How are Credit Issues addressed Vis a Vis Fico Scores for FHA Loans

How are Credit Issues addressed Vis a Vis Fico Scores for FHA Loans

Maximum financing to 96.5% OK except as stated
Any FICO score

  • Tax Liens Need to be on a payment plan or need to pay in full
  • Unpaid Judgements Need to be paid in full

Charge Offs ,Lates ,Collections Treatment For Automated DU approved
Over 640 FICO

  • Normally not addressed or required to be paid off
  • Lenders rely on the Automated DU underwriter approval

FICO’s 620-639

  •  Normally not addressed or required to be paid off
  • Lenders rely on the Automated DU underwriter approval

Fico’s 580-619

  •  Normally not addressed or required to be paid off
  • Lenders rely on the Automated DU underwriter approval

Charge Offs,Lates,Collections Treatment For DU Refer ( Manual Underwriting)

 

  • Normally not addressed or required to be paid off
  • No Lates in last 12 months
  • Ratios restricted to 46% or better
FICO’s 579 and below

 

  • Maximum Financing restricted to 90%
  • Normally not addressed or required to be paid off
  • No Lates in last 12 months
  • Ratios restricted to 46% or better
NO FICO Scores

 

  • Derog Credit ,even if old not allowed
  • Clean Credit Report Slate required
  • Old Good Tradelines OK
  • Ratios restricted to 43% or better
  • Maximum financing to 96.5% OK
Summary

Conventional Loans are really strict about lates,chargeoffs and collections.DU has no appetite for such items and normally does not approve such deals.An occassional old late or chargeoff may pass through .It is really subjective and dependent on DU approval.

FHA Loans: DU Approve/Eligible cases:The same DU engine treats lates,Collections,chargeoffs in a completely different manner for FHA Loans.Recent lates ,collections,chargeoffs irrespective of number of lates or amount of collections/charge’offs, get approved .There is no requirement to pay off chargeoffs or collections.As long as we have a DU approve/eligible all lates ,collections and chargeoffs are ignored.Most of the time it is easy to get a DU approve/eligible.

DU Refer: This amounts to manual underwriting when DU gives us “Refer” on a borrower.The underwriter will manually underwrite the file and make sure there are no lates in the last 12 months.Underwriter will also ensure there are no new collections or chargeoffs in the last 12 months.Old open collections or chargeoffs may remain if they meet underwriter approval.Generally,12 month Rental history strengthens the file.Maximum back end ratio is 43%.

Open Tax Liens or Open Judgements are a different matter.Most lenders need to see them paid off.Occassionaly some lenders may permit an outstanding tax lien or judgement if the borrower has a 12 month payment history on the tax lien/judgement.

It is not necessary that one lender may entertain all FICO score borrowers even though FHA guidelines may permit.Lender policies are dictated by their management/investors.

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