When you apply for a new mortgage one of the key points lenders focus on is your ability to make your monthly payments on time. Lenders review your payment history on your credit report for all of your loans and debts but your mortgage holds the most weight.
Lenders reason that if you have made your mortgage payments on time in the past, you are likely to do so in the future. On the other hand, if you have had late mortgage payments in the past, this calls into question your ability to make your payments in a timely manner going forward.
If you have no late payments on your current mortgage for the past twelve months, you should be good to go when you apply for a new mortgage. If you have late payments you may not be able to qualify for a mortgage, you may need to wait before you apply or you may need to provide additional documentation for your loan to be approved.
The impact of late mortgage payments when you apply for a new mortgage depends on when the delinquencies occurred, how late the payments were and your loan program. We review how late payments affect your ability to qualify for a new conventional, FHA, VA and USDA mortgage below.
According to conventional loan guidelines, you cannot qualify for a mortgage if you had a 60, 90, 120 or 150 day late payment in the prior twelve months. Although not explicitly stated in the guidelines, a single 30 day late payment should not prevent you from qualifying but multiple 30 day late payments over the prior year may create an issue.
Please note that mortgage payment history requirement applies to any lien on the property including a first mortgage, home equity loan, HELOC or home improvement loan. So if you have multiple late payments on your home equity loan or HELOC, you may not be able to qualify for a new mortgage or you may need to wait until you have twelve consecutive months of on time monthly payments.
Additionally, the mortgage payment history requirements for refinance assistance programs such as the High LTV Refinance Option and the Enhanced Relief Refinance Program are slightly different than the guidelines outlined above. To be eligible for these programs you must be current on your mortgage with no late payments within the prior six months and no more than one 30 day late payment over the past year.
The mortgage payment history guidelines for an FHA mortgage are more flexible but less clear-cut as compared to a conventional mortgage. For an FHA purchase loan or no cash out refinance you cannot automatically qualify for the mortgage with the following mortgage delinquencies within the prior twelve months:
Three or more delinquencies of greater than 30 days
One or more 60 day late payment plus one or more 30 day late payment
One 90 day late payment
For an FHA cash out refinance, you cannot automatically qualify for the loan if your current mortgage is delinquent or if you had any late payment within the past year.
If your mortgage payment history matches one of the delinquency criteria outlined above it does not mean that your loan is definitely rejected but your application needs to go through the manual underwriting process to be approved. Manual underwriting requires extra time and effort as the lender is required to document why your application should be approved despite your late mortgage payments (or other issues).
In short, an application is referred for manual underwriting when you request an exception to a standard qualification guideline. In most cases, you are required to provide a letter of explanation that addresses why the late mortgage payments occurred and the steps you took to address the issue.
For your mortgage to be approved through the manual underwriting process it can be very helpful if your application has compensating factors such as a high credit score, on time payment history with other loans, steady employment, a large down payment or significant financial reserves.
Depending on the outcome of the manual underwriting process and the presence of compensating factors, your application may be approved or rejected. There is no guarantee that you qualify for the mortgage but you never know unless you go through the process and provide the extra documentation.
Please note that if your application was referred for manual underwriting for a reason other than your mortgage payment history -- such as an issue with your credit report or employment history -- the qualification guidelines are slightly different. In these cases you can have no late mortgage payments within the past year and no more than two 30 day late payments within the prior 24 months.
It is important to highlight that not all lenders are willing or able to manually underwrite mortgages because of the additional work and documentation required. If you have late mortgage payments be sure to confirm that your lender has experience with FHA manual underwriting before you submit your application.
To qualify for a VA mortgage you can have no more than one 30 day late mortgage payment within the past twelve months. If you are applying for a VA cash out refinance you can have no late mortgage payments over the past year.
If your mortgage payment history does not meet these requirements you are required to provide a letter of explanation that addresses the issue and your application is referred for manual underwriting.
Similar to the process for an FHA mortgage, VA manual underwriting also requires that the lender provide a written explanation that outlines why your application should be approved. Additionally, the presence of compensating factors increases the likelihood that your loan is approved while the absence of these factors may make it difficult to qualify if your mortgage payment history does not meet VA guidelines.
To summarize, late mortgage payments do not automatically disqualify you for a VA mortgage but both you and your lender need to put in extra work for your application to be approved and there is no guarantee you qualify for the loan.
Again, it is also important to determine if your lender is willing to work with borrowers that require manual underwriting before you move forward with your application.
In general you cannot have any late mortgage payments within the past twelve months to qualify for a USDA mortgage. In some cases, an applicant may be approved by the USDA’s automated underwriting system despite having late mortgage payments, in which case you are good to go with your loan.
In other cases, the presence of one 30 day late mortgage payment or other issue may cause your application to go through manual underwriting. For your application to be approved through manual underwriting, the lender is required to obtain a credit exception.
For a lender to submit a credit exception with your application, you must meet one of two criteria. You must demonstrate that the issue that caused the late mortgage payment(s) was temporary -- such as short term unemployment or a health issue. Or your new USDA mortgage must significantly reduce (by 50% or more) your total housing costs, including your loan payment, property tax and homeowners insurance.
The lender is required to include detailed documentation that supports the credit exception criteria that applies to you. You are also required to provide a letter of explanation that addresses the late mortgage payments and how you attempted to correct the issue.
Simply put, you need to collaborate with the lender to verify your creditworthiness and support why your application should be approved. The more convincing your case and the stronger your application is in other areas, including your credit score and job stability, the more likely you are to qualify for a USDA home loan despite prior late mortgage payments.
Use the FREEandCLEAR Lender Directory to search over 3,900 lenders by loan program. For example, you can find top-rated lenders in your state that offer the USDA mortgage program.
Conventional Mortgage Payment History Guidelines: https://www.fanniemae.com/content/guide/selling/b3/5.3/03.html
FHA Mortgage Payment History Guidelines: https://www.hud.gov/sites/dfiles/SFH/documents/sfh_hb_4000_1.pdf
VA Mortgage Payment History Guidelines: https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf
USDA Mortgage Payment History Guidelines: https://www.rd.usda.gov/files/3555-1chapter10.pdf