May 5, 2011
FHA guidelines state that a loan applicant’s credit record is one of the most important indicators of how well the borrower might do with an FHA mortgage. On-time payments on past and present credit debt and other financial obligations tell the lender and FHA a lot about “a borrower’s attitude toward credit obligations and predicting a borrower’s future actions” according to the FHA official site.
That said, the FHA instructs lenders to “examine the overall pattern of credit behavior, rather than isolated occurrences of unsatisfactory or slow payments”.
That is a good indication of the FHA approach to credit history and approving FHA loan applications. According to the FHA, a borrower should not be penalized for one-time mistakes or situations that could otherwise be interpreted as “bad behavior” on a credit report. A few mis-steps on a credit history are not enough to disqualify a typical applicant provided they otherwise meet FHA requirements.
The FHA states clearly, “A period of financial difficulty in the past does not necessarily make the risk unacceptable if the borrower has maintained a good payment record for a considerable time period since the difficulty.”
But the reverse is also true–an FHA mortgage loan applicant will have trouble getting loan approval if the borrower’s credit and employment record reflects the ability to pay, but a lack of willingness to meet obligations in the form of slow payments, collections and delinquent accounts.
FHA rules instruct the lender to view such potential red flags in context; “…the lender must document their analysis as to whether the late payments were based on a disregard for financial obligations, an inability to manage debt, or factors beyond the control of the borrower, including delayed mail delivery or disputes with creditors.”
It’s clear based on this basic reading of the FHA rulebook that borrowers are given plenty of latitude on the loan approval process, provided the credit record and personal history shows a willingness to meet financial obligations, the ability to pay them, and the potential for that ability to continue into the future.
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: