The new HUD 4000.1 handbook includes new rules about existing policy, revised language for some loan rules, and other changes. Has qualifying for an FHA mortgage under the new rulebook changed? 

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HUD 4000.1, FHA Loan Applications, and Credit Reports

November 16, 2015 - 2015 saw a big change for FHA loans in general--FHA single family home loans have a new policy handbook. Known as HUD 4000.1, the new rules include existing policy, revised language for some loan rules, and other changes. Has qualifying for an FHA mortgage under the new rulebook changed? Probably not in major ways, but the FHA and HUD have not published an “a to b comparison” of old rules to new--these agencies expect borrowers and lenders to review current policy instead of trying to compare old rules to new.

So what is current FHA loan policy for qualifying for an FHA mortgage? The typical application and credit report data is still required. According to HUD 4000.1, the lender (or “mortgagee” as described below) must follow certain procedures:

“The Mortgagee must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts. The Mortgagee must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject property is located in a community property state.”

What does HUD 4000.1 require of credit reporting procedures when it comes to the presence of a non-borrowing spouse in the transaction?

“The credit report must indicate the non-borrowing spouses SSN, where an SSN exists, was matched with the SSA, or the Mortgagee must either provide separate documentation indicating that the SSN was matched with the SSA or provide a statement that the non-borrowing spouse does not have an SSN. Where an SSN does not exist for a non-borrowing spouse, the credit report must contain, at a minimum, the non-borrowing spouses full name, date of birth, and previous addresses for the last two years.”

FHA loan rules still require all applicants to have a valid Social Security Number, so the inclusion of a non-borrowing spouse’s SSN is an important part of the loan process where applicable.

FHA loan rules about credit reports in HUD 4000.1 are quite specific when it comes to traditional credit reports--as opposed to using a non-traditional type of credit report. HUD 4000.1 says, “The Mortgagee must use a traditional credit report. If a traditional credit report is not available or the traditional credit report is insufficient, the Feedback Certificate will show a Refer recommendation, and the Mortgagee must manually underwrite the Mortgage.”

That’s very important to keep in mind when applying for an FHA mortgage. Later in HUD 4000.1, we also learn that borrowers without a credit score require additional steps from the lender:

“For Borrowers without a credit score, the Mortgagee must either obtain a Non- Traditional Mortgage Credit Report (NTMCR) from a credit reporting company or independently develop the Borrowers credit history using the requirements…”

And finally, we learn that credit report have specific requirements in HUD 4000.1:

“Credit reports must contain all information from at least two credit repositories pertaining to credit, residence history, and public records information; be in an easy to read and understandable format; and not require code translations.”All this is important to know going into the FHA loan process--knowing what’s expected ahead of time can increase your comfort level with the journey to home ownership.

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