July 1, 2015
One very common type of FHA loan question we get in the comments section here involves situations where the applicant was told by a lender or another party that “X, Y, or Z is required to get FHA loan approval”. The question we get from readers in these cases is simply, “Is this true?”
Answering such questions is tricky because the answer depends on whether the lender is speaking about the policies of a particular financial institution or the policies of the FHA loan program itself.
Borrowers should remember that FHA loan rules spell out a set of requirements, minimum standards, and policies for the FHA loan program in general, but those things are not the only rules that will govern an FHA home loan or refinance loan transaction. Did you know that state law, city ordinances, federal regulations, and lender rules also factor into the FHA loan decision making/approval process?
For example: a lender may tell a borrower that a certain FICO score–let’s say 640, hypothetically–is the minimum to be approved for an FHA home loan. Unless the lender specifically misinforms the borrower (by accident or on purpose) that such a FICO score requirement is an FHA standard, the lender is speaking of that financial institution’s policies.
From the FHA’s perspective, any borrower with a FICO score of 500 or higher is technically eligible to be considered for an FHA home loan. (Granted, applicants with scores below 580 aren’t eligible for maximum financing under the FHA loan program according to FHA standards.)
But the FHA recognizes that not all lenders are willing to work with borrowers who meet the bare minimum standard in this area–the FHA loan program allows the lender to require higher FICO scores in general for its FHA loans. The higher FICO score requirements would have to be administered in accordance with federal laws such as the Fair Housing Act, but they are permitted.
The same is true for other standards such as waiting periods for applying for a new home loan after bankruptcy, foreclosure, etc. The lender has discretion in such cases and can–as long as FHA minimum standards are observed–make exceptions or require longer wait times depending on circumstances, financial qualifications, etc.
The most important question a borrower can ask of the lender to avoid confusion over the loan rules is, “Is that the FHA standard or the lender standard”? If the lender claims a certain standard is enforced by the FHA loan rulebook and the borrower isn’t sure whether that’s true or not, a quick call to the FHA (1-800 CALL FHA) can help clear such matters up once and for all.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
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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