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First time FHA borrowers or refinance loan applicants are sometimes confused when it comes to the specifics of FHA home loan policies versus the standards of their participating FHA lender. One common question where this happens involves the loan rules that cover a borrower’s employment status.

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FHA Loans and Lender Policies

September 14, 2015 - First time FHA borrowers or refinance loan applicants are sometimes confused when it comes to the specifics of FHA home loan policies versus the standards of their participating FHA lender.
Some FHA loan questions fall into areas that aren’t governed specifically by FHA loan rules--lender standards also apply and you may find yourself wondering which is the “governing authority” in such cases. One common question where this happens involves the loan rules that cover a borrower’s employment status.

“I got laid off from my contractor job and rehired elsewhere. The lender is asking for another paystub from the current employer in order to move forward with the loan. Is this true?”
The “is this true” portion of the question depends greatly on whether or not the FHA loan rulebook has something specific to say about the circumstances in question, or whether it is up to the lender to decide in accordance with general FHA rules.

If your lender informs you that something specific--pay stubs, in this case--might be required in order to move forward with the loan, your loan officer may be referring to the lender’s standards. The FHA minimum requirements for FICO scores, credit history and other qualifying factors are just that--minimums. And the FHA/HUD isn’t the only agency that has a say in how the loan transaction is carried out.

Lender requirements, state and/or federal law, even state or local building code requirements may also be involved in the road to FHA loan approval. This is especially relevant with FHA home loans involving married couples, domestic partners, or even business partners. Do you know whether your state is a community property state? Community property laws can seriously affect FHA loan transactions between legally married couples.

And what about potential FHA borrowers who have bankruptcy proceedings on their credit history? Depending on the type of bankruptcy and other factors you may need to get the court’s permission to enter into a new loan agreement. This is just one of the many scenarios where FHA loan rules aren’t the only regulations or guidelines that can factor in to a mortgage loan application.

In some cases, a lender may imply that certain areas are due to FHA regulations--FICO score requirements, for example. And while it is true that borrowers with FICO scores between 500 and 580 are not eligible for maximum financing under the FHA loan program and must make a larger down payment, lenders who require higher credit scores than the “580 and above for maximum financing” rule are doing so due to lender standards, not FHA rules. Your FICO scores and other credit history details may play a big role in the type of down payment you have to make, depending on circumstances.

The lender is permitted to do this as long as the higher standards are applied in accordance with federal law. Such requirements may vary from lender to lender, which is why it’s a good idea to compare lenders and make the most informed choice possible when deciding where to apply for your FHA mortgage loan.