My employer, American Midwest Mortgage Corporation, is a delegated underwriter of FHA mortgages in Ohio. What this means is that the underwriter who approves your FHA loans is in the same office as I am. This is a benefit that cannot be truly appreciated until you have suffered through a loan process where the underwriter couldn’t care less. I suffered through it for many years as a mortgage broker. Your answers to tough questions and scenarios are easily obtained within a minute or two.
Many of my past customers have come back from having a bad credit history. The difference between an approval and a decline on a marginal applicant FHA loan can often be attributed to a well written summary of the strengths of an applicant and a thorough explanation of the weaknesses. My experience and thorough conversations with my borrowers enables me to help buyers gain an approval, where they may be turned down elsewhere.
If you would like to discuss your particular scenario to get my honest opinion of whether or not you are a candidate for an FHA approval, please do not hesitate to contact me.
FHA bullet points
- FHA is not exclusively a first-time homebuyer (FTHB) loan program. Borrowers can use the program at any time.
- FHA loans can be used to buy or refinance a home.
- There are no income limits for FHA Loans.
- Maximum FHA loan amounts are set by county limits.
- FHA’s minimum credit score requirement is 500 -580 with 10% down, 580 – 600 with 5% down, and 600 and over only requires 3.5% down. A large majority of lenders offering FHA loans require a minimum 640 credit score.
- Court ordered judgments must have a documented 12 month payment plan history, or must be entirely paid off, prior to getting an FHA loan.
- All active trade lines must be current in order to obtain an FHA mortgage.
- A minimum of three years must pass after a foreclosure before one can obtain an FHA loan.
- A minimum of two years must pass after a chapter 7 bankruptcy has been discharged before you can obtain an FHA loan.
- Borrowers in a chapter 13 bankruptcy repayment plan must have made ontime payments for a minimum of one year before obtaining an FHA loan. In addition, Get written approval from the court trustee assigned to your case.
- A co-signer is used only to help a borrower qualify from an income standpoint.
- The lowest middle score of any borrower on an application is the score used to determine eligibility.
- FHA rehab loans, also known as 203k loans, allow a borrower to finance 96.5% of a home purchase price plus 96.5% of any home improvements and required violation repairs, as well as the purchase and installation of new appliances.
- Down payments may come as gift from a family member, employer or friend.
- Non occupying co-borrowers may be used to help income qualify for an FHA loan.
- FHA loans are assumable. This means that if you want to transfer your mortgage to a prospective buyer, you can. For this reason, FHA loans are becoming a great financing option as interest rates are very low.
If you are interested in applying for an FHA loan today, please contact me .
FHA credit guidelines for Ohio borrowers
The borrower’s most recent 2-year credit history will receive the closest scrutiny. The borrower’s overall performance in paying debts as agreed will be evaluated. FHA underwriters make decisions based on several factors. If you have great compensating factors within your application you may not need to pay off any collections. FHA’s only rule (not to imply lenders only rule) is that any collections which may become a judgment or a risk to title must be satisfied prior to obtaining an FHA mortgage. Many lenders simply set an individual limit or a collective limit (for example anything over $1000, or $5000 in total) Many lenders will leave it up to underwriter discretion. It is important to remember that FHA loans are given on a case by case basis and that even though FHA sets the guidelines, it is still up to the lender on what you can and cannot do when getting a loan through an FHA program.
Do you have a lot of collections? Or do you have a few that directly relate to an isolated event or trouble spot in your past? This is the important difference, if you have nothing but collections you are going to get denied, if you have a few from the same time period and good credit history besides you will get approved.
FHA underwriters want a story. I write up a letter outlining event that occurred leading up to the derogatory credit and submit with my loan file. Often a good write up is the difference between approval and decline. Underwriters require each derogatory item to be explained in a detailed letter, signed and dated by the borrower (“I forgot” isn’t the best answer). In addition, you will be required to explain any credit inquiries in the last 120 days, and document any declined applications.
If a borrower has no established credit history, the Lender MUST develop a credit profile from alternative sources such as rent, utility bills, rental payments, etc. The basic hierarchy of credit evaluation is the manner of payments made on:
Rental payments (direct verification or cancelled checks to cover the past 12 months with no lates).
Installment loans (verify no lates in past 12 months): Count the monthly payment of all installment loans with 10 months or more remaining in the debt ratio. If the debt will be paid off earlier than 10 months, but the monthly payment exceeds 2% of the gross monthly income of the borrower, the ratio should reflect this payment and be analyzed accordingly in the credit decision.
Revolving accounts (including store accts): Use the monthly payment on the credit report if shown, or obtain a copy of the billing statement if the Borrower pays less than the “rule of thumb” 5% of balance per month.
Undisclosed obligations: Borrower must address any debt revealed on the credit report that was not disclosed on his/her application. All inquiries on the credit report that have occurred within the most recent 90 days must be explained and if new credit is opened, must be verified. Newly opened debt must be verified to not be related to the purchase (loan) transaction.
FHA and Child Support: Because of the tax consequences of alimony payments, it is appropriate and acceptable to treat alimony payments of a borrower as a reduction in income rather than a debt in the ratio. These are two very different things.
A borrower who makes $5000 a month and is obligated to pay alimony of $1000/mo. can be viewed as a borrower who makes $4000 a month has no alimony.
Ok, so… what?
