FHA Requirements
Credit Guidelines That FHA Lenders Follow
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 borrowers 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 approving 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 period 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, Judgments, 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 Loan Requirements
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FHA Loan Articles and Mortgage News
October 7, 2020 - With credit monitoring you opt into a level of protection that can warn you if such issues become present in your credit report. But keep in mind that knowing is only part of the battle--it takes time to contest a credit report problem.
October 3, 2020 - Are you interested in buying an existing home or having one built for you on your own lot? Before you apply for a mortgage, there are some important credit issues you’ll want to address to improve your chances at home loan approval.
September 29, 2020 - When the coronavirus pandemic began affecting America, federal agencies began establishing certain temporary guidelines to help employees, customers, and clients to continue having access to important services including FHA loans.
September 26, 2020 - The FHA and HUD have announced new guidelines for borrowers who are applying for FHA mortgages and have had previous mortgage forbearance. Since the start of the global pandemic, these agencies have offered borrowers mortgage relief to help offset new financial burdens.
September 21, 2020 - What facts do you need to know about FHA home loan limits? Facts such as FHA loan limits may vary depending on county and that FHA mortgage limits are higher in high-cost areas like California, New York, and Hawaii?
