How Late Payments Affect FHA Loan Approval Chances
June 12, 2022
General advice says that borrowers should come to the FHA home loan application process (or any mortgage loan) with a minimum of 12 months of on-time payments on all financial obligations including-and especially-payments for rent or a prior mortgage.
Making your payments on time is very important in the year ahead of your home loan application, but missed or delinquent housing payments are specifically addressed in the FHA loan handbook, HUD 4000.1.
In general, any mortgage or housing payment not made in the month due is considered to be delinquent. Having a delinquent rent or mortgage payment in your credit record within the 12 months leading up to your loan can force the lender to process your mortgage in a different way.
FHA Mortgage Loans: Automatic Underwriting Versus Manual Underwriting
Do some research online and you’ll find many reputable sources discussing the difference between a borrower who has credit issues that require manual underwriting and borrowers who are qualified for automatic underwriting.
What is automatic FHA loan underwriting? Simply put, it’s a much more automated process than manual underwriting. Borrowers with good credit and good debt-to-income ratios may have no problem breezing through an automatic underwriting process (assuming they are otherwise qualified).
Those with lower credit scores, a patchy payment history, or other financial issues that can pull credit scores down may not be able to have their loan application automatically processed and the lender is required to manually verify and review the borrower’s application data where appropriate.
Manually Underwritten Mortgage FHA Home Loans and FHA Refinance Loans Are Still Able to be Approved
Being placed in the manual underwriting category is not an automatic denial of your FHA mortgage application.
Borrowers should work on their credit and payment history long before applying for the loan, but if that work happens and the lender still requires a manual procedure, don’t give up on the transaction.
It’s possible (and in the right circumstances, likely) that your mortgage loan application will still be approved even if the lender needs compensating factors like large reserves of cash, a bigger down payment, other income sources, etc.
Much depends on the specific details of your credit history; the lender doing a manual underwriting of your FHA mortgage loan may request a statement in writing from a borrower asking for details of a specific financial issue.
By doing so the lender is trying to ascertain that the credit issue was not the result of financial negligence by the borrower and that the problem is unlikely to happen again.
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RELATED VIDEOS:
What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
Making your payments on time is very important in the year ahead of your home loan application, but missed or delinquent housing payments are specifically addressed in the FHA loan handbook, HUD 4000.1.
In general, any mortgage or housing payment not made in the month due is considered to be delinquent. Having a delinquent rent or mortgage payment in your credit record within the 12 months leading up to your loan can force the lender to process your mortgage in a different way.
FHA Mortgage Loans: Automatic Underwriting Versus Manual Underwriting
Do some research online and you’ll find many reputable sources discussing the difference between a borrower who has credit issues that require manual underwriting and borrowers who are qualified for automatic underwriting.
What is automatic FHA loan underwriting? Simply put, it’s a much more automated process than manual underwriting. Borrowers with good credit and good debt-to-income ratios may have no problem breezing through an automatic underwriting process (assuming they are otherwise qualified).
Those with lower credit scores, a patchy payment history, or other financial issues that can pull credit scores down may not be able to have their loan application automatically processed and the lender is required to manually verify and review the borrower’s application data where appropriate.
Manually Underwritten Mortgage FHA Home Loans and FHA Refinance Loans Are Still Able to be Approved
Being placed in the manual underwriting category is not an automatic denial of your FHA mortgage application.
Borrowers should work on their credit and payment history long before applying for the loan, but if that work happens and the lender still requires a manual procedure, don’t give up on the transaction.
It’s possible (and in the right circumstances, likely) that your mortgage loan application will still be approved even if the lender needs compensating factors like large reserves of cash, a bigger down payment, other income sources, etc.
Much depends on the specific details of your credit history; the lender doing a manual underwriting of your FHA mortgage loan may request a statement in writing from a borrower asking for details of a specific financial issue.
By doing so the lender is trying to ascertain that the credit issue was not the result of financial negligence by the borrower and that the problem is unlikely to happen again.
------------------------------
RELATED VIDEOS:
What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
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