First, let’s assume for the sake of easy math that the borrower has no other debt. Now let’s assume that this borrower wants to buy a house that will have a $1500 house payment. If the underwriter views the alimony as a monthly payment, then income = $5000, and monthly debts are $2,500 ($1000 alimony and $1500 house payment). Debt to income is 50%. Possible decline.
The same borrower is underwritten as having a $4000 income (5k minus alimony) and a $1500 house payment… debt to income is 37.5%. Voila!
An underwriter will verify the amount of the support to be paid by the borrower by obtaining a copy of the Support Order (obtained through the court system or another legal avenue). Verify how long the support will remain in payment by documenting the age of the children. Consider child support as recurring installment debt. Any payment remaining for 10 months or more (or over 2% of the gross monthly income of the Borrower) must be included in the ratio. Do not automatically assume that if there are less than 10 payments that an underwriter will omit the payment.
Contingent Liability: Contingent liability exists when a borrower will be held responsible for payment of a debt should another party jointly obligated for the any payment default. Unless the borrower can provide conclusive evidence that there is NO POSSIBILITY that the debt holder will pursue debt collection against him should the other party default, the following rule applies: For both mortgages and other obligations, if the borrower remains obligated for the payment, and has not been released from payment liability, the Primary Obligor (the other “co-signing” party) must provide satisfactory written documentation that he has been making 100% of the payments, all paid on time, without any late payments occurring in at least the past 12 months. (If the other party cannot document timely payment on the account, then the monthly payment must be included in the borrower’s debt to ratio.)
Projected Obligations: Monthly payment(s) that are scheduled to begin repayment within 12 months of the first payment of the mortgage must be considered in the debt ratio. (Example, deferred student loans, balloon payments, etc.). The Lender must enter the expected (or actual, if known) monthly payment, and include in the debt ratio.
Payments NOT Included In Ratio: Unlike other loan types, FHA DOES NOT consider 401k loan repayments as a monthly obligation in the ratio. Also not included: union dues, childcare, commuting costs, voluntary deductions through payroll, and utilities.
If you have any other questions about FHA guidelines and need an answer please contact me.
Ohio FHA loans with bad credit
Would you like to find out if your credit is good enough can be approved for an Ohio FHA loan? It only takes a moment to find out if I can help you obtain an approval at this time. Perhaps some work and possibly money to straighten out your credit score. Initially the best service I can provide is pull your credit score, or view one that another lender has sent to you, get your income and employment information, as well as asset information. As a courtesy I will pull your credit score and bureau and send you a copy and go over it with you. If your credit score is below the minimum required score required, or contains issues that will prevent you from obtaining an immediate approval, I will create a game plan to get you approved as soon as possible. If I cannot secure a mortgage loan for you at this time, and I know someone else who may be able to, I will send you in the right direction. I have been working with people on their credit for the past 13 years, and I know a great deal about how the scoring system works, what to do, and what NOT to do to improve your credit. Sometimes simple adjustments can be made to take you from a declined application to an approved one, it depends upon the amount and severity of the problems. If you have a low credit score, your best chance for approval is going to be FHA or USDA, if you live in an eligible area. Over the next few topics below I detail FHA’s view on credit issues.
Ohio FHA and past bankruptcy
Chapter 7:
At least two years must have elapsed since the discharge date of the borrowers Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. Discharge date is when the two year clock starts. There are circumstances that will allow a borrower to qualify within 1 year of a BK, and those include include death of a bread winner, and medical issues which cause a loss of income. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable income.
Chapter 13:
FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee’s written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.
The bottom line:
One year of on time Chapter 13 payments and court approval. 2 years from discharge of a Chapter 7, with rare exceptions. If you have further questions about a prior bankruptcy and how it could affect an approval do not hesitate to contact me.
Ohio FHA and past foreclosure
FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower’s main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another. Extenuating circumstances include loss income due to loss of employment, loss of income through death, and heath issues.
Walking away from a mortgage
If you walk away from a mortgage, you have more problems than being approved for a mortgage. Seek legal advice prior to making the decision to do so. You could potentially have serious legal consequences that will follow you for a long time, and expose you to further legal nightmares.
The bottom line
Please get legal advice when dealing with a possible foreclosure. If you have walked away from a mortgage or need a professional opinion as to how to deal with your current situation, feel free to visit my business partners page to seek legal advice.
Ohio FHA loans for those with public records
Public records on a credit report may include information such as judgments, foreclosures, suits, wage attachments, bankruptcies, state and federal tax liens, and past-due child support. This information is reported by county, state, and federal courts to various credit reporting agencies. The agencies retain the information in a credit report and use the information along with other relevant credit data to determine your credit score. Since public records reflect poorly on your credit rating, you’ll want to make sure that this section of your report stays spotless. Public records sections of a credit report will only include financial-related information. This information will remain on your credit report for seven years. However, if the record relates to bankruptcy, it will remain on your report for 10 years.
If you do have a public record, it’s important to make payments toward them regularly and make every effort to pay them off as quickly as possible. To some extent, having an aggressive plan to pay off such debts could mitigate the negative aspects of having a public record on your credit report. If you have further questions about how to deal with information on your public record, seek the advice of a trusted financial advisor or credit counselor. Also, many credit counselors recommend reviewing your report periodically to ensure accurate reporting of your credit history.
The bottom line on public records
Public records must be satisfied, withdrawn, or in a payment plan with at least 12 documented months of on-time payments prior to obtaining an FHA or conventional mortgage.
