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August 9, 2016
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August 30, 2016
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FHA Loan- America’s Most Popular Loan Program


FHA Mortgage

FHA Loan has many benefits for First time home buyer.

The Federal Housing Administration (FHA)  is a government entity that guarantees Mortgages issued through HUD approved Lenders provided the mortgage meets all FHA minimum guidelines. The Department of Housing and Urban Development (HUD) sets all rules and minimum guidelines for an FHA mortgage.  FHA does not lend money, their primary responsibility is to insure mortgages that meet the minimum FHA guidelines issued by an approved FHA approved lender.  FHA mortgage loan programs offer many benefits for a borrower, especially for a new homeowner with limited funds for down payment. There are definite advantages of an FHA loan over the conventional loan.  A conventional loan is a mortgage that is not guaranteed or insured by any government entity in the event the borrower defaults on the mortgage.  Although conventional loans are called conforming loans because the conform to Fannie Mae or Freddie Mac Standards, the two giants in the mortgage industry.  The fact the government guarantees an FHA mortgage is a huge advantage for the lender but also the borrower.  The lender issues new loans based on risk, the higher the risk the higher the interest rate but with an FHA loan a big part of the risk to the lender is reduced  due to the fact the mortgage is insured by FHA.  What determines risk?  Many factors are considered but to name only a few, amount of down payment, borrower credit score, borrower credit history, property and property location.  These are only a few but if the borrower has funds to apply 20% down payment of the home purchase then more risk accepted by the borrower and lesser risk to lender, in other words the borrower has more skin in the game.  Interest rates on a conventional loan are impacted by the amount of down payment applied.  Most conventional loans will require a 640 FICO score and 10% down payment as opposed to FHA minimum guideline is 3.5% down payment and a minimum FICO credit score of 580.  FHA is far more forgiving with any credit disruptions, such as unpaid collections on your credit file.  FHA loans are also more lenient in regards to debt to income ratio and will allow a borrower to qualify with a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, collection accounts, tax liens, charge off accounts and even late pay history.  Lenders like FHA loans because of the guarantee by HUD and borrowers like the leniency of FHA.

FHA Loan and Prior Poor Credit

Life is something that happens when we are making other plans and life situations or obligations causes events and people can end up with poor credit history.  In many cases proper planning may have avoided some credit issues and with proper guidance a borrower can overcome prior poor credit.  Other issues may be bad credit due to unemployment, loss of business, medical reason, divorce or other LIFE circumstances that have caused a disruption in the borrower’s income and it caused negative impact on a potential new mortgage borrower to make his or her monthly payment obligations on time therefore causing a negative credit ding on their credit.  According to FHA minimum guidelines they do not require a mortgage borrower to pay off outstanding unpaid collection accounts and or charge off accounts. A borrower can still qualify for a FHA loan, however there are many lenders that will require a borrower to pay off any unpaid charge off or collection account.  However, as mentioned according to FHA Guidelines on Collection Accounts this is not required, but a lender can legally require a borrower to pay them off.  This stricter more stringent policy is a Lender policy and referred to as Mortgage Lender Overlays,  To reiterate, FHA does not require borrowers to pay off outstanding unpaid collections accounts or charge off accounts.  FHA understands many FHA borrowers have gone through financial hard times and have bad credit and lower FICO credit scores especially after the collapse of the mortgage and real estate industry in 2008. There may be a larger percentage of people with negatives on their credit scores than not due to this alone. Having prior credit and outstanding unpaid collection or charge off accounts in the past is different than having recent (in the last 12 months) bad credit and recent late payments. FHA by design is in the business of encouraging home ownership through guarantees on FHA mortgage loans issued through FHA approved lenders.  A borrower can qualify for a FHA loan with late debt payments in the past FHA will want to see FHA borrowers have been timely of their monthly payment obligations in the past 12 months and really really frown upon late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure or a short sale.

Bankruptcy / Foreclosure / Qualifying for a FHA Loan

A borrower who has re-established their credit and had a prior bankruptcy and / or foreclosure can still qualify for a FHA loan for a home purchase after two years of a bankruptcy and three years after a foreclosure, deed in lieu of foreclosure, or short sale.  According to the minimum FHA guidelines a borrower can qualify for a FHA Loan with a minimum FICO score of 580 with 3.5% down payment of the purchase price.  FHA approved lenders do not want to see in late payments after a bankruptcy, foreclose, deed in lieu of foreclosure or short sale.  FHA will require re-established credit and FHA lenders will want to see payments in the last 12 months made on-time.

Buying A House With A FHA Loan: FHA Loan After Chapter 13 Bankruptcy

There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date. However, if the Chapter 13 Bankruptcy discharge has not been discharged for at least 2 years, then all FHA Loans after a Chapter 13 Bankruptcy discharge are all manual underwriting. All manual underwriting FHA Loans require verification of rent . Verification of Rent is only valid if the renter can provide 12 months of timely canceled checks and/or 12 months timely online bank statements payments to the landlord. A FHA Loan is a great way to get back to home ownership.  Chances are you have called a few lenders and been turned away because they have told you need a 620 minimum FICO score or you have to pay off any unpaid collections or charge offs, maybe they even told you that you must wait for 2 years after a Chapter 13 bankruptcy.  The Larry Stepp Team at Gustan Cho Associates have no overlays and operate under FHA minimum guidelines.  We are willing to take some time and work through the obstacles and provide you information or guide towards home ownership.  I am available  7 days a week, holidays and weekends.


Larry Stepp      407-922-4755

The information contained on website is for informational purposes only and is not an advertisement for products offered by Loan Cabin or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates and do not reflect the policy of GCA, its officers, subsidiaries, parent, or affiliates.

1 Comment

  1. […] FHA Loan programs are America’s most popular loan products with good reason. An applicant can qualify for a FHA Loan with unpaid collections, unpaid charge offs, foreclosure, deed in lieu of foreclosure, short sale or bankruptcy.  Comparatively to Conventional Loan products which are much more restrictive.   Having said this recent poor credit history will hurt your credit scores and ability to qualify for a mortgage loan.  Life situations do happen and FHA realizes even if lender’s do not, therefore FHA Guidelines are much more lenient.  Even so recent slow pay or later will definitely hurt you in qualifying for a any Mortgage loan.  Consumer Credit reports are the responsibility of the individual to be verified and checked.  When you have a revolving credit line such as Visa being able to provide a 12 month history of on-time payments will boost FICO Credit Scores.  Paying late even one time will create some headache and will require an explanation letter of what caused the payment or payments to be late and approval of your application is in the hands of underwriting.  Old poor credit history such as unpaid collections, unpaid charge offs are acceptable and paying them will drop your credit scores because it re-opens the account and it will be reported again.   Some Lenders will require you to pay unpaid collections off but this is not required by FHA so if you are ask to pay off an old unpaid collection or unpaid charge off then this is an additional stricter policy imposed by the Lender known as overlays.  If this has happened to you then find a Mortgage Broker or Mortgage Lender that does not have any overlays such as The Larry Stepp Team at Gustan Cho Associates.  If you have questions regarding how to boost FICO credit scores, we have resources to determine what dollar amount and to which creditor to pay to maximize a boost in FICO credit scores.  We also can direct you to a  Credit Repair Professional if needed.  The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, holidays and weekends. […]

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