October 2, 2014
When you apply for a home loan, it helps to know what the lender is looking for from your credit report. When it comes to FHA mortgages, the lender wants to see 12 months of on-time payments on your financial obligations as well as the actual numbers of your credit scores as reported by the three major credit reporting agencies.
But what does the FHA require from those credit reports? What does the lender need in order to properly document you as a good credit risk?
The FHA loan rules for credit report delivery and content are found in HUD 4155.1 Chapter One Section C. A quick glance at this section reveals that credit reports cannot be delivered to the lender from third-parties including the borrower. The credit reporting agency itself must submit the report to the financial institution directly.
FHA loan rules in HUD 4155.1 Chapter One Section C state that the reports must be:
• originals, and
• either sent electronically and printed on the lender’s printer, or
• delivered by the credit-reporting agency.
Furthermore, the reports can’t contain codes that require translation by the credit agency, and may not have erasures, whiteouts, or other alterations.
Chapter One Section C has a list of the information the lender must have in the credit report. That required data includes the following as printed in HUD 4155.1:
• all credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA), including information for the last seven years regarding
− bankruptcies
− judgments
− lawsuits
− foreclosures, and
− tax liens, and
• for each borrower debt listed, the
− date the account was opened
− high credit amount
− required payment amount
− unpaid balance, and
− payment history.
Chapter One Section C adds a requirement for a “corrected credit report” in cases where the report does not have details or verification for bankruptcy, lawsuits, or other issues that can affect the loan application. Additionally, for any debt, “listed on the loan application, but not referenced on the (credit report), the lender must develop credit information separately.”
As you can see from the above, the credit report contains a great deal of important information but is considered not the only source of information available to the lender for data that does not yet show up on that report. The lender may need additional information or source data in order to process your application in such cases.
Do you have questions about FHA 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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