgage lenders have overlays up to 45% or 50% on debt to income ratios. Some FHA lenders have overlays that require that borrowers have no late payments whatsoever after a bankruptcy or foreclosure. Other lenders have overlays that require a minimum of 4 credit trade lines or more for at least a year. Some FHA lenders may have overlays where they require a minimum of one year rental verification.
If you have any questions on FHA Loans and FHA mortgage lender overlays, please contact Gustan Cho Associates at 262-716-8151 or email us at firstname.lastname@example.org. You can also subscribe to our daily mortgage and real estate newsletter at www.gustancho.com .