What are the Guidelines for FHA Loan Requirements in Tennessee?

This Article Is About Tennessee FHA Lenders And FHA Loan Requirements And Guidelines For Homebuyers

Not all Tennessee FHA lenders have the same mortgage lending requirements on FHA loans. Many are under the assumption all mortgage companies offering FHA loans for homebuyers have the same lending requirements and guidelines on FHA mortgages since they are government-backed loans. HUD, the parent of FHA, is the federal agency that insures FHA loans to private lenders. Private lenders such as banks, credit unions, and mortgage bankers originate, process, underwrite, and fund FHA mortgages. HUD has nothing to do with originating or funding FHA loans.

The Mission And Role Of HUD On FHA Loans

The Mission And Role Of HUD On FHA Loans

The role of HUD is to insure private lenders in the event borrowers default on FHA loans and the lender needs to foreclose and loses money. HUD then partially guarantees the lender with the defaulted FHA loan against the loss they sustained on the foreclosure. Due to the government guarantee from HUD, lenders aggressively originate and fund FHA loans to borrowers at low down payment and less than perfect scores. In order for HUD to insure lenders that originate and fund FHA loans, the lender needs to meet the HUD agency guidelines. However, mortgage companies can have higher lending requirements that surpass the HUD agency mortgage guidelines. The higher lending requirements is called lender overlays. Lender overlays are optional and it is up to the individual lender to impose them. Not all Tennessee FHA lenders have the same lender overlays. In this article, we will discuss the various lending requirements Tennessee FHA lenders have.

Do All Tennessee FHA Lenders Have The Same FHA Loan Requirements?

Not all Tennessee FHA lenders have the same FHA loan requirements. All lenders need to meet the minimum agency HUD mortgage guidelines. However, each individual lender can higher lending requirements on just about anything. One lender can have lender overlays on credit scores and require a 620 credit score when HUD only requires a 580 credit score on a 3.5% down payment home purchase loan. Ther are FHA loan limits requirements in Tennessee for a particular state. One lender can have a lender over on debt to income ratio while another lender may not. It is up to the mortgage lender on the type of lender overlay they impose. There are mortgage companies like Capital Lending Network, Inc. that has zero lender overlays. Before we proceed on the typical lender overlays Tennessee FHA lenders have, we will discuss and cover the minimum HUD agency mortgage guidelines.

HUD FHA Loan Requirements And Guidelines On FHA Loans In Tennessee

All Tennessee FHA lenders need to make sure borrowers meet the minimum HUD FHA Mortgage Guidelines if they want the FHA loan to be insured by HUD in the event the borrower defaults on their loan. These are the minimum FHA Loan Requirements mandated by HUD. But lenders can have higher lending requirements called lender overlays. We will list the minimum agency HUD guidelines below and go over typical lender overlays. In the following sub-paragraphs below, we will go over the minimum agency mortgage guidelines by HUD to qualify for an FHA loan in Tennessee. Many lenders will have lender overlays on the agency guidelines below.

Tennessee FHA Loans Requirements On Credit Scores

FHA loans is a great loan program for homebuyers with a lower credit score.  It is the only traditional loan program that will allow borrowers with credit scores down to a 500 credit score. Borrowers can qualify for a 3.5% down payment home purchase FHA mortgage loan in Tennessee with a 580 credit score. Homebuyers can qualify for an FHA loan with credit scores down to a 500 FICO. HUD requires a 10% down payment if the borrower has credit scores between 500 to 579 FICO. Borrowers need to have timely payments in the past 12 months. It is alright to have prior bad credit with outstanding collections and charged-off accounts.  HUD requires the borrower has rebuilt and re-established their credit and been timely for the past 12 months on all of their payments. Many Tennessee FHA lenders will not approve borrowers with under 580 credit scores as part of their lender overlays. However, Capital Lending Network, Inc. has zero lender overlay on Tennessee FHA loans. Over 20% of our borrowers at CLN Mortgage are folks with credit scores down to 500 FICO.

