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All You Need to Qualify for a HUD Loan
The requirements for a HUD home loan are largely similar to those for an FHA loan. As with FHA loans, HUD loan requirements tend to be more lenient than for a conventionally-underwritten mortgage. As with FHA loans, there are also plenty of properties in the HUD home listings. Before you get too carried way on the HUD home listings, here’s a brief overview of HUD loan qualifications (as well as a few things that can be a deal-breaker):
- Debt-to-income ratio. This will be square one in the process for HUD loan requirements. You’ll be asked for a complete financial statement of your monthly income vs. expenses. The lender will look at this before moving on to your credit history, or anything else. Lenders will be looking at your overall track record of repayment of debt; the isolated late payment here and there may not be a problem.
- Lack of credit history. If you don’t have a credit history to show, secondary lines such as utility payment records or auto insurance payment records may be factored into your HUD loan requirements instead.
- Outstanding credit obligations. A monthly payment (car loan, student loan) with less than ten months to go may not be included in your HUD loan qualifications. However, that monthly expense will be figured into your debt-to-income statements, as will minimum payments on credit cards. The same goes for any debt (credit cards, etc) for which you have co-signed.
- Bankruptcy. If your Chapter 7 bankruptcy is more than two years old, or if your Chapter 13 is more than a year old (with a satisfactory repayment record), you may come in under the wire. You will, however, be expected to have re-established credit (I.e. a secured credit card), and will be asked to explain the full circumstances of the bankruptcy.
Now, the HUD Loan deal-breakers…
- Federal debts. A delinquent student loan, SBA loan, tax lien or defaulted FHA/HUD mortgage can knock everything off the table. You will be expected to either pay off those debts in full or make arrangements for repayment (delaying the process by as much as three months as you re-establish a payment record).
- Judgments. Court-ordered judgments must be paid in full before approval.
- Collections. Unpaid collection accounts of over $100, while not deal-killers, can adversely affect your HUD loan qualifications.
- Foreclosure. A foreclosure on another HUD home loan will generally be a deal-killer. Extenuating circumstances such as job loss or death of a spouse might be factored in, but this is usually a fatal blow.
- Non-purchasing spouse. Even if you are purchasing the property by yourself, your spouse’s credit obligations and income will be figured in. He/she may also need to sign a security instrument waiving all rights to the property.
Now that you’re armed with this knowledge and you feel that you’re a good candidate, go on and scan the HUD home listings. There are good deals to be had!