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What is FHA Manual Underwriting: Does Credit Score Matter?

By
Mortgage and Lending with FBC Mortgage NMLS #:333188

Why do some people tell you you have "BAD credit" and others can get you approved in days?  If your loan was turned down because you were told you have BAD credit, don't give up!  Talk to someone that understands credit and how to minimize the effect negative items have on your credit.  You may be able to qualify for rates in the 6.5%-7.0% range by doing the following:

  1. cleaning up credit report mistakes,
  2. write a GREAT credit explanation letter that addresses why your credit was damaged,
  3. work with lenders that can do FHA loans and know how to manually underwrite your loan application.  

We assist people in putting their best foot forward by working with future home buyers to minimize the effect of negative credit. 

High credit score is NOT required to get a loan!!

(Please note:  FHA mortgages in Pinellas County and the surrounding areas are limited to a maximum loan amount of $222,300.   It is however possible to increase this amount if the mortgage includes 'Energy Efficient' improvements.


There are two ways that your FHA loan can be underwritten (approved). 

The easiest way is to run your application through the 'Automated Underwriting' software that is now available through all major lenders.  If your overall credit history and income are sufficient for 'automated' approval, then we will certainly make every attempt to run your loan through the automated software.  Automated approval is preferred simply because it allows the lender to basically skip the traditional underwriting process.  In other words, if we have automated approval, then the lender simply has to verify that the information we listed in your application is accurate.

 

However, the fact is that the vast majority of my clients do NOT have sufficient credit to be approved by the automated software, and therefore most of my FHA loans require "traditional underwriting" - also known as manual underwriting.    Traditional underwriting simply is the way underwriters had to review files BEFORE we had computers .... and they are still doing exactly this same process for many FHA loan files to this day.   

After all ..... the very purpose of FHA loans is to provide home buying opportunities for people who are capable of making the home payment, but cannot get approved for a conventional mortgage due to some negative credit history or a less-than-perfect employment record.    Therefore, it only stands to reason that FHA underwriting will always allow time for cases that can only be approved after a hands on review of the entire file by an FHA 'Direct Endorsement' underwriter.

And, to be approved, the good news is that credit scores, known as 'FICO' scores, are just about totally irrelevant for FHA mortgage (traditional) underwriting.   Derogatory credit in your background is also irrelevant - IF it can be explained AND is not likely to recur.

What IS relevant is your MOST RECENT credit history, plus your consistency in making your housing / rent payments every month, plus your total household income compared to the amount of the monthly payment for the home you wish to purchase.   It really is as simple as that!

 
So.... stop dreaming about that DREAM HOUSE... and call me !!!

Comments (37)

Anonymous
Vanessa Ratcliff

My husband and I have pretty low scores. However we have never been a day late on the mortgage (just in hubbies name) or the car payments. My youngest son is 5 and when he was born and when he was 2 he had life threatening medical conditions that caused us to be out of work for 4 months at a minimum each time. We lived on credit cards but have since paid off $20,000 in debt. We have had some late payments in the last couple of years because savings and everything was wiped out. We even took a loan on my husband's 401k to help get back on track. We are needing to do a cash out refinance to add on as my husband's job is now requiring a home office. We have gross income of 110,000.00. He has been with his company 12 years and I am a federal employee with only 2 employers in the last 10 years. We are trying to get the refinance at 150,000 with our mortgage balance at 85,000. We were denied at his credit union b/c of late payments on student loan - it was actually in forbearance and it did not show on the credit report - it showed as late and it now has been paid in full. Do you have any suggestions? I also considered possibly me buying the house from my husband  - my name is not on the mortgage now he bought it before we were dating. Is that the better option? Both of our scores are a little under 600. It seems like we can not do anything to bring them up. HELP!!!! We have great secure jobs and all together have paid close to 45,000.00 in medical bills and credit cards off in the last 5 years. Other than my student loan - which I am current on, 2 car payments and the mortgage we have no other debt. Everything is paid on time.

Mar 04, 2009 11:54 PM
#19
Anonymous
Stephanie

We filed chapter 13 bankruptcy and then changed it over to a Chapter 7.  A foreclosure was included.  It was discharged in April of this year... Do we have to wait the full 10 years before we can be eligible for even manual underwriting?   We've always been on time with our rent since the foreclosure in July of '08.  In fact we were always on time for the rent before we bought too,  we just got behind on our mortgage due to some health issues.  We have two little credit cards that we just got.

Jun 08, 2009 05:54 PM
#20
Anonymous
D. Fuller

We are selling a house in Hawaii to FHA borrowers. The contract price is $20k above appraisal, but the buyers are willing to come in with the extra cash. The buyers were asked to provide a letter stating why they were willing to pay the extra for the home, which they did. Now, the lender is telling the borrowers that FHA wants to speak with them (the borrowers) directly. Yet, no one from the Santa Ana center is returning phone calls to the borrowers.

