January 20, 2012
Many readers write in with questions similar to the one we received this week, which includes the following:
“I am recently divorced. While married, went through two bankruptcies (both discharged) have/had issues with back taxes (installment plans made and determined to be paid in full by ex per divorce decree). Have moved to another state, working (1.5 years), full time student. Was living with children, have moved into an apartment paying $600.00 per month (comfortably), because I could not get qualified for a loan. Have two major credit cards (visa/master credit cards not debts) established in my name for 1.9 years, never late, never over limit. Credit score is 620. Is there a main reason why, I did not or cannot be approved for a FHA loan?”
Before addressing an issue like this in general terms it’s important to point out that individual circumstances vary when it comes to FHA mortgages and there’s no way to say for sure what an individual lender’s reasons might be for turning down an FHA loan application.
That said, the reader’s comments raise several issues that should be addressed whenever a borrower wants to apply for an FHA home loan. The first is that it’s important to shop around for a lender–borrowers who are denied an FHA loan from one bank should consider another financial institution. While it is true that the application process can be lengthy, a borrower may discover one bank is willing to work with him or her where another is not.
Money issues like bankruptcy and unpaid federal debts can slow down or even stop the loan process in some cases. The FHA rules are strict about debts owed to the federal government and if the borrower has owed money to the government in the past or is still paying on federal debt, it’s important to provide paperwork showing the current status of that debt.
Credit scores are a tricky issue. The credit score mentioned in the reader comments is close to or at the minimum score required by the FHA and/or many financial institutions. A borrower who has a low or minimum credit score may find it tougher to locate an FHA lender willing to extend credit unless the borrower has compensating factors such as savings, a larger down payment or other advantages.
Again, none of these things mentioned should be construed as direct comments on this borrower’s situation–it is impossible to know “from a distance” what specific reasons a lender might have for turning down an FHA loan application. But there are many things to examine when applying–borrowers concerned about their ability to qualify for a home loan should get some advice from an FHA-approved housing counselor about credit, federal debt, and related issues prior. Learn more at http://portal.hud.gov/hudportal/HUD?src=/i_want_to/talk_to_a_housing_counselor
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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