February 8, 2013
A reader asks, “My credit score is 678. When my husband tried to get his FICO score, he was told he couldn’t because he did not meet the minimum scoring requirements. (He is just starting to build credit and has nothing). Will we be able to qualify for an FHA loan based on my credit score?”
FHA loan rules have a lot to say on this. In HUD 4155.1, you’ll find the following under the section titled Analyzing The Borrower’s Credit:
“Neither the lack of credit history nor the borrower’s decision not to use credit may be used as a basis for rejecting the loan application. We also recognize that some prospective borrowers may not have an established credit history. For those borrowers, and for those who do not use traditional credit, the lender must develop a credit history from utility payment records, rental payments, automobile insurance payments, or other means of direct access from the credit provider. The lender must document that the providers of non-traditional credit do, in fact, exist and verify the credit information.”
The FHA loan rulebook also says the lender has the option to use a “non-traditional credit report” developed by a credit agency.
Additionally, FHA loan rules state, “The basic hierarchy of credit evaluation is the manner of payments made on previous housing expenses, including utilities, followed by the payment history of installment debts, and then revolving accounts. Generally, an individual with no late housing or installment debt payments should be considered as having an acceptable credit history, unless there is major derogatory credit on his or her revolving accounts.”
The FHA also instructs the lender that, in general, “When analyzing a borrower’s credit history, examine the overall pattern of credit behavior, rather than isolated occurrences of unsatisfactory or slow payments.”
Technically, the answer to the borrower question could either be, “Yes, you could co-borrow with your husband provided his credit history meets the description mentioned here” or perhaps the reader would prefer to apply for the FHA home loan without the husband’s name on the mortgage–definitely one option.
But the bottom line is that according to FHA loan rules, the lack of a traditional credit history, provided the borrower can provide other references that show on-time bill payments of some kind, does not necessarily block an applicant from the FHA home loan program.
Do you have questions about FHA loans or FHA refinancing 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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