February 19, 2015
A reader asks, “I had to get a hard loan to buy my property. Have paid faithfully and am building credit, in the 700′s. Never had bankruptcy or any of that. Divorced mother with own business. Property has substantial equity now. To boost up chances to refi, will they (underwriter) investigate hard loan mortgage responsibility and history to boost refi chances of being approved?”
Lender standards vary, but in general all lenders want to examine a borrower’s history of repayment on financial obligations to determine a borrower’s creditworthiness.
Let’s examine the FHA’s stance on the issue of timely payments and establishing a solid payment history. What follows is from the FHA loan rulebook, HUD 4155.1 Chapter One:
“The purpose of underwriting is to determine a borrower’s ability and willingness to repay a mortgage debt to limit the probability of default and collection actions, and examine the property offered as security to determine if it is sufficient collateral.”
Additionally, from Chapter One:
“The underwriter evaluates the four C’s of credit to determine a borrower’s creditworthiness. The four C’s of credit consist of a borrower’s:
–credit history
–capacity to repay
–cash assets available to close the mortgage, and
–collateral.”
And finally, “FHA’s general credit policy requirements for underwriting a mortgage involve considering the type of income the borrower needs in order to qualify analyzing the borrower’s liabilities to determine creditworthiness, and reviewing ratios, including debt-to-income, and compensating factors.”
The reader may wonder if a “hard loan” will be scrutinized, and chances are good that the lender will want to see any history of repayment regardless of whether that’s a hard loan from a private enterprise or investor or a commercial loan from a retail bank.
Speak to your loan officer to learn what may apply in your specific circumstances and what the financial institution’s rules are for these aspects of your credit history where applicable.
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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