I am not familiar with the FHA process, and I am in a different state receiving second-hand information from our realtor. Does anyone have an inkling about what might be going on? The loan was scheduled to close on or about July 1st and today is July 22nd.

Jul 21, 2009 11:43 PM
#21
Scott Hoag
FBC Mortgage - Clearwater, FL
Preferred Lender / Mortgage Company

D Fuller- I'm not sure what the question is.  I think it was "Does anyone have an inkling?"

The answer is, "No, not really"

Worst Real Estate market ever has a tendency to make things so fluid and changes so rapid that the answer today may not be the same tomorrow.

Regarding calling FHA, keep trying, they really do return calls.  If all else fails, get the mortgage broker to call HUD in Washington DC.

Hope that helped and good luck,

Scott

Jul 27, 2009 01:10 PM
Anonymous
ursula

Hi
I was told that your office can aswer and assist with questions regarding FHA loans.
Please reply:
Can I get a FHA Loan with this background?
I have a credit scores of 679, 689, 701
I have been working as a teacher on the same job for over 10 years. My teacher salary is about 43,000 a year
I have only one debt which is a student loan which I pay $135 dollars  a month. It has never been late in the last 7 years.
I have credit cards with very low balances. Most paid off monthly. The minimum payments are $15.00 a month. This makes my total debt along with student loan $207 monthly. No car loans or other type debt.
I have a savings of $8,000 dollars in a bank account.
My first problem is that I have small collection accounts from 2005. All are less than $1,000 and the total of about 4 of them  together is less than $2,000.
My second major problem is that I have a separate larger collection account. It is 3,300 for an auto or auto repair. The car was in my name and my ex husband has since stop paying on it because he could not repair it. I had about 3,300 left to pay on it. That was in August of 2005. It is reported as date of last activity Jan. 2006. I do not have the vehicle and have been divorced since 2002. This collection is at least 3 or 4 years old. I have made all payments on time including rent for the past 3years. Can i get approved for an fha loan? Also why does FHA loans approve people who had bankruptcy after 2 years and someone who had a foreclosure after 3 years but refuse and or require an explanation for collection accounts for upt to 7 years?  Was it better for me to file bankruptcy or allow a foreclosure in 2005 or 2006 than it was to try to reestablish credit paying who I could? I really want to buy a home. Please respond soon.

Aug 30, 2009 01:56 PM
#23
Anonymous
buggy

I signed a contract for a house that is for sale by owner. No earnest money was put down.The contract has an expiration date of September 30th. I was told to take the contract to my lender. I later found another house the next day. I did not take the contract to my lender.There were no lawyers or realtors involved. Am I obligated to buy the first house? what am i legally obliged to do? I am still in possession of the contract. The sellers are waiting for me to let them know about the progress of my loan. I will contact my lawyer tomorrow.The sellers do not have a copy of the contract with my signature. But, I want to do the right thing

i will not get a loan until after their contract date is expired. I can't buy a house if i don't have a loan.
They were not wise also. They should have requested earnest money. I would have gladly allowed them to keep it if it was 1000 or less

Sep 01, 2009 04:06 AM
#24
Anonymous
Renee

Hi Scott

I have been searching the net trying to find someway or someone willing to help buy a home. I've been working to fix my credit for about a year. I messed it up when I was younger, credit card debit mostly. Anyhow I have had the same job for 3 years, I have a loan for my car (with a consigner) and in Feb. I will have paid montly payments for 4 years straight (only like 20 days late once 3 years ago)

Anyhow I live in OK my score is only like 595... my mother put me on a credit card with her to help my score about 4 months ago, not much impovement. I paid off all bad debit (from 2004 and 2005)but one credit card last tax season (which ended up lowering my score instead of improving it). Is there anywhere or anyone that can help? I'm not trying to buy a 200K home, more like 70K or so, something I know I can afford.... I have been told about Sect 184 loans (I have a CDIB) and FHA loans but all the lendors locally have said I must have a 620... is that true?

Any advice would be appreciated, thank you very very much!

Renee

Oct 08, 2009 03:55 AM
#25
Scott Hoag
FBC Mortgage - Clearwater, FL
Preferred Lender / Mortgage Company

Hi Renee

595 is very close.   I had a client that told me her Trans Union Credit Assure said she had a 605 and my bureau scored her at 637.   You should start by letting someone like myself that has a "mortgage credit report" do a tri-merged report.   Based on what you said, the paying of OLD debt lowered your score, but what happens about 2-4 months later is that your score should go higher.  You may want to add a couple more positive tradelines to help yourself even further.   Did you pay on a car loan?  Have any current credit card debt that is close to the high credit limit on your card?   There are lots of things you can work on to help your score, but the easiest way to figure out what works best is to check your specific situation.   Not all lender require that score, but those that do not will typically require a larger down payment.  

