Effective August 15, 2014 the Bank started allowing FHA Home Loans with Credit Scores between 619 and 580.
This could be a huge advantage to those home buyers who are in a very unique situation where the Automated Underwriting System (AUS) will approve you, even with scores under 620.
FHA Home Loans in NC are very popular right now because they have logic driven underwriting that is much more flexible than conventional loans.
FHA Home Loans in NC only require a 3.5% down payment. Which is considerably less than the 5% required for a Conventional Loan – and the 3.5% can come from a gift (if scores are above 620).
If the borrower has credit scores above 640 – then they might qualify for an 3% forgivable grant from the State to use for down payment.
FHA Home Loans in North Carolina have maximum loan limits that vary based upon the County you buy a home in. There are no maximum income requirements, however, and there are no restrictions about WHERE the home must be located, like you find with USDA Home Loans.
In general, FHA Home Loans require a middle credit score of 640 to get approval through the Automated Underwriting System (AUS). In some cases, the system will allow for lower scores, and what’s called “Manual Underwriting.” The AUS is designed to accept loans based upon the CFPB guidelines against predatory lending and the FHA Home Loan underwriting guidelines.
Almost ALL lending institutions have their own set of “additional” guidelines, that are called “Over-lays.” Some lenders will NOT made a FHA Home Loan if at least two credit scores are not over the 640 bench mark. Others, like our Bank, will go below that hard mark – but there a “conditions” that must be met for the Bank to willing to take that risk.
At this time, for scores below 620, the Bank requires the following:
- Must be a fixed rate FHA Home Loan – we can not do this type financing on an Adjustable Rate Mortgage
- Loan must receive an Approve / Eligible finding from the AUS
- Maximum Debt ratio is 43.0000000% / no exceptions
- All borrowers need at least two credit scores, and a minimum of three “traditional” lines of credit showing on the credit report that have been open for a minimum of twelve months. One of the three creditors must report that you’ve used the credit card (for instance) in the past six month.
- We must verify the rent in writing – and there can’t be any late payments on the rent. If the borrower has been renting from a private person (so not an apartment complex or leasing company) then we have to have 12 months of cancelled checks. If you paid rent in cash – that’s not going to work.
- We can not use the non-owner occupying “enhancement” offered by FHA Home Loans when the credit scores are between 619 and 580.
- The 3.5% down payment can NOT BE A GIFT if the credit scores are between 619 and 580.
- We can NOT use the MCC Mortgage Tax Credit if the borrower’s scores are between 619 and 580.
This is especially good news for folks who had a foreclosure, short sale or Bankruptcy as a result of losing a job. Because FHA Home Loans in NC now only allow a waiting period of 12 months after having a major credit issue as a result of job loss. We must provide evidence that the job loss was for at least 6 months, and that the household income was negatively impacted by at least 20%. If the Bankruptcy, foreclosure or short sale did not result from a job loss – then the waiting period for FHA Home Loans in NC is 2 years.
Have more questions about FHA Home Loans with Credit Scores between 619 and 580? Leave us a comment below – we try and answer all inquiries immediately. Call Steve Thorne and Eleanor Thorne 919 649 5058 to go over your special circumstance, and see if you meet the minimum credit scores requirements. We can pretty quickly let you know if you can buy a house NOW while mortgage rates are still low!