August 5, 2013
A reader asks, “I have an outstanding judgment in the amount of $8000. Can I still get a loan?”
There are two very important considerations in situations like this, where the loan applicant has concerns about a credit issue blocking his or her approval for an FHA mortgage loan. One consideration is the FHA loan program’s rules and regulations. The other is the lending standards and requirements of the participating FHA lender.
The FHA loan program is voluntary–that is to say that not all lenders choose to participate, and the ones that do have to abide by FHA minimum requirements. But lenders are not prevented from requiring higher standards as long as those standards are applied fairly and in accordance with Fair Housing laws.
We can’t comment on what an individual lender might or might not approve–that’s up to each financial institution to decide. But let’s examine the FHA loan program rules as printed in HUD 4155.1 and see what the regulations say about this reader’s question. Chapter Four Section C of HUD 4155.1 states:
“Past credit performance is the most useful guide to
• determining a borrower’s attitude toward credit obligations, and
• predicting a borrower’s future actions.
Borrowers who have made payments on previous and current obligations in a timely manner represent a reduced risk. Conversely, if a borrower’s credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, significant compensating factors will be necessary to approve the loan.”
Section C specifically mentions judgments by name, so it’s safe to assume that the reader would need, as stated above, “significant compensating factors” such as large cash reserves, a larger down payment, or other factors that might work in the borrower’s favor.
If the FHA loan applicant is actively contesting such a judgment, the standards may be different. It’s best to discuss such circumstances with the lender to see what may or may not be possible depending on the specific facts surrounding those circumstances.
Do you have questions about FHA home 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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