BAD CREDIT MORTGAGE LENDERS
Bad Credit FHA Mortgage Lenders This FHA bad credit mortgage lenders overview applies to all credit qualifying mortgages (purchases and bad credit refinances including FHA-to-FHA transactions) where DU Desktop underwriter issues a “Refer” scoring recommendation is Bad Credit Approvals by the underwriter. This FHA bad credit approval information also applies if the bad credit mortgage was not scored through DU (i.e. credit qualifying Streamlines). Non-credit qualifying bad credit refinance of bad credit mortgage applicants in negative equity positions.
BAD CREDIT MINIMUM CREDIT SCORE APPROVALS
The bad credit mortgage applicants is not eligible for FHA-insured financing if the Minimum Decision Credit Score (Bad Credit Score) is less than 500.
500-579 CREDIT SCORES
If the Bad Credit Score is between 500 and 579 the bad credit mortgage applicants is limited to a maximum loan-to-value (LTV) of 90%.
580 + CREDIT SCORES
If the Bad Credit Score is at or above 580 then bad credit mortgage applicants are eligible for maximum financing 3.5% down FHA mortgage approvals. The bad credit mortgage lender must downgrade and bad credit mortgage approvals underwrite a mortgage that received an Accept recommendation if only the non-occupying co-bad credit mortgage applicants have a credit score. Bad credit mortgage applicants with non-traditional or insufficient credit histories are eligible for maximum financing.
MANUAL UNDERWRITING APPROVAL REQUIREMENTS
- Minimum 580 CREDIT SCORE FOR 3.5% DOWN
- Minimum 500-580 for 10% DOWN
- Reserves of at least 1 month’s PITIA + MIP required for 1 and 2 unit properties.
- Reserves of a least 3 month’s PITIA + MIP required for 3 and 4 unit properties.·
- A bad credit approval recommendation requires the bad credit mortgage applicants to provide an explanation for major indications of derogatory credit, such as judgments and collections, and any minor indications within the past two years.·
- Standard maximum bad credit DTI is 31/43. Loan still must meet the reserves requirement as defined in the bullet point above.
- Exceeding these DTI maximums are allowed with acceptable compensating factors for the following situations:
- o Max DTI 31/43 with no compensating factors required
- Max DTI 37/47 with one of the following compensating factors:
- Verified and Documented Cash Reserves: 3 months PITIA + MIP in reserves for 1-2 unit properties, or 6 months PITIA + MIP in reserves for 3-4 units.
- Minimal Increase in housing payment: New PITIA + MIP is not > $100 or 5% higher than the previous monthly housing payment, whichever is less; and 12-month housing payment history is <= 1X30.
- Cash out transactions requires 0x30. If the bad credit mortgage applicants has no current housing payment, DE UW may not cite this compensating factor.§
- Residual Income: Sufficient Residual Income as calculated per VA requirements.
- o Max DTI 40/40 with no discretionary debt as a compensating factor subject to the following requirements:
- The bad credit mortgage applicants’ housing payment must be the only open account with a balance and payment that is not paid off monthly;
- The bad credit mortgage applicants’ credit report shows established credit lines in their own name open for at least 6 months; and
- The bad credit mortgage applicants must document that these credit accounts have been paid off in full monthly for at least the past 6 months.
BAD CREDIT SCORE MORTGAGE APPLICANTS PAYMENT HISTORY
Bad credit mortgage applicants who have no established credit other than their housing payment, no other credit lines in their own name open for at least 6 months, or who cannot document that all other accounts are paid off in full monthly for at least the past 6 months, do not qualify under this criterion. Credit lines not in the bad credit mortgage applicants’ name, but for which he or she is an authorized user do not qualify under this criterion.o Max DTI 40/50 with two of the following compensating factors:§ Verified and Documented Cash Reserves:3 months PITIA + MIP in reserves for 1-2 unit properties, or 6 months PITIA + MIP in reserves for 3-4 units.§ Minimal Increase in housing payment: New PITIA + MIP is not > $100 or 5% higher than the previous monthly housing payment, whichever is less; and 12 month housing payment history is <= 1X30. Cash out transactions require 0X30.§ If the bad credit mortgage applicants has no current housing payment, DE UW may not use this compensating factor.§ Residual Income:Sufficient Residual Income as calculated per VA requirements. (See FHA Handbook 4000.1 II.A.5.(F) and VA Lenders Handbook- VA Pamphlet 26-7 for details)§ Significant Additional Income Not Reflected in Effective Income: Additional income from overtime, bonuses, part-time income or seasonal employment can be used as a compensating factor if the DE UW verifies and documents the following:
- The bad credit mortgage applicants has received this income for at least one year, and it will likely continue and
- The income, if it was to be included in gross effective income is sufficient to reduce the DTI to not more than 37/47.
Note: This compensating factor may be used only in conjunction with another compensating factor when qualifying ratios exceed 37/47 but are not more than 40/50. Income from non-borrowing spouses or other parties not obligated for the bad credit mortgage may not be counted unless they are on the bad credit mortgage application.
The Bad Credit Mortgage Applicants Credit Score refers to:
• The bad credit score reported on the bad credit mortgage applicants’ credit report when all reported scores are the same.
• The lowest bad credit score where two differing scores are reported.
• The bad credit middle score where three differing scores are reported.
A Bad Credit Score is determined for each bad credit mortgage applicants. Where the mortgage involves multiple bad credit mortgage applicants, the lender must determine the Bad Credit Score for each bad credit mortgage applicants and then select the lowest Bad Credit Score for all bad credit mortgage applicants. Where the mortgage involves multiple bad credit mortgage applicants and one or more of the bad credit mortgage applicants do not have a credit score (non-traditional or insufficient credit), the lender must select the lowest Bad Credit Score of the bad credit mortgage applicants(s) with credit score(s). The lender must review the credit report to determine the bad credit mortgage applicants’ Bad Credit Score, except for mortgages to be insured under Sections 247, 248, Streamline Refinances, and Assumptions.
WHY DO I NEED A BAD CREDIT MORTGAGE APPROVAL?
Bad credit mortgage approvals are underwritten loan includes a loan that involves
- Bad credit mortgage applicants without a bad credit score that were not scored against FHA’s Scorecard, or
- Received a Refer scoring recommendation from a result of foreclosure, bankruptcy or other bad credit issues.
- Received an Accept scoring recommendation but was downgraded to a Refer by the underwriter. When an Accept recommendation is downgraded to a Refer, the loan must be underwritten according to the policy guidance in Handbook 4000.1 II.A.5.