FHA loans
FHA requirements are structured so that loan applicants who have a good credit history will likely be eligible for the mortgage. Late payments, bankruptcies, no credit history, and foreclosures will adversely affect your chances.
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FHA Requirements: Credit Guidelines

What FHA Lenders Want to See When They Review Your Credit

Before approving a loan, the lender analyzes the integrity of the borrower's past credit performance. Based on FHA requirements, those who have a good credit history demonstrated by a solid track record of timely payments will likely be eligible for a loan. Potential borrower's whose credit history is marred by slow payments, poor financial judgment and delinquent accounts is not a good candidate for loan approval.

The following is a list of items concerning the borrower's credit:

NO CREDIT HISTORY

Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.

CHAPTER 13 BANKRUPTCY

FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

CHAPTER 7 BANKRUPTCY

At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

LATE PAYMENTS

During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific perod of financial difficulty preceded it, the borrower may escape disqualification.

FORECLOSURE

FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS

A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.

FHA NEWS and RELATED ARTICLES
When you apply for a new purchase FHA home loan, FHA loan rules say you must list your income and employment details. This lets your loan officer accurately determine your debt-to-income ratio, using calculations based on your verifiable income.

One not-so-common question about FHA loans still comes up often enough to discuss in detail. Some FHA loan applicants want to know if they can purchase a residence from another family member using an FHA insured mortgage.

Except for obligations specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower’s qualifying ratios if certain conditions are met.

Some FHA borrowers have questions about applying for an FHA loan after experiencing a short sale on a previous home. The FHA loan rules found in HUD 4155.1 have the answers for borrowers applying for an FHA mortgage after a short sale.

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy.

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