May 24, 2013
A reader asks, “I did a short-sale last year, with total debt forgiveness and no delinquency judgement. I never missed a payment the 8 years I held the mortgage. It did not effect my credit which is currently 737.”
“The bank did however report the short sale to the credit bureau and now I’m told it will be an issue getting an FHA loan. Lender says one thing, actual FHA website says another. I’m confused and discouraged. Advice?”
The real issue here seems to be a disconnect between what the FHA loan rules say and the lender’s standards. If the FHA requires a certain minimum, but the lender has a higher standard, who is right? What standard is used to determine whether or not the loan can be approved?
FHA minimums are just that–the lender is free to require longer seasoning periods, higher credit scores, etc. As long as the higher standards are legal and are in compliance with the Fair Housing Act, the lender is free to have more strict requirements in such cases.
The FHA loan program is a voluntary one, with lenders participating in it. FHA minimum standards must be observed, but those standards cannot be held as the “make or break” baseline that the lender MUST conform to.
That’s in specific reference to minimum credit scores, seasoning requirements, etc. Local, state, and federal housing laws must be observed and the lender’s policies must apply fairly for any applicant as required by the Fair Housing Act.
In short, the lender can issue a higher standard than the FHA minimum–the financial institution is within its rights to do so. Best advice in this case is to contact the FHA for a referral to a housing counselor who may be able to advise when it comes to circumstances like these–how to become a better credit risk, rights and responsibilities, etc.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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