August 28, 2015
Some of the most common questions we get asked in the comments section (where we field all our reader questions about FHA loans and refinance loans) involve what seem to be gray areas surrounding an FHA mortgage. For example, “Will a certain condition in the home make the property fail the FHA appraisal?” or, “How low can my FICO score be?”
Some portions of the FHA loan process are dealt with specifically in FHA loan rules. For example, borrowers with FICO scores lower than 500 are not eligible for an FHA loan. Borrowers who are currently delinquent on Federal debts may have difficulty getting loan approval until the situation is resolved with payment or a payment plan. Certain types of conditions–homes located within a high pressure gas pipeline easement, for example–may render a home ineligible for an FHA mortgage.
But not all issues are defined in the FHA loan rulebook in clear terms. There’s a reason for that. FHA loans rely heavily on the discretion of the lender for many situations including overall judgments of credit worthiness of a particular borrower even when FICO scores and other basic FHA minimums have been met. In some cases lender standards apply. In others, state or local laws may also have a say in how the transaction may be carried out.
In these cases, the lender is often the first good source of information about the issue. If your FHA appraisal required corrections or declared the property unfit for an FHA loan, the best thing to do is to ask the lender about the situation–FHA loan rules for appraisals don’t cover each and every single contingency and the FHA doesn’t keep copies of state/local building code.
When it comes to FICO scores, the lender is free to require higher standards in general than those found in the FHA loan rulebook. If you were denied an FHA loan, or are worried you may be denied an FHA loan, due to FICO score issues, it is best to speak to the lender directly to learn what that financial institution’s standards are and how close you may be to meeting them.
It’s usually best to start asking questions at the lender level unless the loan officer has indicated that an application does not meet basic FHA loan guidelines–then it may be worth contacting the FHA about in order to get further clarification. In those cases, you can also ask questions of us here by visiting the comments section. Remember, we are not the FHA and do not represent it or the government in any way–but we do want to help borrowers and potential borrowers get ready for their FHA loan applications.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: http://www.fha.com/fha_loan_limits_widget
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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