Articles Published in: January 2014

January 8, 2014

FHA Loan Rules For Non-Traditional Credit

One common type of question about FHA home loan applications involves how the lender process credit information. When a borrower wants to apply for an FHA loan and has plenty of “traditional credit”, there’s no problem developing and processing the loan application. But what about borrowers who come to the FHA loan process with little or no credit history or only what’s termed “non-traditional credit”? Some borrowers don’t want or use credit cards, which makes establishing a typical credit history more difficult. That may lead some to believe that a lack of credit card can hurt your chances for FHA loan approval. But that’s not necessarily true. The FHA has rules and instructions for the lender in cases where the borrower has non-traditional credit. We find those rules and guidelines | more...

January 7, 2014

FHA Loan Rules On Unemployment, Occupancy: A Reader Question

By Joe Wallace

A reader asks, “I currently live in Florida and want to purchase a home in Las Vegas, Nevada because I want to relocate there. I don’t have two years consistent work history, I might have 6 or 7 months of unemployment. My credit score meets the requirement. I want to know, will the gap in my work history affect my chances of getting approved? Also can I qualify in Florida and purchase a home in Vegas while still living in Florida?” The answer to this question requires us to look up FHA loan rules for employment, income, and gaps in employment. These rules are found in HUD 4155.1, Chapter One, Section B, which says: “The lender must obtain the most recent pay stub showing year-to-date earnings of at least one | more...

January 6, 2014

FHA Loan Down Payment Requirements: A Reader Question

By Joe Wallace

A reader asks, “I want to buy a house for $399,000.00…how much of a down payment will i have to make? I understand that banks require a 20% down payment. Does the FHA also require 20%? The minimum cash investment–a down payment on an FHA guaranteed mortgage–is set at 3.5%. However, there are many circumstances where a lender may require a higher down payment. This can include situations where a borrower’s FICO scores or other qualifying information are marginal or outside the usual range for FHA loan approval. A higher down payment can be considered a “compensating factor”. In cases where compensating factors need to be considered, a larger down payment is acceptable, but only if the down payment meets FHA guidelines. Those guidelines include a minimum 10% down, as | more...

January 3, 2014

FHA Loan Answers: What Are “Compensating Factors”?

By Joe Wallace

When a borrower applies for an FHA home loan, he or she may not fit the “ideal applicant” standard in terms of credit history, credit rating, loan repayment patterns, employment, etc. Sometimes the lender feels that an applicant may be a good credit risk in spite of these things, but needs something to justify approving the loan. Compensating factors can help the lender to do that. The FHA loan rules found in HUD 4155.1 defines “compensating factors” as things which are used, “to justify approval of mortgage loans with ratios that exceed benchmark guidelines must be recorded on the Underwriter Comments section of Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary. Any compensating factor used to justify mortgage approval must also be supported by documentation.” What can these compensating factors | more...

January 2, 2014

FHA Minium Property Requirements: A Reader Question

By Joe Wallace

A reader asks, “What are the property condition requirements for an FHA loan? For example, what if the home is older and has a main panel of the fuse type instead of the newer circuit breaker type – are those okay if they as long as they pass inspection? Does the roof need to be certified if it is not new? Is there a publication I can reference for this type of information?” FHA loan minimum property requirements are just that–minimums. State or local building codes also apply, so it’s important to check with the local authority for specifics on things like circuit panels, carpet and roof requirements. The FHA has general minimum property requirements listed in Chapter 12 of HUD 4155.1, but for detailed information, the local authority must | more...

January 2, 2014

FHA Loan Reader Questions: FHA Loan Credit Score Minimums

By Joe Wallace

We’ve gotten several questions about FHA loan credit score requirements lately. Here are two of them. One reader asks, “I am a veteran…and in the past I have a lot of credit issues…I have cleared up most of them, but I am a federal employee who because of credit scores, rent year to year…what is the minimum credit score to qualify for FHA home loans…I am so tired of moving all the time….I know for a VA home loan it is now 640, a lot of help there…” Another reader asks, “My credit score is 615. My score has came up alot in the last year and a half. I own a single wide trailer with my ex husband. No one will refinance this single and I am wanting to | more...