March 16, 2015
Many potential FHA borrowers want to know if their FICO scores qualify them for an FHA mortgage; others want to know if they can qualify for an FHA loan even if their FICO scores aren’t quite high enough based on what they might have heard the FHA loan minimum scores are.
Do participating FHA lenders have the power to make exceptions when it comes to certain qualifying factors or ratios associated with an FHA home loan?
The simplest answer is that it depends greatly on the lender. In general, FHA loan standards permit a degree of flexibility on FHA loans if the lender determines that a borrower doesn’t quite meet the standards required for the loan. But when could a lender make such exceptions based on the FHA loan program rules?
Keeping in mind that lender standards also play a part in this decision making process, here is what the FHA loan rulebook (HUD 4155.1) has to say about this issue:
The lender is responsible for adequately analyzing the probability that a borrower will be able to repay the mortgage obligation according to the terms of the loan. This responsibility includes using qualifying ratios and compensating factors when qualifying a borrower. Qualifying ratios can be exceeded when significant compensating factors exist.”
Those compensating factors could be a larger than usual down payment, a large amount of cash reserves, investments or other financial factors that make the borrower seem less risky in the eyes o the lender. The FHA official site adds:
“Underwriting requires a careful analysis of many aspects of the mortgage. Each loan is a separate and unique transaction, and there may be multiple factors that demonstrate a borrower’s ability and willingness to make timely mortgage payments. Simply establishing that a loan transaction meets minimal standards does not necessarily constitute prudent underwriting. When qualifying a borrower, it is important to avoid the danger of “layering flexibilities” when assessing the mortgage insurance risk.”
So you can see that while there is a degree of lender flexibility, it must be tempered with the need to insure that the FHA loan applicant can indeed afford the new loan.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review before being posted to the website.
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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