June 13, 2011
Anyone applying for a new line of credit agrees to submit to a credit check, whether for a new car purchase, a credit card account or an FHA home loan. When it comes to FHA loans, the credit history is identified in FHA literature on home loans as “the most useful guide in determining a borrower’s attitude toward credit obligations and predicting a borrower’s future actions.”
Simply put, an FHA loan applicant with a record of on-time payments looks like a good credit risk to the lender. But what about those who have had trouble in the past paying on time?
When the lender examines your credit history, it’s not a simple case of saying no because the facts and figures show a history of late payments. According to the FHA, the circumstances surrounding those late or missed payments is just as important. From the FHA official site, “if the credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, strong compensating factors will be necessary to approve the loan.”
Note the qualifying statement in that sentence, “despite adequate income to support obligations…”
The FHA also has instructions to the lender about patterns of behavior rather than a few incidents of missed payments here and there. The FHA tells lenders to look for “a good payment record for a considerable time period since the difficulty”.
If you apply for an FHA insured mortgage and have some credit difficulty on your record, consider including a written explanation along with your application, as the FHA requires lenders to “document their analysis as to whether the late payments were based on a disregard for financial obligations, an inability to manage debt, or factors beyond the control of the borrower”.
Naturally, those with good credit don’t have to worry about these issues, but in times of nationwide financial difficulty, more borrowers come to the FHA loan process with recent credit trouble–problems that are no longer an issue and that can be explained to the lender’s satisfaction.
Don’t let the worries of a credit check deter you from applying for an FHA home loan. The loan application and underwriting process may be more forgiving than you give it credit for.
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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