Tag Archives: Credit

Minnesota mortgage first time home buyers FHA Qualification what is an underwriter looking for?

The 1st question my first time homebuyers ask is an underwriter looking at when trying to get approved for a new mortgage. The answer I always give is it’s big picture. Here are the primary points.

Credit- underwriters are looking for a minimum of a 620 credit score. Having said that they are also looking for credit quality and credit depth. How many tradelines do you have and for how long? A borrower could have a 620 credit score with 3 settled collections and $250 Macys credit card. In this instance this wouldn’t be an automatic denial, however the other aspects of their finances must be very strong. 3 years after a foreclosure or short sale, 2 years after a chapter 7 bankruptcy, and just 12 months after a Chapter 13 (with trustee permission) you can purchase a home again. BUT the underwriter will be looking at 2 things. Did you re-establish new credit and have you paid it on time? They will also be looking at the immediate previous 12 months. If in the last 12 months you were late on your car twice and accumulated 2 new utility collections an underwriter is not going to approve that loan due to previous financial catastrophe and failure to prove yourself credit worthy again.

Income/Employment- Is it consistent, stable, and likely to continue for 3 years. For employment you need a 2 year work history.Full time enrollment in secondary education does count for part of that history if your current job is full time. If your employment status is seasonal, temp worker, contractor, self employed, or part time you must have a 2 year history (no secondary education waiver) If you have bonus, overtime, or commission income that you would like to use for qualifying you must have that job for 2 years. In the case of child support, alimony, social security disability, ect you must prove stability of past receipt and proof it will continue for 3 years minimum. In the event of child support you’d prove the child’s age along with paternity court order or divorce decree  For disability income you’d provide a dr’s note indicating your disabled condition is not likely to change in the next 3 years.

Assets- As you can see there are many sources for help with down payment. The main important thing important with assets is clean bank statements. I define clean as no cash, no non payroll deposits unless a tax refund, insurance settlement, ect.  “my mom owed me some money and she paid me back” is not going to work for underwriting. When receiving down payment assistance 99% of the programs require a percentage in contribution of “your own funds” if someone paid you back, gifted, or lent you money it is not your own funds. Unfortunately stated explanations are rarely acceptable. Definitely bounced checks, NSF’s, overdrafts onto a line of credit, or regular overdrafts are acceptable. This indicates to an underwriter that you are having difficulty paying your current debts and obligations without having a home mortgage debt.

FHA VA Mortgage Disputed Tradeline Credit Accounts

Disputed Tradelines update to policy

The FHA TOTAL Mortgage Scorecard User Guide states that the loan casefile must be manually downgraded to a Refer recommendation and the loan must be reviewed by a Direct Endorsement (DE) underwriter if the borrower is disputing any credit accounts or public records. As a result, the following new message will be issued on all FHA loan casefiles to remind lenders of this requirement, but the recommendation will not be changed to a Refer due to this message:

If the credit report reveals that the borrower is disputing any credit accounts or public records, the mortgage loan application must be referred to a DE underwriter for review

See our page on disputed credit accounts.