May 3, 2018
FHA mortgage loans require a credit check, but many future FHA borrowers have some kind of credit issue in their past.
Some things aren’t enough to derail an FHA home loan application-old credit issues that have since been resolved, disputed accounts that have since been successfully resolved or have had a payment plan created, etc.
What do borrowers need to know about credit issues that CAN negatively affect the ability to borrow?
For starters, it’s important to know that the most recent 12 months of your credit activity will be very important. It’s crucial to avoid late and missed payments at all costs in those 12 months for best results.
Other FHA loan credit issues can affect your loan (or not) depending on the timing, severity, and nature of the issue.
FHA Loans And Bankruptcy
Bankruptcy is not an automatic barrier to an FHA home loan, but borrowers are required to wait out a minimum period of time after the bankruptcy has been discharged (NOT when it was originally filed), usually at least a year, sometimes two or more depending on the nature of your case.
Borrowers must also have established satisfactory credit, should they decide to use credit after the bankruptcy. Those experiencing further credit issues following a bankruptcy may find a new home loan harder for the lender to justify.
Some borrowers will have to get the court’s permission after bankruptcy, others may not (depending on the type of bankruptcy). In any case, additional lender requirements may apply so you will need to discuss your specific circumstances with a loan officer to see what’s possible.
FHA Loans And Delinquent Accounts
Whether you have delinquent payments on a charge card, rent, insurance, or other payment, if this has occurred in the 12 months leading up to the credit application it may be best to seek a HUD-approved housing counselor to discuss your plans for purchasing a home with a mortgage loan.
Coming to the loan process with any late, missed, or delinquent payments in the 12 months leading up to the loan application will jeopardize your chances for loan approval.
Borrowers who have had delinquent accounts may be required to furnish documentation to the lender showing that a payment plan acceptable to the creditor has been established and maintained. Speak to your loan officer about this requirement and how it may affect your home loan.
FHA Loans And Tax Debt
The mere existence of your tax debt is not, in the eyes of the FHA/HUD, an automatic liability as long as you have a payment plan that is in place, and has been maintained for a minimum amount of time.
Your lender will explain any additional or supplemental requirements you may need to meet in order to be considered for an FHA mortgage under such circumstances.
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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