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FHA requirements on Late Payments?

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New Contributor

FHA requirements on Late Payments?

I've been doing some research here on my road to home ownership and I just want to confirm the FHA guidelines ( or common lender overlays ) about late payments.

I have two issues:

 

1) Student loans through NelNet with 120 day lates on 07/15 and 08/15 when they came out of deferment and I didn't catch them. On time since.

 

2) A charge-off from Verizon dating back to DOFD of 02/14. Balance was $408. This charge-off shows up in the revolving credit section of my report. I disputed this account in 02/16 and caused more problems for myself, because not only did Verizon verify the account but added 120 day lates for 11/15, 12/15, 1/16, and 2/16. I settled in 02/16 for 50% of the $408 balance. The account now shows as a paid charge-off with $0 balance, "legally settled for less than full amount." DOLA 02/16

 

I plan to apply for FHA this August or September to put 12 months between me and those late student loan payments.

Assuming all other factors to be OK, will either of the above cause an issue in obtaining an FHA mortgage? 

Message 1 of 15
14 REPLIES 14
New Contributor

Re: FHA requirements on Late Payments?

I'm thinking an LO or underwriter would be able to recognize the CO as being two years old and therefore recent late marks would be ignored, as long as it is settled and closed. True?

How would automatic underwriting see this? will it get kicked back to manual review?

 

Message 2 of 15
Established Contributor

Re: FHA requirements on Late Payments?

Hi dariv,

 

I am also going for an FHA loan in a few months.  The way I understand it per my LO is that the bank would like to see a 2 year period from date of app and last late payment, but he also said that is a preference and not a qualification. He said I would need to provide a letter of explanation (LOA) for them.  However, my situation may be a little different, as I have a May 2014 BK and my 30 day late payments occurred October 2014-January 2015. Obviously that is definitely not a good look to have lates post BK. But he said that is not guaranteed a denial...it would just be a little more difficult.

 

So for your situation, if your scores, income, DTI, etc. is good, then a LOA would suffice. But be prepared to go through manual review.

Bankruptcy discharged: May 2014 Starting Score: 571 Goal Score: 700
Current Score: 676 (EQ FICO) 674 (EX FICO) 662 (TU FICO)

Mortgage Loan Originator in Kentucky
Message 3 of 15
Moderator Emerita

Re: FHA requirements on Late Payments?


@GirlMelanie89 wrote:

Hi dariv,

 

I am also going for an FHA loan in a few months.  The way I understand it per my LO is that the bank would like to see a 2 year period from date of app and last late payment, but he also said that is a preference and not a qualification. He said I would need to provide a letter of explanation (LOA) for them.  However, my situation may be a little different, as I have a May 2014 BK and my 30 day late payments occurred October 2014-January 2015. Obviously that is definitely not a good look to have lates post BK. But he said that is not guaranteed a denial...it would just be a little more difficult.

 

So for your situation, if your scores, income, DTI, etc. is good, then a LOA would suffice. But be prepared to go through manual review.


GirlMelanie - the 2 years is because of your Bk and late pays after a Bk are very, very difficult to overcome. 

 

OP, normally the lender likes to see 12 months of no late payments, but some lenders can work with one late payment during that 12 month period. Talk with a loan officer to see

Message 4 of 15
Established Contributor

Re: FHA requirements on Late Payments?


@StartingOver10 wrote:

@GirlMelanie89 wrote:

Hi dariv,

 

I am also going for an FHA loan in a few months.  The way I understand it per my LO is that the bank would like to see a 2 year period from date of app and last late payment, but he also said that is a preference and not a qualification. He said I would need to provide a letter of explanation (LOA) for them.  However, my situation may be a little different, as I have a May 2014 BK and my 30 day late payments occurred October 2014-January 2015. Obviously that is definitely not a good look to have lates post BK. But he said that is not guaranteed a denial...it would just be a little more difficult.

 

So for your situation, if your scores, income, DTI, etc. is good, then a LOA would suffice. But be prepared to go through manual review.


GirlMelanie - the 2 years is because of your Bk and late pays after a Bk are very, very difficult to overcome. 

 

OP, normally the lender likes to see 12 months of no late payments, but some lenders can work with one late payment during that 12 month period. Talk with a loan officer to see


Yep, I figured as such. I am hoping they are very forgiving of my situation. It was definitely a horrible time and can be explained, but just not sure that they'll accept it. Smiley Sad

Bankruptcy discharged: May 2014 Starting Score: 571 Goal Score: 700
Current Score: 676 (EQ FICO) 674 (EX FICO) 662 (TU FICO)

Mortgage Loan Originator in Kentucky
Message 5 of 15
Contributor

Re: FHA requirements on Late Payments?

My lender told me I would just need to get the AU approval... Not sure if that will work but that's what I've been told!

Message 6 of 15
Valued Contributor

Re: FHA requirements on Late Payments?


@theheater30 wrote:

My lender told me I would just need to get the AU approval... Not sure if that will work but that's what I've been told!


Yep, if there is no lender overlay an AUS approval is all that is needed.

Mortgage Loan Officer licensed in CA & AZ


Message 7 of 15
New Contributor

Re: FHA requirements on Late Payments?

GirlMelanie - When I first signed up for MYFICO last month my mid-mortgage score was 618 and my Fico8's were all in the 640 area. My Fico 8's are all around 675 right now, so I'm hoping the mortgage scores have also improved. I wont know till May. Income is a salary of 74k, raises are coming in May. DTI is 7%. I guess I'll make sure I have the LOE's ready if needed for manual review Smiley Sad

 

StartingOver -  From what you are saying, I may have a problem. I really don't want to believe anyone would consider a utility bill on the same level as a CC or other type of actual loan. I wasn't even in a contract (as far as I know) with them.... my two years was up and I was going month to month with them when I switched teams. 

Message 8 of 15
Established Contributor

Re: FHA requirements on Late Payments?


@dariv wrote:

GirlMelanie - When I first signed up for MYFICO last month my mid-mortgage score was 618 and my Fico8's were all in the 640 area. My Fico 8's are all around 675 right now, so I'm hoping the mortgage scores have also improved. I wont know till May. Income is a salary of 74k, raises are coming in May. DTI is 7%. I guess I'll make sure I have the LOE's ready if needed for manual review Smiley Sad


Thats a pretty good profile. Income is great and your DTI is great! For FHA, you only need 2 more points which seems very doable. If it helps to know, I pulled my mortgage scores on 2.29.16 with an 83% util showing. They were EQ-581, TU-588 & EX 590. When my 1B report updated on 3.15, my EQ mortgage score increased to 612 (31 point increase!!!!) w/50% util. stilll reporting. I wont know the other 2 until I purchase them once my credit report reflects 1% at the end of the month.

 

If you paid down revolving debt, and no significant changes were made to your report, Im sure you'll see an increase. I am curious to see if I'll see a big increase with the 1 card reporting a balance trick.

 

But I think you'll be just fine! Smiley Happy You may not even need to LOA, but just in case, you'll know what to expect! Keep me posted on your progress! I'd love to hear!

Bankruptcy discharged: May 2014 Starting Score: 571 Goal Score: 700
Current Score: 676 (EQ FICO) 674 (EX FICO) 662 (TU FICO)

Mortgage Loan Originator in Kentucky
Message 9 of 15
Super Contributor

Re: FHA requirements on Late Payments?

an au approval would be best since the lates are within the last 12 months..

some lenders will take the au approval at face value. others will add their own overlays and cause a lot of trouble.

 

 

 

Retired Lender
Message 10 of 15
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