Looking for a program with great rates and easier qualifications? Check out FHA mortgage loans.
Minimum Down Payment: 3.5%
Minimum Credit Score: 580, or can do 500 with 10% down
Maximum Loan Amount: $472,030 in Ohio (higher in high cost markets)
Maximum Debt Ratio: 56.9%
In most cases, the minimum score for a FHA mortgage is 580. Sometimes, we can approve people with as low as a 550 score with an additional down payment. Most mortgage lenders, including PRMG, pull a tri merge report and use the middle score. This score is a different type of score than the one you will see with Credit Karma and may vary as much as 30 points.
Chapter 7 bankruptcy is allowed on your credit report when applying for a FHA mortgage. However, it needs to be discharged for a minimum of 2 years.
FHA allows mortgage approval with a Chapter 13 bankruptcy as long as it’s at least one year from the file date. If the bankruptcy has not yet been discharged, court approval is required. Additionally, manual underwriting and special scrutiny is required if it has been less than 2 years after the Chapter 13 bankruptcy discharge.
FHA allows you to have a foreclosure on your credit report. However, it must have been at least 3 years since the date the sheriff filed the deed with the county. Sometimes, this can be weeks or months after the actual Sheriff’s Sale. Deed in Lieu, where you just deed the property to the mortgage company falls under this same requirement.
FHA also allows a debt ratio of up to 56.9%. This is way higher than other mortgage programs allow and one of the benefits of using FHA mortgage financing.
You can qualify for an FHA mortgage with as little as 3.5% down with a 580 score or 10% down with a 550 score.
FHA allows you to use gift funds from relatives for some or all of your down payment and closing costs. But, it needs to be well documented. Reach out to me for details on how to do this correctly.
Have low income? Get a relative who is not going to live in the property to be a non occupying co borrower. Keep in mind that both the non occupying co borrower and the occupying borrower need to have a credit score that qualifies. We use the lower score for qualification purposes.
It is possible to get approved for FHA financing with chargeoffs on your credit report. These do not need to be paid back before closing.
Any unpaid collection account needs to have a payment plan or be paid off before closing. If not, 5% of the unpaid collection balance will be used toward your debt ratio calculation. If your total unpaid collections are $2000 or less, this requirement is waived.
Medical collections are ignored in debt ratio calculations and do not need to be paid off before closing.
It is possible to get approved for FHA mortgage financing with installment and credit card lates on your credit report.
You can’t have more than 2×30 mortgage lates in the past 12 months when applying for an FHA loan.
Student loans have special rules when you are applying for FHA financing. When you are on deferment or using income based repayment, 1% of the outstanding loan amount is used for qualifying purposes. Additionally, delinquent student loans that are charged off to the government need to be settled or refinanced.
When applying for a FHA mortgage, the file is submitted to FHA’s approval program called Desktop Underwriter (DU) to make a credit decision. This program takes into account the credit score, the debt ratio and savings (called reserves in the lending industry) to make a yes or no credit decision. It’s very possible to have a score over 580 and be under the debt ratio requirements but still get declined, especially if it’s close in both areas. In some cases, manual underwriting can be utilized when special circumstances exist that DU did not pick up the full borrower picture.
You can refinance a different type of mortgage loan to an FHA mortgage loan. FHA to FHA refinancing, which is called streamline refinancing, can be done with lower closing costs. Additionally, if you own a property with equity, you can do a cash out refi to pay down debts or improve the property. However, with a cash out refi, you are limited to 85% of the property’s appraised value.
In the Dayton metro area and most of Ohio, the FHA maximum loan amount is $314,827. However, you can always put more money down if you are buying a more expensive property and want to use FHA mortgage financing. We also offer other mortgage programs to borrowers that are over the FHA loan limit. Please reach out to discuss your options.
Overlays are additional credit requirements over and above what FHA requires. We do not have overlays. We do all of our underwriting at FHA minimum rules.