July 24, 2015
A recent reader question about FHA loans and missed payments reminds us how important it is to examine your credit report and repayment history on all financial obligations long before you apply for a new home loan.
The reader wanted to know if late payments on a student loan would affect chances for FHA home loan approval. The question mentioned that the reader’s current mortgage loan is current, but that late payments on the student loan were on her credit record. Does this reader have a chance for a new FHA loan?
The answer is complicated because of two things. A borrower with a current mortgage trying to apply for a new purchase FHA home loan would have to declare that the new home is to be the borrower’s primary residence. Additionally, the lender will scrutinize a borrower’s debt to income ratio to see if the new loan is affordable for the borrower. All current debts including a mortgage payment would be factored into that calculation.
Certain types of FHA refinancing may be a different story, but borrowers will need to discuss refinance loan options with the lender. FHA-to-FHA Streamline Refinance loans may offer an option for lower payments and/or interest rates without an FHA-required credit check or appraisal, but Streamline refinance loans aren’t available for non-FHA mortgages.
Where missed payments are concerned, in general it’s best to come to the FHA home loan process with a minimum of 12 months worth of on-time payments for all financial obligations including student loans. A borrower who has recent missed payments may have a harder time getting loan approval, depending on a variety of factors including lender standards, and personal circumstances that may have contributed to the missed or late payments.
No two lenders have exactly the same standards so it’s entirely possible that if a borrower can show that a one-time problem caused late or missed payments and that the issue has since been resolved, that a lender may exercise discretion depending on circumstances. But in general, it’s wise to plan ahead and come to the loan process with a full year of on-time payments instead.
Do you have questions about FHA home loans? Refinance 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.
Browse by Date: