September 1, 2016
A reader asks, “I have a judgment for a car that was repossessed in May 2010. It was a car purchased by my husband with myself as cosigner. I didnt plan on paying it off as we are waiting on a divorce and he has no plans to help pay it off. Will I be able to get a FHA mortgage with this lingering on my credit? I do have credit scores in the 650 range and higher.”
Community property laws in a given state, where applicable, may affect the answer to this question, but in general, FHA loan rules in HUD 4000.1 state that judgments on a borrower’s credit history must have some kind of resolution.
On pages 177 and 178 of HUD 4000.1 we learn a great deal about FHA loan policy in this area. For starters, the FHA defines “judgments” as follows:
“Judgment refers to any debt or monetary liability of the Borrower, and the Borrowers spouse in a community property state unless excluded by state law, created by a court, or other adjudicating body”.
Borrowers who are affected by judgments should know FHA loan policy in this area. HUD 4000.1 instructs the lender:
“The Mortgagee must verify that court-ordered Judgments are resolved or paid off prior to or at closing. Judgments of a non-borrowing spouse in a community property state must be resolved or paid in full, with the exception of obligations excluded by state law.”
This section of the FHA loan rule book also provides for certain exceptions:
“A Judgment is considered resolved if the Borrower has entered into a valid agreement with the creditor to make regular payments on the debt, the Borrower has made timely payments for at least three months of scheduled payments and the Judgment will not supersede the FHA-insured mortgage lien. The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments.”
FHA loan rules require the lender to add any monthly payment to satisfy a judgment to be included in the borrower’s debt to income ratio. “The Mortgagee must include the payment amount in the agreement in the Borrowers monthly liabilities and debt.
The Mortgagee must obtain a copy of the agreement and evidence that payments were made on time in accordance with the agreement.”
As you can see, having a judgment on your credit report can be a serious issue, and it’s best to come to the FHA loan process with such issues resolved as mentioned above prior to the lender getting loan application paperwork. You may find loan approval more difficult if such issues are pending resolution or have not been yet made “official”.
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.
Browse by Date: