March 11, 2016
We get many questions about FHA loan credit standards. Some examples: “I have a charge-off on my credit report. Am I still eligible for an FHA mortgage?” “My credit reports show some missed payments on student loans. Will this affect my ability to get an FHA mortgage?” These are definitely questions worth asking long before you start the house hunting process.
Some borrowers are concerned with FICO score issues, others may have disputed accounts, or collection actions on their credit record. These things can worry a future home loan applicant, and with good reason–some credit issues are a barrier to loan approval, while others may not be quite so serious.
Knowing what a lender is required to collect with regard to your credit data is a good way to ease your mind about FHA loan credit issues; it’s also a way to figure out where to start working on credit issues that need to be addressed.
FHA loan rules for credit reports are found in HUD 4000.1. We begin on page 171 which states, “The Mortgagee must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts. The Mortgagee must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject Property is located in a community property state.”
So it’s clear that FHA loan rules require the lender to pull a borrower’s credit report. That report must include the following:
–the name of the Mortgagee ordering the report;
–the name, address, and telephone number of the consumer-reporting agency;
–the name and SSN of each Borrower; and the primary repository from which any particular information was pulled, for
each account listed.
–A truncated SSN is acceptable for FHA mortgage insurance purposes provided that the mortgage application captures the full nine-digit SSN.”
Credit reports cannot be delivered to the lender by the borrower or from another third party–the credit reporting agency must deliver the report to the lender. The contents of that report must include:
–all inquiries made within the last 90 Days
–all credit and legal information not considered obsolete under the Fair Credit Reporting Act (FCRA), including information for the last seven years regarding:
bankruptcies
Judgments
lawsuits
foreclosures
tax liens
HUD 4000.1 says the lender may in some cases be required to order another credit report, “…if the underwriter identifies inconsistencies between any information in the mortgage file and the original credit report.”
The lender will examine the borrower’s credit patterns, paying attention to the last 12 months of activity. But in some cases, 24 months of information is required, so borrowers need to be aware of that requirement. For example, certain types of disputed accounts on a credit report may require the lender to review two years worth of information related to those disputes.
Any negative information on your report could require further examination from the lender. If you know you have negative data on your report, it’s best to have a written explanation for those details ready in case the lender is required to have that from you in order to proceed with the mortgage. In many cases the lender will require a statement from the borrower explaining the negative information, the circumstances under which it occurred, etc.
If you are concerned about the contents of your credit report, it’s a good idea to order copies of your credit reports from the three major credit reporting agencies to see what is currently listed in your file. You can also get pre-purchase planning advice by calling the FHA directly at their toll-free number (1-800 CALL FHA). Ask for a referral to a local, HUD-approved housing counselor who can help in the planning stages of your home loan.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple 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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