Mortgage options after late payments

[Charlotte]

We had some unfortunate events that led to some late mortgage payments. We then had to relocate and have since sold our house. These happened under a year though. Is there anyone who's had success getting another mortgage before two years with late mortgage payments? I'd assume if there's any possibility we'd be looking at non QM or interest only?

Salary and DTI are very solid. Goal is to refinance within 8-16 months after. 

[ShanetheMortgageMan]

It’s certainly possible, but how realistic it is depends on a few specifics:

1. How many mortgage lates you had

2. How severe they were (30-day, 60-day, 90-day, or 120+-day late)

3. Exactly when they occurred (month/year)

Those three factors determine whether you can get an approval through automated underwriting (AUS) or whether you’d be limited to manual underwriting or Non-QM options.

Conventional (Fannie/Freddie):
AUS is king here.  If DU (Fannie) or LP (Freddie) likes the overall file, strong income, low DTI, good credit, large reserves, it can approve mortgage lates in the last 12 months, but it’s case-by-case and heavily dependent on severity.  One isolated 30-day late is sometimes workable. Multiple lates, or anything 60+ days, typically pushes AUS into a denial until you’re at least 12 months clean, sometimes 24.  If AUS doesn’t approve it, conventional loans cannot be manually underwritten to override the finding.

FHA:
More flexible, but FHA still cares about mortgage lates.  AUS may approve with certain late payments depending on the overall strength of the file.  If AUS does not approve it, FHA can be manually underwritten, but manual underwriting requires:

• No 60-day late mortgage payments in the past 12 months
• No more than 1×30 late in that period
• Strong compensating factors (high reserves, low DTI, strong credit profile, etc.)

So FHA may be an option depending on how clean the last 12 months look.

VA:
Very situational. AUS again determines most approvals. VA technically allows late mortgage payments if there’s strong compensating factors and the overall risk profile is good, but AUS usually wants to see 12 months clean. Manual underwriting is possible, but the underwriter has to feel confident the events that caused the lates are not ongoing.

USDA:
Extremely strict. Any late mortgage payments in the last 12 months usually means AUS denies, and USDA manual underwriting has very little tolerance for recent mortgage lates.  Probably not viable until you’re 12+ months clean.

Non-QM:
This is the fallback.  Non-QM lenders often allow recent mortgage lates, including 60-day or even 90-day lates, as long as income and credit are strong and the LTV is reasonable.  Rates and fees are higher, and many people use these loans as a bridge with the intent to refinance once they’re eligible for a conventional/FHA/VA loan again.  Your plan to refinance in within a year or so aligns with how many borrowers use Non-QM.

[Charlotte]

Thank you so much for your reply! Do you know of any lenders or brokers that you can recommend for Non- QM?

Thanks!! 

[ShanetheMortgageMan]

You're welcome.  Rather than pointing you to one specific name, as that is against the FICO forums terms of service, the bigger recommendation is where to look.  For Non-QM loans, people generally have the best experience working with an independent mortgage broker who specializes in Non-QM or a correspondent lender that actively funds Non-QM loans.

Most large banks and many credit unions mainly focus on conventional, FHA, and VA loans. When they do offer Non-QM, it’s often limited or very conservative. Brokers and Non-QM-focused lenders, on the other hand, work with multiple investors offering programs like bank-statement loans, DSCR, asset-depletion, interest-only options, and scenarios involving recent credit events.  A good Non-QM broker can shop your situation across several lenders at once and match you with the right program from the start, which usually leads to a smoother process and better odds of approval.  

When vetting a broker or lender for Non-QM, focus on experience and specificity. Ask what percentage of their business is Non-QM and which programs they close most often (bank statements, DSCR, asset-depletion, interest-only, recent credit events, etc.).  A knowledgeable Non-QM professional should be able to discuss guidelines comfortably, explain common deal-breakers upfront, and outline which lenders are the best fit for your scenario before pulling credit.  It’s also a good sign if they work with multiple Non-QM investors/lenders rather than a single in-house program, and if they set expectations clearly around documentation, pricing, and timelines instead of making broad promises.