July 7, 2011
When a borrower fills out an FHA loan application, there is a requirement to submit a variety of information including proof of income, residency information, and financial details including all currently open lines of credit.
The lender will verify all this information, including credit history.
The lender must order credit reports from the three major agencies–Equifax, TransUnion, and Experian. These reports cannot be furnished by the borrower, they must come directly from the credit reporting agencies and must contain no erasures or alterations to the physical report itself.
Corrections or deletions of any erroneous information must be made by the borrower through the credit reporting company’s official channels.
When the lender gets your credit reports, he or she is looking for a standard set of information as spelled out in FHA regulations; “all credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA), including information for the last seven years”.
The credit reports are scrutinized for issues such as foreclosures, tax liens, bankruptcy filings, lawsuits and other information.
The lender is also required to verify all debt and other financial information listed on the application. That includes dates each account was opened, credit limits, required monthly payments, and most importantly the payment history on each account.
The FHA lender must also investigate the last three months of credit inquiries–any other credit the borrower may have applied for in the 90 days leading up to the FHA loan application.
That’s one reason why it’s so important to avoid applying for other lines of credit when trying to get an FHA home loan—new potential debt could affect your debt-to-income ratio, which is just as important as your credit history when it comes to getting your FHA loan approved.
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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