August 10, 2011
When applying for an FHA insured home loan, borrowers often wonder what kind of data lenders require to determine if the borrower is a good credit risk.
FHA rules are fairly straightforward on the subject; according to the FHA official site, “Credit reports submitted with each loan must contain all credit available in the accessed repositories. They also must provide an account of all credit, residence history, and public records information available in the credit repositories of each borrower responsible for the mortgage debt.”
The bottom line is that if you have information on your credit report, the lender has access to it and will consider it when deciding about approving the FHA loan. But can the borrower dispute or contest that information?
There are two basic types of credit report the FHA says a lender can use. One is the “three repository merged” credit report, also known as a TRMCR. The lender can also use something called a Residential Mortgage Credit Report or RMCR which is obtained from an independent consumer-reporting agency.
The FHA says the TRMCR is normally enough to process a typical FHA mortgage loan application, but in some cases an RMCR is required. This happens if the borrower “disputes the ownership of accounts on the TRMCR”. Using the RMCR is also required when “The borrower(s) claims that collections, judgments, or liens listed as open on the TRMCR have been paid and cannot provide separate documentation supporting this claim”.
It’s also required to use the Residential Mortgage Credit Report from an independent agency when the borrower disputes the balances on debts listed on the TRMCR but can’t show documentation to support that claim. In order for an RMCR to be used, the FHA requires it to “access at least two named repositories and meet all the requirements for the TRMCR,” and provide supporting information such as detailed employment history and current employment/income verification.
Credit reports provide a lot of supporting information to the lender, but as FHA rules listed here illustrate, the borrower does have a way to dispute information on those reports if necessary–but in such cases the borrower should provide supporting documentation to back up their claims in order to avoid delays in processing the FHA home loan.
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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