Hope that helps, I'll look for a follow-up email.  

My cell phone is 727-644-3656

Scott

Oct 08, 2009 04:54 AM
Anonymous
Arr Vea

Does a Preapproval from a major bank guarantee closing on a loan?

I have been working to improve my credit scores. Currently they are 681, 709, and 699. Part of the problem is that one of my cards is showing a 0 credit limit when actually it is 8500. I've been back and forth with the credit agencies, and finally found out the reason was because my card allows me to go over the limit.

I've been preapproved for a FHA loan, but I want to find out if that pretty much means I am good to go, or if there is still potential for problems with the underwriting.

Hope to get some answers on this..

Thanks!

Dec 11, 2009 05:33 PM
#27
Scott Hoag
FBC Mortgage - Clearwater, FL
Preferred Lender / Mortgage Company

Hello Arr,

It sounds like with a 699 middle score the credit shouldn't be a concern. 

I don't think working with a "major bank" will help you though.  With guidelines changing not just every month, but every week, there is always a potential for problems.

I believe that the best thing you can do to have smooth sailing after you pick your home is to submit the loan package for Underwriting by providing your pay stubs, bank statements and tax returns.  We try to get our Underwriters to review all our files as early in the process as possible and usually the approval is good for 90 days.

 

Feb 22, 2010 03:42 PM
Anonymous
KJ

Hi,

I am in the process of getting prequalified for an FHA loan.  I am doing this with my fiance.  We have student loan debt, and one car loan, but our debt-to-income ratio is 41%, so we meet the criteria there.  I have a credit score in the 700's.  My fiance, unfortunately, does not.  We just paid off all of our credit card debt and his score should be moving up to about 650.  That, then, will be fine as well as the minimum requirement for FHA is 620.

My problem is this:  his credit history.  My credit history is great, but he only had a part-time job for a few months last year and had consistently late payments from April through June.  The summer before was a similar situation.  He was in school and has just recently finished up--has maintained a steady full-time job since September and also still works at the other part-time job.  He has not had a late payment since June 2009.

Will it be hard for him/us to get qualified?  Since my credit score and history is fine, will that be seen as a good thing and will they still approve us based on that?

Feb 25, 2010 06:08 AM
#29
Anonymous
Pamela J Murray

     Hello,

My husband are in the process of buying a home via the lease option to buy.  We would rather obtain an fha

home, but our credit is a disaster.  Due to bankruptcy and foreclosure.  Can you help?

Mar 23, 2010 07:52 AM
#30
Anonymous
Pamela J Murray

     Hello,

My husband are in the process of buying a home via the lease option to buy.  We would rather obtain an fha

home, but our credit is a disaster.  Due to bankruptcy and foreclosure.  Can you help?

Mar 23, 2010 07:52 AM
#31
Anonymous
William Allen

Hey Scott,

I am currently in negotiations with a friend of mine for a home purchase and i am having a really hard time finding a lender who provides manual underwriting. all of my scores for the big three are mid to high 700's and my wife's are mid to high 600's. we have no debt to our name and even paid off both 5 year car loans in 2.5 years. i feel pretty good about obtaining a loan but i would like to go the route of manual underwriting. i have also recently discovered that because i dont have any active credit right now my scores are droping at an alarming rate. do you know, and or suggest any lenders?....

Aug 11, 2010 06:24 AM
#32
Dave Sullivan
Real Estate One - Birmingham, MI
Michigan Realtor with an investor viewpoint

Good info,  There are 3 credit cards that I tell people to use when they want to start or improve there credit history,  I am not promoting anything I just want to share this info with you. http://www.thecreditguy.tv/how-to-start-a-good-credit-history/

Feb 07, 2012 08:16 AM
Anonymous
Dan
Can you get a house with only two trade lines or just based on your work history and how much you make ?
Apr 28, 2012 03:52 AM
#34
Anonymous
kenshaw jeanne

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May 27, 2012 02:41 AM
#35
Anonymous
Jamie J wojcik

We have been in escrow for SIX months! We are finally near the end and our lender just told us because we have paid cash to our landlord for the last four years the underwritter will not except confirmation because we paid the owner directly. Now I have to pay off all of our OLD medical debt to have the loan manually underwritten. My lendor originally had us pay off all of our debt except medical in the beginning but now I need to come up with another four thousand dollars!!! Is this standard protocal??

 

Jun 04, 2012 01:22 PM
#36
Anonymous
Marianne

Do you work with people in other states or just in Florida?

Thanks

Jul 11, 2012 11:48 AM
#37
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Many potential home buyers are 3 to 6 months away from repairing their credit and qualifying for a home. They need a good credit repair company, a patient mortgage broker, and a caring Realtor who will guide them through the process.

 

Sep 04, 2017 05:46 AM