August 7, 2014
FHA loans are much like conventional loans when it comes to applying and qualifying. Like a conventional loan, your lender will need your credit, income, and employment history data to make a determination on loan approval. Where FHA loans stop being like conventional mortgages includes the amount of down payment required (the FHA has a much lower requirement in many cases), the interest rate (which can also be lower than conventional loans depending on circumstances) and occupancy rules.
What are some of the basic things you need to know about FHA loan applications?
First, it’s best to be careful when filling out your credit and employment information. Omitting or concealing past issues is not recommended. The lender will get a comprehensive picture of your credit history when looking at the reports pulled from the three major credit reporting agencies. Overlooking or omitting credit or employment data will only slow down the processing of your loan application.
When it comes to credit, the FHA loan rulebook makes it clear that this is a big part of the decision making process for the lender. According to HUD 4155.1 Chapter One, the whole reason a credit application is required for an FHA home loan is to make sure the borrower has demonstrated in the past that he or she is willing to repay financial obligations and has the ability to do so in the future.
According to Chapter One, “The purpose of underwriting is to
• determine a borrower’s ability and willingness to repay a mortgage debt to limit the probability of default and collection actions, and
• examine the property offered as security to determine if it is sufficient collateral.”
And with regard to credit, Chapter One says:
“The underwriter evaluates the four C’s of credit to determine a borrower’s creditworthiness. The four C’s of credit consist of a borrower’s
• credit history
• capacity to repay
• cash assets available to close the mortgage, and
• collateral.”
And finally, borrowers should know why these things are considered important. According to Chapter One of HUD 4155.1, the general policy when it comes to your loan application is that the lender is required to do several things in order to approve or deny the loan:
“FHA’s general credit policy requirements for underwriting a mortgage involve
• considering the type of income the borrower needs in order to qualify
• analyzing the borrower’s liabilities to determine creditworthiness, and
• reviewing ratios, including debt-to-income, and compensating factors.”
For more information on how these things are handled by your lender, speak to your loan officer about your specific needs.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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