Credit History - FHA underwriting is not credit score driven like a conventional mortgage. The underwriting process is more forgivable for borrowers that may have experienced credit issues in the past. The borrower needs to show that they are aware of the importance of financial responsibility and have made restitution to clean up any outstanding accounts. Credit can be established for a borrower even without a FICO score.
Minimum Down Payment – The minimum required down payment is only 3.5% of the purchase price. This guideline allows for borrowers to save money and start investing for their future sooner.
Gift Funds – FHA underwriting guidelines allows a family relative to “gift” the funds for the down payment and/or closing costs compared to the standard conventional mortgage which requires the borrower to show 5% of their own funds seasoned for 3 months.
Flexible Ratios – There are two ratios involved with the qualification process, which consist of the housing ratio, 31%, and the debt –to- income ratio, 43%, (DTI). FHA allows compensating factors i.e. length of employment, monetary reserves, credit scores if the ratios exceed the guidelines.
Bankruptcy – Even if a borrower has a bankruptcy in their history they can still qualify for an FHA mortgage. A Chapter 13 BK must have 12 on time payments made and an approval from the BK court. A Chapter 7 BK must be discharged for 2 years and any reestablished credit must not reflect any late payments.
Non-Owner Occupied – FHA is designed for borrowers who intend to occupy the property as their primary residence. Sometimes the borrower cannot verify enough income to qualify yet with single-family units there is an exception. A co-signer (i.e. family relative) is allowed even if they are not going to occupy the property.