FHA Loan Approval Rules: Why They Changed In 2022
December 2, 2022
In the last months of 2022, the FHA and HUD issued a mortgagee letter announcing a crucial change in FHA loan approval policy. The FHA Single-Family Home Loan program was modified in 2022 to permit lenders to submit positive rental history as a factor in home loan approval.
This is important because prior to the rule, most borrowers could not have their rental history considered as a positive factor.
In fact, the FHA and HUD official sites note that such rental verification “is not a feature of most Tri-Merged Credit Reports or Residential Mortgage Credit Reports provided for FHA-insured products that require credit data” and that “when provided” rental verification, “generally exists as separate documentation” the lender may opt to use.
Why the Changes Happened
HUD decided to allow positive rental history because of housing market studies that show borrowers with such rental history “may represent lower credit risk” and may show an improvement in credit scores “if such information were included in credit reporting data” according to HUD.gov.
The reason the FHA loan program allows some borrowers to submit this information? According to HUD, doing so gives the lender a “more complete” credit picture for the potential borrower.
So what do first-time home buyers need to know about applying for an FHA loan and using rental history to qualify? To start, you must meet the FHA requirements for being a first-time home buyer.
Who Is a First-Time Homebuyer?
Meeting the FHA definition means either never having owned a home before or not having owned a home in the last three years.
In other areas, FHA loans do not (otherwise) offer an advantage for the first-time home buyer but where positive rental history goes there IS a potential benefit for the right borrower. And what does the FHA require from that positive rental history itself?
HUD 4000.1, the FHA Single Family Lender’s Handbook, has been updated to reflect current FHA loan policy, which includes this:
“Positive Rental Payment History refers to the on time payment by a borrower of all rental payments in the previous 12 months. A rental payment is considered to be on time when it is paid within the month due.”
But that is not all; the transaction must be a purchase loan, it must include one borrower identified as a first-time homebuyer, and the minimum FICO score for this consideration is 620. Rental payments must have been made for a minimum of $300 or more for the last 12 months.
Talk to your loan officer if you meet these requirements and want to know how these FHA loan rules may affect your transaction.
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Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing
This is important because prior to the rule, most borrowers could not have their rental history considered as a positive factor.
In fact, the FHA and HUD official sites note that such rental verification “is not a feature of most Tri-Merged Credit Reports or Residential Mortgage Credit Reports provided for FHA-insured products that require credit data” and that “when provided” rental verification, “generally exists as separate documentation” the lender may opt to use.
Why the Changes Happened
HUD decided to allow positive rental history because of housing market studies that show borrowers with such rental history “may represent lower credit risk” and may show an improvement in credit scores “if such information were included in credit reporting data” according to HUD.gov.
The reason the FHA loan program allows some borrowers to submit this information? According to HUD, doing so gives the lender a “more complete” credit picture for the potential borrower.
So what do first-time home buyers need to know about applying for an FHA loan and using rental history to qualify? To start, you must meet the FHA requirements for being a first-time home buyer.
Who Is a First-Time Homebuyer?
Meeting the FHA definition means either never having owned a home before or not having owned a home in the last three years.
In other areas, FHA loans do not (otherwise) offer an advantage for the first-time home buyer but where positive rental history goes there IS a potential benefit for the right borrower. And what does the FHA require from that positive rental history itself?
HUD 4000.1, the FHA Single Family Lender’s Handbook, has been updated to reflect current FHA loan policy, which includes this:
“Positive Rental Payment History refers to the on time payment by a borrower of all rental payments in the previous 12 months. A rental payment is considered to be on time when it is paid within the month due.”
But that is not all; the transaction must be a purchase loan, it must include one borrower identified as a first-time homebuyer, and the minimum FICO score for this consideration is 620. Rental payments must have been made for a minimum of $300 or more for the last 12 months.
Talk to your loan officer if you meet these requirements and want to know how these FHA loan rules may affect your transaction.
------------------------------
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing
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