May 12, 2015
A reader asks, “I have a house paid for and I am looking for a F H A loan for $10 thousand or $15 thousand . According to bankers because I have not bought anything in the past 10 years I have no credit. is it possible to get a loan somewhere?”
FHA loan rules printed in HUD 4155.1 Chapter 3 Section B states that it is possible for an FHA cash out refinance loan on a home that has been paid in full. Specifically, the Chapter says:
“Cash out refinance transactions are only permitted on owner-occupied principal residences. Properties owned free and clear may be refinanced as cash out transactions”.
However, FHA loan standards aren’t the only ones at work in cases like these–the lender’s standards also apply. If a lender isn’t willing to offer such loans, there’s nothing in the FHA loan rules that says a cash out refinance loan on a home paid in full MUST be available to qualified borrowers.
The reader question is a bit vague–is the lender telling the reader that such loans are not available from that company due to the home having been paid in full for ten years? Or is the lender telling the reader that there’s a credit issue due to a lack of credit activity?
A lack of traditional credit isn’t necessarily a barrier to an FHA home loan, but there are many issues may factor in to cases like these that make a difference in how a lender can or will work with a potential borrower. If, for example, a borrower has a lack of traditional credit but has a spotty repayment history on the credit history that does exist (such as utility bills, or other recurring debt) a lender may be unable to work with a borrower until 12 full months of on-time payment history can be shown before loan application time.
We aren’t saying that’s the case here, just pointing out an example of why some lenders may have issues with non-traditional credit applications. Borrowers who need assistance with pre-application counseling on these issues can call the FHA directly at 1-800 CALL FHA for a referral to a HUD-approved housing counselor in the local area who may be able to help with advice.
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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