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FHA Credit Guidelines
CREDIT SCORES:
Borrower's who are applying for a FHA mortgage do not need to have a
certain minimum Get Your Equifax Credit Report Now! In fact HUD does
not impose any minimum credit score standards. While some lenders
may impose minimum Get Your Equifax Credit Report Now! this is not
and FHA requirement and is a lenders choice in order for them to
minimize their risk of potentially problematic loans. Fico
Scores/Reports while not perfect do give an indication of the
borrower’s credit history. Borrowers with Fico Scores/Reports above
620 will generally be able to get approved through the use of
automated underwriting engines. Borrowers with Fico Scores/Reports
below 620 may not get approved through the automated engines and
have to go through a manual underwriting process. Manual
underwriting usually takes a few extra days and a little more
documentation. Once again it will be the overall pattern of credit
that will be evaluated.
BORROWER WITH NO CREDIT:
HUD recognizes that some borrowers may not have as yet established a
credit history. For those borrowers, and those who do not use
traditional credit, the lender will try and develop a credit history
from utility payment records, rental payments, automobile insurance
payments, or other means. Neither the lack of credit history nor the
borrower's decision not to use credit may be used as a basis for
rejection. In trying to establish credit a borrower may consider
applying for a secured credit or debit cards or rebuilding their
credit history.
CONSUMER CREDIT: Borrower’s with accounts that were 60 days
or more past due in the last 12 months will greatly reduce their
chances of being approved, unless they have a solid explanation and
other compensating factors. Borrowers with isolated 30 day late
payments should be able to be approved provided the rest of their
accounts are paid satisfactory.
COLLECTIONS & JUDGMENTS: HUD does not always require that
collection accounts be paid off as a condition for loan approval.
Most underwriters will also not consider medical collection in their
overall evaluation. Especially if the other credit of the borrower
is satisfactory and the collection are not extremely large. They
will almost always require that court-ordered judgments be paid-off
before the mortgage loan may fund. (An exception may be made if the
borrower has been making regular and timely payments on the judgment
and the creditor is willing to subordinate that judgment to the
insured mortgage.) Previous or current collections of judgments are
considered when evaluating a borrower’s credit profile.
PREVIOUS MORTGAGE FORECLOSURE: A borrower whose previous
residence or other real property was foreclosed on or has given a
deed-in-lieu of foreclosure within the previous three years is
generally not eligible for an insured mortgage. However, if the
foreclosure of the borrower's principal residence was the result of
extenuating circumstances beyond the borrower's control and the
borrower has since established good credit, an exception may be
granted.
Extenuating circumstances do not include the ability to sell a house
when transferring from one area to another or divorce.
BANKRUPTCY - CHAPTER 7 LIQUIDATION: A bankruptcy (Chapter 7
liquidation) will not disqualify the borrower if at least two years
have passed since the bankruptcy was discharged and the borrower has
re-established good credit (or has chosen not to incur new credit
obligations), and has demonstrated an ability to manage financial
affairs. An elapsed period of less than two years (but not less than
twelve months) may be acceptable if the borrower can show that the
bankruptcy was caused by extenuating circumstances beyond his or her
control and has since exhibited an ability to manage financial
affairs and the borrower's current situation is such that the events
leading to the bankruptcy are not likely to recur.
BANKRUPTCY – CHAPTER 13: A borrower paying off debts under
Chapter 13 of the Bankruptcy Act may qualify if one year of the
pay-out period has elapsed and performance has been satisfactory.
The borrower must also receive court approval to enter into the
mortgage transaction.
NON-PURCHASING SPOUSE: If a married borrower is purchasing a
property by himself/herself, the credit obligations of the spouse
must be included with the application and will be factored in with
the borrower's credit obligations and used to determine the
financial capacity of the borrower only if the borrower lives in a
community property state. Furthermore, the non-purchasing spouse may
be required to sign a security instrument or documentation
relinquishing all rights to the property. |