Tennessee FHA Loan Requirements On First-Time Homebuyers And Recent College Graduates

Tennessee FHA Loan Requirements On First-Time Homebuyers And Recent College Graduates

It is not uncommon for first-time homebuyers or recent college graduates with no prior work experience not to have credit scores. Consumers who never had credit often do not have credit scores. HUD allows borrowers with no credit scores to qualify for FHA loans. Consumers who never had any traditional credit tradelines normally do not have credit scores on all three credit bureaus. HUD allows non-traditional credit tradelines to be used in lieu of traditional credit tradelines for borrowers with no credit scores. It needs to be a manual underwrite. Non-traditional credit tradelines are creditors who do not report on the credit bureaus. Examples of non-traditional credit tradelines include verification of rent, utility companies, cellular phone carriers, insurance companies, educational institutions, and other creditors that do not report to credit bureaus. In order to count as a non-traditional credit tradeline, the borrower needs to have been paying timely on the account for the past 12 months.  Three non-traditional credit tradelines are required for borrowers with no credit scores and needs to be a manual underwrite Recent college graduates with no previous work experience and no credit scores are eligible to qualify for an FHA loan with three non-traditional credit tradelines and a manual underwrite.

Tennessee FHA Loan Requirements On Manual Underwriting

Borrowers who cannot get an approve/eligible per automated underwriting system and get a refer/eligible per AUS can qualify for an FHA loan with a manual underwrite. Manual underwriting is the same as automated underwriting system approved files but a human underwriter will analyze and manually underwrite the loan. HUD is very lenient for first-time homebuyers with lower credit scores. However, you need to have been timely in the past 12 months to get an approve/eligible per automated underwriting system. Manual underwriting requires timely payments for the past 24 months. Compensating factors is required for borrowers with higher debt to income ratios on manual underwrites. Mortgage underwriters have a lot of underwriter discretion on manual underwriting. Not all mortgage companies offer manual underwriting. Many Tennessee FHA lenders have lender overlays on manual underwrites and do not offer manual underwriting on FHA loans. Capital Lending Network, Inc. has zero lender overlays on FHA loans in Tennessee and offers manual underwriting.

Tennessee FHA Loan Requirements On Gift Funds For Buyer’s Down Payment And Closing Costs

Gift funds are allowed from family members to cover the down payment and/or closing costs. However, the automated underwriting system as well as many lenders do not consider gift funds as a positive factor. Some Tennessee FHA lenders will have lender overlays on gift funds. They will set a lender overlay where borrowers with lower than 640 credit scores cannot accept gift funds. Gift funds can be used for the down payment and closing costs. However, gift funds cannot be used for reserves. Manual underwrites require one months of reserves. Reserves is one month of principal, interest, taxes, and insurance (PITI).

Tennessee FHA Mortgage Guidelines On Non-Occupant Co-Borrowers

HUD agency mortgage guidelines allow for non-occupant co-borrowers be added to the main borrower. You can have as many non-occupant co-borrowers as you need. Non-occupant co-borrowers can be from out of state. Non-occupant co-borrowers are allowed if the borrower cannot meet the minimum debt to income ratio caps required. The main borrower can have as many non-occupant co-borrowers on the FHA loan. To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrowers need to be related to the main borrower by blood, law, or marriage. HUD allows non-family members to become non-occupant co-borrowers on FHA loans. However, if the non-occupant co-borrower is not related to the main borrower by law, blood, marriage,  a 25% down payment versus a 3.5% down payment is required.

FHA Loan Tennessee On Debt To Income Ratio Requirements

FHA Loan Tennessee On Debt To Income Ratio Requirements

FHA loans have the highest debt to income ratio caps out of any loan program. Borrowers with high debt to income ratio will benefit with FHA loans versus conventional loans. The maximum debt to income ratio caps allowed to get an approve/eligible per automated underwriting system on FHA loans is 46.9% front-end and 56.9% back end. Only one to four-unit owner occupant homes are eligible for FHA loans. Second homes, or investment properties to be eligible for FHA financing. Borrowers need to provide a two-year employment history.

