HUD Credit Score Mortgage Guidelines On FHA Home Loans

This ARTICLE On HUD Credit Score Mortgage Guidelines On FHA Home Loans Was PUBLISHED On November 11th, 2019

Not all FHA Lenders have the same credit score requirements on FHA loans.

All mortgage lenders need to meet the minimum HUD Agency Mortgage Guidelines on FHA mortgages
However, every lender can have their own lending requirements that are above and beyond the minimum HUD Agency Mortgage Requirements
This higher credit score requirement by mortgage companies is called lender overlays
For example, to qualify for a 3.5% down payment FHA loan, HUD requires a minimum of 580 credit scores
However, lenders can require 620 to 640 credit scores as part of their lender overlays
Most lenders do have lender overlays on credit scores and other factors like debt to income ratios
Just because you do not qualify for an FHA loan with one lender does not mean you cannot qualify with another lender that has no lender overlays on FHA loans
Gustan Cho Associates is a direct national lender with no lender overlays on FHA loans

In this article, we will cover and discuss HUD Credit Score Mortgage Guidelines On FHA Home Loans.

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HUD Credit Score Mortgage Guidelines On Lowest Credit Score Required

HUD Credit Score Mortgage Guidelines are the following:

The minimum credit score required to qualify for a 3.5% down payment FHA loan is 580 FICO
Borrowers can qualify for an FHA loan with under 580 FICO down to 500 FICO but need 10% down payment
Under HUD Guidelines, 10% down payment is required on home purchases

The above is the HUD Credit Score Mortgage Guidelines.

HUD Guidelines Versus Lender Overlays

As mentioned above, not all lenders have the same lending requirements on FHA loans. Over 75% of our borrowers at Gustan Cho Associates are folks who cannot qualify at other lenders due to their overlays. It is not illegal for mortgage companies to impose overlays. Below are typical overlays imposed by lenders:

Credit Scores where the lender may require a higher credit score requirement
The maximum front end debt to income ratio required on FHA loans is 46.9% front end and 56.9% back end to get an approve/eligible per automated underwriting system
Typical lender overlays are when a lender can cap debt to income ratios at 45% to 50%
Manual versus automated underwriting system: Although HUD does allow for manual underwriting, many lenders will have overlays and not accept manual underwrites
Late payments in the past 12 months is not always a deal killer
It is possible to get an approve/eligible per AUS with late payments in the past 12 months
HUD allows borrowers in a current Chapter 13 Bankruptcy repayment plan to qualify for FHA loans without being discharged
However, most lenders will have overlays where they will not accept borrowers in a current Chapter 13 bankruptcy repayment plan
There is no waiting period after Chapter 13 bankruptcy discharged date
Gustan Cho Associates has no overlays and will accept borrowers with a recent discharge of Chapter 13 bankruptcy discharge
Most lenders will have a two-year waiting period after Chapter 13 bankruptcy discharged date

HUD Credit Guidelines On Credit Scores And Payment History

The role and mission of HUD are to promote homeownership for first-time homebuyers and buyers with less than perfect credit and lower credit scores. HUD, the parent of FHA, is not a lender. It is a federal agency that insures FHA loans originated and funded by private lenders. HUD has been helping first-time homebuyers and borrowers with less than perfect credit realize the dream of homeownership become a reality by making it easy to qualify for an FHA loan with a low down payment requirement. Borrowers with lower credit scores and prior bad credit can qualify for an FHA loan. Lenders can offer home mortgages to homebuyers with a 3.5% down payment with at least 580 credit scores. HUD takes a step further and allows borrowers with under 580 FICO and down to 500 credit scores to be eligible to qualify for FHA loans with a 10% down payment. Per HUD Credit Guidelines, outstanding collections and charged-off accounts do not have to be paid to qualify for FHA loans.

Qualifying For FHA Loans After Bankruptcy And Foreclosure

Borrowers can qualify for FHA loans after bankruptcy and/or foreclosure after meeting the mandatory waiting period requirements. Mortgage borrowers with little or no credit tradelines are eligible to qualify for FHA loans. HUD allows non-traditional credit tradelines for those with no traditional credit tradelines. The key is to get an approve/eligible per automated underwriting system (AUS). Borrowers who cannot get an approve/eligible per AUS but get a referred/eligible can be eligible for FHA loans with a manual underwrite. Manual underwriting guidelines apply.

