FHA Loan With Recent Late Payments in the Past 12 Months

FHA Loan with Recent Late Payments: A Guide to Qualifying

Suppose you’ve had recent late payments on your credit report. In that case, you might wonder if qualifying for an FHA loan is possible. At Gustan Cho Associates, we specialize in helping borrowers with less-than-perfect credit, including those with late payments in the past 12 months.

It’s important to note that you can qualify for an FHA loan even if you have outstanding collections and charged-off accounts.

The good news is that qualifying for an FHA loan with recent late payments is achievable, even if other lenders have turned you away. Let’s break it down into simple terms so you know your options and how to take the next steps toward homeownership.

Can You Get an FHA Loan with Recent Late Payments?

Absolutely, qualifying for an FHA loan with recent late payments is possible. However, there are crucial factors to keep in mind. FHA loans are recognized for their more lenient credit criteria. While having late payments is not favorable, it does not mean you will be disqualified outright. Here are several important considerations:

• Automated Underwriting System (AUS) Approval: Automated Underwriting System (AUS) Approval: The Automated Underwriting System (AUS) is a computer program that helps banks decide if they can get a loan. If the AUS gives you an “Approve/Eligible” status, you have a better chance of getting an FHA loan, even if you have missed payments recently.
• On-Time Payments Over the Last Year: Lenders look closely at your payment history over the last year. One or two late payments don’t mean you’re out of the running, but consistent on-time payments will strengthen your application.
• Compensating Factors: Strong financial factors, such as a higher income, cash savings, or a larger down payment, can help reduce the effects of recent late payments.

At Gustan Cho Associates, we work with lenders with no overlays, meaning they follow FHA’s minimum guidelines without adding stricter requirements. This is a huge advantage for borrowers who don’t fit the mold of traditional lenders.

What Are Lender Overlays?

When we talk about lender overlays, we refer to the additional rules some lenders apply on top of the basic FHA rules. For example, FHA allows loans for credit scores as low as 500, but many lenders require a score of at least 580 or even 620. If you were denied an FHA loan due to recent late payments, it may be because of these extra rules, not because of FHA itself.

At Gustan Cho Associates, we work with lenders who do not have these extra rules. This helps people with tricky credit situations get approved more easily. If you have had late payments or other credit issues and are looking for an FHA loan, we can help you find the right options.

How Do Late Payments Impact FHA Loan Eligibility?

Lenders evaluate late payments based on timing, frequency, and severity. Here’s how it breaks down:

1. Late Mortgage Payments:
   • If you’ve had a late payment on a previous mortgage in the past 12 months, it’s a red flag for lenders.
   • However, one or two late payments may not disqualify you if you can explain the circumstances and show you’ve recovered financially.
2. Late Payments After Bankruptcy or Foreclosure:
   • Late payments after a bankruptcy, foreclosure, or short sale are considered more serious. These are considered “second offenses” and may require manual underwriting or compensating factors.
3. Other Late Payments:
   • Late payments on credit cards, auto loans, or other accounts are less impactful than mortgage late payments but are still reviewed closely.

If you’ve had a few late payments recently, the best thing you can do is make sure you start paying on time from now on. This shows lenders that you’re back on track with your money. If you’re looking for an FHA loan with recent late payments, showing you can consistently make on-time payments will really help your chances.

How to Qualify for an FHA Loan with Recent Late Payments

If you’ve had late payments recently, here are the steps you can take to improve your chances of qualifying for an FHA loan:

1. Let the Late Payments Season

Lenders want to see a period of stability after late payments. If your late payments are more than six months old and you’ve been timely since then, your chances improve significantly. For manual underwriting, lenders may require 24 months of on-time payments.

2. Work on Rebuilding Credit

Start rebuilding your credit immediately by:

• Paying all bills on time.
• Strive to maintain your credit card balance at or below 30% of your total credit limit.
• Avoiding new credit inquiries.

3. Provide a Letter of Explanation

Explain the circumstances behind your late payments. Examples of acceptable reasons include:

• Job loss or reduced income.
• Medical emergencies.
• Divorce or family hardships.
• Business closure.

Your letter should be honest, concise, and supported by any documentation you can provide (e.g., hospital bills and termination letters).

4. Highlight Compensating Factors

When you’re looking for an FHA loan with recent late payments, some factors can help your application. Here are a few things to keep in mind:

• A low debt-to-income (DTI) ratio.
• Significant cash reserves.
• A larger down payment (e.g., 10% instead of the minimum 3.5%).
• A strong employment history.

These factors help balance concerns about recent late payments on your record.

