February 22, 2013
A reader asks, “What is needed to qualify for a FHA loan?”
That is a very general question–almost too general, but there is one very important starting point borrowers should know about when getting started with the FHA home loan process. Credit history is a major part of any home loan and some types of FHA refinancing loans. Without a solid record of on-time bill payments for at least one year or more, a lender is hard-pressed to justify approving a mortgage credit application.
Let’s examine with the FHA loan rulebook says about credit. According to HUD 4155.1, Chapter One, Section A, the home loan underwriting process pays a lot of attention to credit issues. “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.”
The FHA loan rulebook also adds that the loan officer or underwriter, “evaluates the four C’s of credit to determine a borrower’s creditworthiness.” What are these “four C’s?
• credit history
• capacity to repay
• cash assets available to close the mortgage
• collateral.
FHA loan rules state that the agency’s “general credit policy” includes requirements for the lender to actively consider the nature of the borrower’s income, how much income might be needed to qualify (versus debts and other factors) plus any compensating factors that might be present that work in a borrower’s favor.
Borrowers should take a close look at their credit scores, credit reports, and history of bill payment over the last year or more to insure they are truly ready for an FHA home loan application. Those who need further assistance can contact the FHA directly at 1-800 CALL FHA for a referral to an FHA approved housing counselor who can assist in these areas and more.
Do you have questions about FHA home loans or refinancing 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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