July 10, 2014
A reader asks, “I am attempting to secure a FHA loan however, I voluntarily set up a debt management program (not Chapter 13, not required, not as a result of poor credit) after my divorce to manage payment of multiple credit cards. The underwriters are treating the program like a Chapter 13 and requiring a letter of permission and a 12 month payment history.”
“I can, at any time, voluntary cancel the program and the company does not offer “letters of permission”. I have two months before I have one full year of payments to the program. Are there any specific rules regarding this type of program?”
There are some details missing from the reader question that might shed some light on the issue, but the main question the reader wants answered seems to be whether the FHA has rules that govern debt management programs in the same way there are FHA loan requirements for those in bankruptcy or foreclosure.
In this particular case, the issue is with lender standards as opposed to FHA loan rules. The lender is free to require all the things the reader mentioned in the question, above and beyond FHA loan minimums. This means the borrower may need to shop around for a lender willing to work with the FHA loan applicant’s situation.
A lender who can’t or won’t work with the borrower isn’t much help—the borrower has, according to the information supplied in the question, two options. One is to voluntarily cancel the program he or she set up. The other is to shop around for a new lender who can help. But there’s no prohibition in FHA loan rules to prevent a lender from doing what was mentioned in the question.
There are issues that could complicate things in such cases–a borrower who does have low FICO scores or a spotty repayment history (not that this reader has these issues, but some applicants might) could be working against those issues when trying to apply for the loan. The lender may be required to insist on a 12 month payment history and a “letter of permission” in cases where the borrower’s credit issues are not quite up to lender standards.
Again, we aren’t saying that’s true in this particular case, but some FHA loan applicants in this situation may well have other issues that force the lender to require these things as a condition of loan approval.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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