5. Consider Manual Underwriting

You can try manual underwriting if your FHA loan is denied because of recent late payments in the Automated Underwriting System (AUS). This means a person will look closely at your application. They might approve your loan if you provide reasons for late payments and highlight your strengths. Even with some past issues, you may still be able to get your loan.

Real-Life Story: FHA Loan Approval with Recent Late Payments

Let me share Sarah’s story. She faced some financial challenges, like missing a mortgage payment and being late on her car payment while going through Chapter 13 Bankruptcy. However, we helped her secure an FHA loan despite these issues.

We highlighted that, for the past 10 months, Sarah had made all her other payments on time. Additionally, she saved $15,000, which demonstrated her responsibility with money. We also wrote a clear letter explaining how she was getting back on track financially.

Thanks to these positive points and some extra help from the underwriters, Sarah was able to buy her dream home with the FHA loan.

Even with past struggles like missed payments, you can still get approved if you show you’ve bounced back and explain your situation clearly.

What’s New for FHA Loans in 2025?

As of 2025, FHA guidelines remain flexible for borrowers with credit challenges. However, there are a few updates you should know:

1. Increased Loan Limits:
   • FHA loan limits have been adjusted to reflect rising home prices. Check the limits for your area to see how much you can borrow.
2. Stricter Scrutiny on Housing Payments:
   • Lenders are placing greater emphasis on housing payment history. This means even one late mortgage payment will require a solid explanation.
3. Focus on Financial Stability:
   • Borrowers with recent late payments are encouraged to demonstrate financial stability through compensating factors like reserves and low DTI ratios.

Get Approved for an FHA Loan with Gustan Cho Associates

At Gustan Cho Associates, we understand that life happens. Whether you’ve had late payments due to a job loss, medical emergency, or other circumstances, we’re here to help. Our team specializes in working with borrowers who other lenders have turned away.

• No Lender Overlays: We follow FHA guidelines without imposing additional restrictions.
• Flexible Options: We offer FHA loans, non-QM loans, and other financing solutions for borrowers with challenging credit.
• Personalized Support: Our mortgage experts will guide you every step of the way.

Don’t let recent late payments stop you from getting the home you’ve always wanted. If you’re thinking about an FHA loan with recent late payments, reach out to Gustan Cho Associates at 800-900-8569 or email us at alex@gustancho.com. We’re here for you every day of the week, even on evenings and holidays.

Take the first step toward homeownership—apply for an FHA loan today!

Frequently Asked Questions About FHA Loans with Recent Late Payments:

Q: Can I Qualify for an FHA Loan with Recent Late Payments?

A: Yes, you can qualify if you meet FHA’s minimum guidelines and secure AUS approval. Manual underwriting is also an option if your case is more complex.

Q: How Far Back Do Lenders Look at Late Payments?

A: Lenders typically focus on your payment history from the past 12 months. Older late payments are less significant but still reviewed.

Q: Will One Late Payment Disqualify Me?

A: Not necessarily. If you have strong compensating factors and provide an explanation, one late payment may not prevent you from getting approved.

Q: What’s the Minimum Credit Score for an FHA Loan?

A: A minimum of 500 credit score is required to qualify for an FHA loan if you’re making a down payment of 10%. However, if you opt for a lower down payment of 3.5%, you will need a 580 credit score, no less.

Q: Should I Wait Before Applying?

A: If your late payments are recent, waiting six months to a year while rebuilding your credit can improve your chances of getting approval.

Q: What if I had Late Payments During a Financial Hardship?

A: If you’ve experienced late payments because of financial difficulties, such as losing your job or facing a medical crisis, lenders might be more understanding if you provide proper documentation to clarify your circumstances.

Q: Can I Qualify with a Larger Down Payment Despite Late Payments?

A: Yes, putting down a larger amount, such as 10% or more, can improve your chances of approval for an FHA loan if you have recently made late payments.

Q: How do Lenders View Late Payments After Bankruptcy?

A: Late payments after bankruptcy are considered serious. However, with a strong recovery plan and compensating factors, you may still qualify for an FHA loan with recent late payments.

Q: Are Late Rent Payments Considered?

A: Yes, late rent payments are reviewed during the underwriting process. Consistently paying your rent on time in recent months can strengthen your application.

Q: What is Manual Underwriting, and How Can it Help Me?

A: Manual underwriting is when a person looks closely at your loan application instead of using a computer system. This can be helpful if you have an FHA loan with recent late payments but also have good reasons, like having extra cash saved up or a steady job. It allows the underwriter to see the whole picture of your financial situation.

This blog about “FHA Loan With Recent Late Payments in the Past 12 Months” was updated on June 26th, 2025.

• Related> FHA Loans
• Related> FHA Mortgage Loans
• Related> Having Two FHA Loans At The Same Time