FHA Loan With Poor Credit and Low Credit Scores
This guide covers qualifying for an FHA loan with poor credit and low credit scores. We will discuss tips for qualifying for an FHA loan with poor credit and low credit scores. Many consumers had extenuating circumstances during their lives. It is fine for you to have outstanding collections, late payments, and derogatory credit tradelines. However, lenders expect borrowers to have timely payments in the past 12 months:
Loss of employment, loss of business, divorce, medical issues, or other personal circumstances that affected their incomes and ability to pay their debt obligations happens among the best of us.
Late on a debt obligation will affect the consumer’s credit because the creditor will report it to the credit bureaus. This country’s three giant credit reporting agencies are Experian, Equifax, and Transunion. If you are applying for a mortgage, the lender will pull credit from these three credit bureaus. Lenders will not just look at the credit scores. Lenders will also review the overall credit payment history and payment patterns. Having poor credit does not disqualify you from an FHA loan. This article will discuss qualifying for an FHA loan with poor credit and collection accounts.
What Are FHA Home Loans
FHA loans are the most popular mortgage loan program in the United States. The United States Department of Housing and Urban Development, HUD, is the parent of FHA. HUD is not a mortgage lender. HUD does not originate nor fund FHA loans. HUD’s main role and function is to act as a government mortgage insurance entity where it will insure FHA loans that are originated and funded by HUD-approved lenders.
Lenders need to follow the minimum agency HUD mortgage guidelines on FHA loans they originate and fund if they want HUD to insure the loan in the event the borrower forecloses. If the borrower defaults on their FHA loan, HUD will insure lenders against the loss sustained by lenders when borrowers default on their loan only if the loan meets the minimum HUD guidelines.
Since HUD insures FHA Loans to HUD-approved lenders, borrowers are offered very low mortgage rates with only a 3.5% down payment. However, HUD does require a one-time upfront mortgage insurance premium, also called UFMIP, and a lifetime annual mortgage insurance premium of 0.55% for the lifetime of the 30-year fixed-rate mortgage loan. Can I qualify for an FHA loan with poor credit? Absolutely.
Definition of Poor Credit When Qualifying For FHA Loan With Poor Credit
Poor credit and the definition of poor credit can vary. When qualifying for an FHA loan with poor credit, some lenders like Gustan Cho Associates specialize in originating and funding bad credit mortgage loans,fully understanding that borrowers went through periods of bad and poor credit due to extenuating circumstances.
Loss of business, loss of employment, medical issues, divorce, or other extenuating circumstances happen among the best of us. However, what lenders are looking for are rebuilt and re-established credit with timely payments in the past 12 months.
There are minimum credit score requirements to qualify for an FHA loan. However, meeting the mandatory minimum credit score requirements does not automatically qualify a borrower. Credit payment history is extremely important. Mortgage lenders want to see re-established credit after periods of bad credit, and most importantly, pretty much all lenders want to see timely payment history on all debt payments for the past 12 months.
Late Payments After Bankruptcy and Foreclosure
Qualifying for an FHA loan with poor credit: Can I get a mortgage after late payments after bankruptcy and foreclosure? Late payments after bankruptcy, foreclosure, deed-in-lieu of foreclosure, and a short sale are considered extremely bad. Most mortgage lenders will not approve a borrower with late payments after bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale.
Gustan Cho Associatescan help folks with late payments after bankruptcy and foreclosure if they get an approve/eligible per Automated Underwriting System. Or with a manual underwrite, a good letter of explanation for why the borrower had a late payment after bankruptcy or foreclosure.
Annual FHA mortgage insurance premium is mandatory on all FHA loans. This holds true no matter how much the borrower puts down on a home purchase. Late payments after bankruptcy and foreclosure are not a deal killer. However, it is viewed as a second offender and does not look for the borrower. If you have been turned down for an FHA loan due to late payments after bankruptcy or foreclosure, please get in touch with us at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com, and we can help you.