HUD Credit Guidelines And Eligibility Requirements To Qualify For FHA Loans

The following are the minimum agency mortgage lending guidelines to be eligible for FHA loans:

The borrower needs a minimum of a 580 credit score to qualify for a 3.5% down payment FHA home purchase mortgage
Borrowers with credit scores between 500 and 580 FICO are eligible for an FHA loan with an approve/eligible per automated underwriting system with a 10% down payment
Outstanding collections and charged-off accounts do not have to be paid
There is a two-year waiting period after the Chapter 7 bankruptcy discharged date
There is a three-year waiting period after a foreclosure, a deed in lieu of foreclosure, short-sale
Borrowers can qualify for an FHA loan during the Chapter 13 repayment period after one year into the repayment plan with Trustee approval and manual underwriting
There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for an FHA loan
If the Chapter 13 Bankruptcy discharge has not been seasoned for at least two years, the file is downgraded to a manual underwrite
HUD allows gifted funds to be used for the down payment and/or closing cost on a home purchase
Non-occupant co-borrowers are allowed
There is no limit on the amount of non-occupant co-borrowers
Non-traditional credit can be used for borrowers with no traditional credit tradelines

HUD allows borrowers with no credit scores, one credit score, or two credit scores to qualify for FHA loans.

HUD Credit Guidelines On FHA Loans With No Credit Scores

Most borrowers have three credit scores. Experian, Transunion, and Equifax are the three credit bureaus. Lenders will use the middle credit score of the borrower. If the borrower has one credit score, lenders will use that credit score. If the borrower has two credit scores, the lender will use the lower of the two credit scores. However, some borrowers have no credit scores. Borrowers with no credit scores can qualify for an FHA loan as long as they can get a refer/eligible per automated underwriting system. However, the borrower needs three non-traditional credit tradelines. Non-traditional credit tradelines are creditors that do not report the three credit bureaus. Borrowers need to provide canceled checks and/or bank statements to prove they have been timely in the past 12 months with the creditor.

Common Examples Of Non-Traditional Credit Tradelines

Borrowers with non-traditional credit tradelines need to provide documentation they have made timely payments for the past twelve months. Here are examples of non-traditional credit tradelines:

Rental verification which shows 12 months canceled checks and/or bank statements of your rental payments to your landlord documenting the on-time rent payments
12 months canceled checks and/or bank statements for on-time payment history for your utility companies (gas, electric, water, etc)
12 months canceled checks and/or bank statements showing payment history for your cell phone or internet provider
12 months canceled checks and/or bank statements reflecting payment history for your homeowner’s insurance
Timely on-time payment history for your property taxes for the past 12 months
Timely on-time payment history for your automobile insurance and/or medical insurance

Or other on-time payments on non-traditional credit tradelines for the past 12 months. Three non-traditional credit tradelines are required for borrowers with no credit scores to qualify for FHA loans. All no credit score FHA loan underwriting are manual underwrites.

Documents Required To Start FHA Mortgage Process

There is a list of important documents required to start the mortgage process:

Borrowers and all co-borrowers social security number or card: Copies of the front and back
Driver’s license or some other form of state ID and/or valid U.S. passport
Borrowers and all co-borrowers pay stubs for the past 30 days and W2s (for wage earners)
Federal income tax returns (for wage earners and self-employed borrowers)
Most recent 60 days of bank Statements
Account statements for any other liquid financial accounts with funds that will be used for the down payment and/or closing costs
Form HUD-92900-A – this is an addendum to the 1003 loan application
Written verification of employment and verbal employment verification prior to closing
Real estate purchase sales contract for purchases
Most recent mortgage statement and copy of the deed for refinances

Per HUD guidelines the borrower needs to meet all minimum agency mortgage guidelines on FHA loans. To qualify for an FHA loan with bad credit, low credit scores, or no credit scores, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

Qualifying For A Mortgage With A Direct Lender With No Overlays

Not all lenders will honor the minimum credit score guidelines by HUD on FHA loans. Most lenders will require higher credit score requirements than the HUD minimum credit score requirements. Most lenders will not accept borrowers with under 580 down to 500 credit scores even though HUD allows it with 10% down. As long as borrowers meet the minimum HUD Credit Score Mortgage Guidelines, they can rest assured they can qualify for an FHA loan with a direct lender with no overlays. Gustan Cho Associates are direct lenders with ZERO lender overlays on government and conventional loans. We approve borrowers who only meet the minimum HUD credit score mortgage guidelines. To qualify for FHA loans with a direct lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.