Late on Payments? HUD Late Payment Guidelines Can Help!
If you’ve had late payments in the past year, you may be wondering if you can still qualify for an FHA loan. The good news is that, with the right lender and guidance, you can. At Non-QM Mortgage Lenders, we specialize in helping borrowers who other lenders have turned away.
We don’t have overlays, which are extra rules some lenders add to FHA guidelines. This means we follow HUD late payment guidelines exactly, giving you a better chance of approval—even if you’ve had a rough financial patch.
This guide will outline the most recent HUD late payment guidelines for 2024, ways to still meet the requirements for an FHA loan, and advice for enhancing your approval prospects. Whether you’re buying your first home, refinancing, or looking for an investment property, we’re here to help you easily navigate the process.
What Are HUD Late Payment Guidelines?
HUD establishes guidelines for FHA loans, outlining acceptable credit history, including late payments. Borrowers can have late payments within the past 12 months and still qualify for an FHA loan, depending on the circumstances, as of 2024.
Here’s the key: It all comes down to how your loan application is evaluated by the Automated Underwriting System (AUS). This system analyzes your credit report, income, debt, and other factors to determine if you’re a good candidate for a loan. If you get an “approve/eligible” through the AUS, you can move forward—even with late payments in your history. Speak With Our Loan Officer About HUD Late Payment Guidelines
How Many Late Payments Are Allowed Under HUD Guidelines?
Usually, having one or two late payments in the past 12 months isn’t a deal-breaker. The AUS can still approve your application if everything else checks out. However, multiple late payments may cause issues and a denial, especially with lenders that add their overlays.
What Are Lender Overlays?
Lender overlays are additional rules some lenders add on top of HUD’s guidelines. For example, HUD may allow one or two late payments, but a lender with overlays might require no late payments.
These overlays can make it harder to qualify for a mortgage, especially if your credit history isn’t perfect.
At Non-QM Mortgage Lenders, we don’t have lender overlays. This means we go strictly by HUD guidelines. If HUD says you’re eligible, we’ll work to get you approved, even if other lenders have turned you away. This is especially important for borrowers with late payments, as we often get approvals when others can’t.
Can You Still Get an FHA Loan With Late Payments?
Yes, you can. But there are a few things you need to know to improve your chances:
1. Automated Approval Is Key
The AUS determines whether your application moves forward. Even with late payments, you can get an automated approval if your overall profile looks good—this includes factors like your income, debt, and credit score.
2. Manual Underwriting for Special Cases
If the AUS doesn’t approve your application, you may still qualify through manual underwriting. This process involves a human underwriter reviewing your application in more detail. For manual underwriting, you must show on-time payments for the past 24 months and provide more documentation about your financial situation. Manual underwriting can be a great option for borrowers with late payments, but you need to be prepared to explain the circumstances and show improvement in your financial habits.
3. Credit Score Still Matters
FHA loans are designed for borrowers with lower credit scores, but the higher your score, the better your chances of approval. A 580 credit score is required for a 3.5% down payment for most FHA loans. If your score is lower—down to 500—you may still qualify, but you’ll need to put down at least 10%.
Understanding Late Payments and Their Impact on Your Loan Application
When mortgage lenders review your credit report, they pay close attention to your payment history. It raises a red flag if you’ve missed a payment, especially in the past 12 months. But that doesn’t mean all hope is lost. Speak With Our Loan Officer for Mortgage Loans
What Counts as a Late Payment?
A payment is typically considered “late” if it’s not made within 30 days of the due date. Late payments exceeding 30 days are reported to credit bureaus and have the potential to impact your credit score. If you’ve missed payments, knowing how many were reported and how recent they were is important.
The more recent the late payment, the bigger the impact it will have on your loan application. That’s why keeping your payments on time is crucial, especially in the months leading up to applying for a mortgage.
Late Payments and Credit Scores
Your credit score can be diminished by delayed payments, which can complicate obtaining loan approval. The good news is that FHA loans are more forgiving when it comes to credit. Even if your score has dropped due to late payments, you may still qualify for a loan—especially if you’ve had no late payments in the past six months.
At Non-QM Mortgage Lenders, we understand that life happens, and we don’t hold your past against you. We look at the bigger picture to find the best loan solution for your situation.
Ways to Increase Your Chances of Getting Approved for an FHA Loan Despite Late Payments
If you have had delayed payments within the last 12 months, you can still take steps to enhance your prospects of being approved for an FHA loan.:
- Make Timely Payments Going Forward: Late payments in the past year can be a hurdle, but lenders are more forgiving if they see consistent on-time payments after the late ones. Focus on keeping all your bills current for at least six months before applying for a loan.
- Lower Your Debt-to-Income Ratio (DTI): Lenders want to make sure you’re not overburdened with debt. If you’ve got a high DTI, consider paying off some debts or increasing your income before applying. FHA loans permit a higher DTI compared to conventional loans, but having a lower DTI improves your approval chances.
- Explain Your Situation: If you’ve had late payments due to a temporary financial setback—like job loss, medical bills, or other unforeseen circumstances—be prepared to explain it to the lender. Documentation showing how your situation has improved can make a big difference, especially with manual underwriting.
- Work With a Lender Who Specializes in Challenging Credit Situations: At Non-QM Mortgage Lenders, we have experience helping borrowers who other lenders have denied. We know how to navigate challenging credit situations and can help you get approved—even if you’ve had late payments or other credit issues.
