March 8, 2017
Why don’t some borrowers qualify for an FHA mortgage loan? A reader got in touch with us recently to ask a question along these lines: “I work at a high school, married w/baby. My credit is 640 have the 3.5% but my real estate lady says I dont qualify, FHA whats up?”
Just a note for clarity: this blog is in no way affiliated with the FHA, HUD or any government agency. We report on FHA loan rules, news, and policy, but we have no connection with the agency itself.
This reader question is a good example of a type of misunderstanding of the FHA loan approval process-that FICO scores alone determine your ability to get an FHA mortgage loan application approved. FICO scores are very important, and people can and do get turned down for home loans based on their credit scores. But they are not the entire picture.
The lender needs to review a borrower’s credit history, employment data, debt-to-income ratio, and other factors to insure the borrower is a good risk. A borrower may have outstanding FICO scores, but if the borrowers job record or debt ratios do not meet lender or FHA standards, it’s hard to justify approving the loan.
That is not to imply that this reader has any sort of issue whatsoever getting a loan approved (there’s not enough information in the reader’s comments to be able to determine whether FHA minimum standards are met or not met), but simply to point out that there are a variety of factors that go into approving or denying the loan.
The key issue, at least from one point of view, is the fact that the question implies that a real estate agent was the source of the “you don’t qualify” information. Only a lender can approve or deny a loan, and while a real estate agent may be able to tell a loan applicant what has traditionally happened under a given set of circumstances, only the lender can make the official determination.
Borrowers are free to shop around for a participating FHA lender who might be willing to work with them, and should take advantage of that freedom especially when it appears that better rates, terms, down payment requirements, or flexibility may be offered at one financial institution over another.
Those who need help as new house hunters or first time mortgage loan applicants should contact the FHA at their toll-free number, 1-800 CALL FHA, and request a referral to a local, HUD-approved housing counselor who can help with advice on prepurchase planning and other issues.
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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