December 12, 2012
We get many questions about FHA loan rules for those who have had bankruptcies, foreclosures, loan defaults and other credit issues on their records.
FHA loan rules are clear–having these issues in your credit history is not an automatic cause to reject a loan application, but the borrower must wait out a minimum “seasoning period” after foreclosure, bankruptcy, etc. But there are certain cases where a borrower IS automatically ineligible for an FHA loan. What are these situations?
According to FHA loan rules as described in Chapter Four of HUD 4155.1 in the section titled “Basis for Rejecting a Borrower for Federally Related Credit” you’ll learn that an FHA loan applicant is “not eligible to participate in FHA-insured mortgage transactions if he/she is suspended, debarred, or otherwise excluded from participating in the HUD programs.”
Additionally, FHA loan rules say “A lender must reject a borrower from participation if he/she is on the
• HUD Limited Denial of Participation (LDP) list
• U.S. General Services Administration (GSA) List of Parties Excluded from
Federal Procurement or Non-procurement Programs, and/or
• HUD’s Credit Alert Interactive Voice Response System (CAIVRS), unless
an exception exists as noted in HUD 4155.1 4.A.7.c”.
But there’s an additional stipulation–an FHA loan applicant is also automatically rejected in cases where “he/she is presently delinquent on any Federal debt or has a lien placed against his/her property for a debt owed to the United States Government.”
Nowhere in the rules do we find bankruptcy or foreclosure mentioned specifically, but as stated above the borrower must wait out a required period before trying to apply for a new FHA home loan. Many lenders will look for two to three years, and the borrower must have re-established good credit and repayment history in the meantime.
Do you have questions about how FHA loans work? 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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