Manual Underwriting: A Solution for Borrowers With Late Payments
Manual underwriting could be your path to approval if you can’t get approved through the AUS. FHA loans are one of the few loan types that allow manual underwriting, making them a great option for borrowers with unique credit challenges.
What Is Manual Underwriting?
Manual underwriting involves a human underwriter reviewing your loan application instead of depending solely on an automated underwriting system. This allows for more flexibility, but it also comes with stricter requirements, such as:
- On-time payments for the past 24 months
- A lower debt-to-income ratio
- Strong reserves (savings or assets)
- Verification of rent (proof that you’ve paid your rent on time)
Manual underwriting can be more time-consuming, but it’s often the best option for borrowers with late payments or other credit issues. Click here to apply for mortgage loans
FHA Loans and Bankruptcy: Can You Qualify With Late Payments During a Chapter 13 Repayment Plan?
If you’re in a Chapter 13 bankruptcy repayment plan, you might wonder if you can qualify for an FHA loan. The answer is yes—FHA guidelines allow borrowers in Chapter 13 to qualify for a loan after one year of making on-time payments in the plan.
The loan will need to be manually underwritten, and you’ll need the approval of the bankruptcy trustee.
FHA loans are one of the few loan options available to borrowers in bankruptcy, making them an excellent choice if you’ve had financial struggles but are back on track with timely payments.
2024 FHA Loan Guidelines: Key Updates You Need to Know
For 2024, FHA loans remain one of the most flexible loan options available. Here are some key updates and guidelines to keep in mind:
- Minimum credit score for 3.5% down: 580
- Credit score for 10% down: 500-579
- Maximum debt-to-income ratio (DTI): 46.9%/56.9%
- Waiting period after Chapter 7 bankruptcy: 2 years
- No waiting period after Chapter 13 discharge (with manual underwriting)
- Late payments allowed with AUS approval: 1 or 2 in the past 12 months
These updates make FHA loans a great option for borrowers with less-than-perfect credit, especially those with late payments or other challenges.
Final Thoughts: Getting Approved With HUD Late Payment Guidelines in 2024
Don’t give up if you’ve been denied a mortgage because of late payments. The HUD late payment guidelines for FHA loans offer more flexibility than many realize, especially when working with the right lender. At Non-QM Mortgage Lenders, we specialize in helping borrowers who other lenders have turned down. We don’t have overlays, so we follow FHA guidelines, giving you a better chance of getting approved.
If you’re ready to take the next step toward buying or refinancing a home, contact us today. Our team is available seven days a week to answer your questions and help you get started on the path to homeownership.
Following HUD late payment guidelines, you can still achieve your dream of owning a home—even if you’ve had a few bumps. We’re here to guide you every step of the way. Call us at 800-900-8569 or email us at gcho@gustancho.com for more information and to get started with your FHA loan application. Speak With Our Loan Officer for Mortgage Loans
FAQs About HUD Late Payment Guidelines:
- 1. What are HUD late payment guidelines? HUD late payment guidelines let borrowers with one or two late payments in the past year still qualify for an FHA loan. It depends on how your loan application is reviewed through an automated system.
- 2. Can I still get an FHA loan if I had late payments in the last 12 months? Absolutely, it’s still possible to qualify for an FHA loan even if you have late payments. HUD late payment guidelines permit one or two late payments, but the automated system (AUS) must approve your loan application.
- 3. How does the automated underwriting system (AUS) affect my chances of approval? The AUS looks at your credit, income, and other factors. Even with late payments, you might get approved if the rest of your profile, like income and debt, is solid.
- 4. What are lender overlays, and why do they matter? Lender overlays are extra rules some lenders add on top of HUD guidelines. If a lender has overlays, they may not approve you even if HUD guidelines say you’re eligible. At Non-QM Mortgage Lenders, we don’t have overlays.
- 5. How many late payments are allowed under HUD guidelines for FHA loans? Typically, HUD allows one or two late payments in the past 12 months. If you have more, it could lead to issues, especially with lenders that have overlays.
- 6. Can I qualify for an FHA loan if I’m in Chapter 13 bankruptcy? Yes, FHA loans allow borrowers in Chapter 13 bankruptcy to qualify after one year of on-time payments. The loan will need to be manually reviewed, and approval from the bankruptcy trustee will be required.
- 7. What is manual underwriting, and how does it help if I’ve had late payments? Manual underwriting is when a human underwriter reviews your loan instead of an automated system. If you’ve had late payments or other issues, manual underwriting might help you qualify.
- 8. Will my credit score affect my chances of getting an FHA loan with late payments? Yes, your credit score matters. FHA loans require at least a 580 score for a 3.5% down payment. You may need a 10% down payment if your score is lower.
- 9. How can I improve my chances of getting approved for an FHA loan despite late payments? To improve your chances, keep making on-time payments, lower your debt-to-income ratio, and work with a lender experienced in helping borrowers with credit issues, like Non-QM Mortgage Lenders.
- 10. What are the 2024 FHA loan guidelines I should know? In 2024, FHA loans require a 580 credit score for a 3.5% down payment, and late payments are allowed if the AUS approves your application. There’s no waiting period after Chapter 13 bankruptcy discharge if the loan is manually underwritten.
This blog about “Late on Payments? HUD Late Payment Guidelines Can Help!” was updated on September 11th, 2024.
