September 2, 2015
We get plenty of credit-related questions about FHA home loans and refinance loans in our comments section. One recent question that came in has to do with late payments on financial obligations prior to filling out an FHA mortgage application.
The reader mentioned having late payments in the last year in addition to having a credit score in the mid-500s. “Can this affect my chances for FHA loan approval?” is the most common of questions, and naturally the answer is dependent on circumstances.
In general, FHA loan applications are best turned in when the borrower has a solid 12 months of on-time payments for all financial obligations. Borrowers with otherwise outstanding credit and/or “compensating factors” may find a lender more forgiving if there is an issue with credit history, but borrowers with credit scores that are not considered “exceptional” should know that late payments will most likely hurt the chances for FHA loan approval.
FHA loan rules state that FICO scores and repayment history are among the most important factors the lender can consider for loan approval. The lender is looking for an overall pattern or reliability, so the more dependable your payments appear to the lender over the 12 months leading up to your loan application, the better off you’ll be.
Compensating factors for low FICO scores or other financial qualifications that may be “borderline” include a larger down payment, “substantial cash reserves” in the words of the FHA loan rulebook, or other factors that may help convince the lender you are a good credit risk.
Borrowers concerned about their ability to qualify for an FHA loan based on their current FICO scores, debt-to-income ratios or other factors should contact the FHA directly by calling their toll-free hotline (1-800 CALL FHA) and requesting a referral to a local HUD-approved housing counselor who can assist with pre-purchase advice and help getting ready for an FHA loan application.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget
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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