FHA Loan Requirements In Tennessee For Recent College Graduates With No Prior Work Experience

Recent college graduates can qualify for an FHA loan without a prior two year employment history.  Recent graduates of high school, trade school, community college, college, or graduate schools do not need previous 2-year employment history. The years spent studying in schools can be used as work experience in lieu of actual work experience. Gaps in employment in the past two years are allowed. The qualified income will be calculated from the income stated on the employment offer letter. HUD requires 30 days of pay check stubs from the borrower on their employment prior to closing the home loan.

Tennessee FHA Loan Requirements After Chapter 7 Bankruptcy 

Tennessee homebuyers can qualify for an FHA loan after Chapter 7 Bankruptcy after meeting the mandatory waiting period. There is a two year waiting period after the Chapter 7 Bankruptcy discharged date to be eligible to qualify for an FHA loan in Tennessee. Re-established credit after bankruptcy is a must. Borrowers cannot have any late payments after bankruptcy. The bankruptcy will have no impact on mortgage rates. Rates will be determined mainly by credit scores.

Tennessee FHA Loan Requirements During Chapter 13 Bankruptcy 

Homebuyers can purchase a home during the Chapter 13 Bankruptcy repayment plan.  Borrowers in an active Chapter 13 Bankruptcy repayment are eligible for FHA financing via manual underwrite after being in the Chapter 13 repayment plan for at least 12 months with trustee approval.  Chapter 13 Bankruptcy does not have to be discharged.

Tennessee FHA Loan Requirements After Chapter 13 Bankruptcy Discharge

Tennessee FHA Loan Requirements After Chapter 13 Bankruptcy Discharge

There is no waiting period after the Chapter 13 Bankruptcy discharge date. If the Chapter 13 Bankruptcy discharge has not been discharged for at least 24 months, the file needs to be a manual underwrite. No late payments during and after the Chapter 13 Bankruptcy discharge. Most Tennessee FHA lenders will require a one to two year waiting period after Chapter 13 Bankruptcy discharged date as part of their lender overlay. However, Capital Lending Network, Inc. has no lender overlays on Chapter 13 Bankruptcy on FHA loans in Tennessee. Over 25% of our borrowers are folks who are approved for an FHA loan during or after Chapter 13 Bankruptcy discharge.

Tennessee FHA Loan Requirements After Foreclosure 

Homebuyers can qualify for a mortgage after foreclosure. There is a three year waiting period after the recorded date of a foreclosure, or deed in lieu of foreclosure. The start date is when the title changed names to the new owner or the date of the sheriff’s sale. Lenders expect rebuilt and re-established credit after foreclosure and/or deed in lieu of foreclosure. No late payments after foreclosure and/or deed in lieu of foreclosure.

Tennessee FHA Loan Requirements After Short-Sale

There is a three-year waiting period after the date of a short sale to qualify for an FHA loan. The borrower cannot have any late payments after short-sale.  Lenders expect the borrower to have rebuilt and re-established their credit after short sale. Actual start date of the waiting period is reflected on the closing disclosure (CD).

Tennessee FHA Lenders With No Lender Overlays

As long as you meet the above Tennessee FHA Loan Requirements, you will qualify for an FHA lan. If one lender tells you you do not qualify but you meet the above guidelines, you can go to a different lender with no lender overlays and get approved for an FHA loan. Not all mortgage companies may honor just the minimum agency HUD Tennessee FHA loan requirements. There are lenders like we that have zero lender overlays on FHA loans. If you have any questions about the content on this article or need to qualify for an FHA loan in Tennessee with a mortgage company licensed in multiple states with no lender overlays, please contact us if you need help .  Our team is available 7 days a week, evenings, weekends, and holidays. We have a national reputation for being able to do loans other lenders cannot. Over 75% of our borrowers are folks who could not qualify at other mortgage companies due to their lender overlays.


Gustan Cho is a senior mortgage expert and National Managing Director, providing direct-to-consumer advice at NEXA Mortgage LLC. We are a mortgage brokers licensed in multiple states. We are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, FHA 203k Loans, Reverse Mortgages Jumbo Mortgages, Non-QM mortgages, Bank Statement Mortgage Loans for self employed borrowers, and alternative financing.

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