Articles Tagged With: Credit Issues

April 5, 2017

Temporary Reduction of Income: FHA Loan Rules

What happens if a borrower fills out an FHA loan application while having a temporary reduction of income either on the record or ongoing during the application process? Does the FHA loan rule book, HUD 4000.1, address these situations? Fortunately, yes. There are many reasons why a loan applicant might experience a temporary reduction of income-short term disability, for example. Maternity leave. Temporary leaves of absence, sabbaticals, etc. According to page 206 of HUD 4000.1, FHA loan rules in this area include the following: “For Borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the Mortgagee may consider the Borrowers current income as Effective Income, if it can verify and document that: – the Borrower intends to return to work; – the Borrower | more...

When Is An FHA Loan Better Than A Conventional Loan?

March 7, 2017

Back Taxes And FHA Home Loans

By Joe Wallace

Are unpaid back taxes a liability when it comes time to applying for an FHA mortgage or refinance loan? A reader asks, “I am currently paying back taxes on a payment plan but have filed all appropriate tax returns. Is the rule that your taxes must be paid in full prior to applying for an FHA loan or they just have to be filed? In other words, am I still eligible while paying back taxes owed?” FHA loan rules in HUD 4000.1 do address the back taxes issue, primarily from the standpoint of the loan applicant who has delinquent federal tax debt. That is not to imply that the reader asking this particular question is in that category, but rather to point out that FHA loan rules address the issue | more...

March 10, 2016

FHA Loan Standards: Charge-Offs and Collections

By Joe Wallace

We’ve gotten several questions in the comments section about certain credit issues related to charge-offs, collections and other forms of derogatory credit information. With those questions in mind it seems like a good time to review the rules as published in HUD 4000.1 that instruct the lender on how to interpret these things and decide on loan approval. But before we start looking at the rules, it’s very important to point out that the information listed here are FHA minimum standards. A given lender or financial institution may have more strict requirements depending on circumstances, state laws, or other factors. Remember that FHA loan rules don’t override state law and lenders are free to require higher standards as long as they are in compliance with federal laws. When it comes | more...

December 9, 2015

HUD 4000.1 On Post-Chapter 13 Bankruptcy Waiting Times For A New FHA Loan

By Joe Wallace

The recently-published rulebook for FHA single family mortgages, HUD 4000.1, contains new rules and guidelines for participating lenders, plus rules that have been updated, clarified, or restated from the previous editions of the rules. One important area of the new rule book pertains to potential FHA loan applicants who want to apply for a new loan following a Chapter 13 bankruptcy. We get many comments and questions each month involving scenarios where a borrower wants to apply for a new home loan following a bankruptcy. Since the publication of the new rules, what does the FHA/HUD have to say about filing for a new mortgage following a Chapter 13? From HUD 4000.1: “A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA- insured Mortgage, if at the | more...

October 13, 2015

FHA Loan Credit Questions: Delinquent Rent Payments

By Joe Wallace

A reader asked us a question in the comments section recently about FHA loan applications and missed payments. “I have let family members rent 2 apartments in my name and they left them early which left me with the bill–will that keep me from qualifying for a FHA loan?” The answer to this question depends on several things. Was this simply a case of breaking a lease? If so, was the rent paid on time before the lease was broken? If there are late or missing payments, that could be an issue depending on circumstances, the lender, and whether the payment issue was ever resolved. Any debt in the borrower’s name would be examined by the lender, even if it was to help out another family member. Co-signing is also | more...

September 22, 2015

FHA Loans And Federal Debt

By Joe Wallace

Here is a common type of question about applying for an FHA mortgage loan when you have owe a debt to the federal government: “Can anyone tell me what the guideline for FHA loans regarding payment plan with IRS when you do not own property and you owe taxes? ” FHA loan rules here are basically concerned with giving lenders a yardstick to measure a borrower’s creditworthiness with regard to federal debt–and that means that a lender is responsible for insuring the borrower is not delinquent on the payments of that debt. Borrowers who are delinquent and are shown to be delinquent through the lender’s due diligence are not eligible for an FHA mortgage loan until such time as they have corrected the delinquency to the satisfaction of the government. | more...

July 15, 2015

FHA Home Loans And “Zombie Debt”

By Joe Wallace

Some borrowers who are preparing for an FHA loan application get surprises when they pull their credit reports–the existence of outdated debt information, inaccuracies, and mis-reported collection activity can plague credit reports in some cases. It takes time to undo these things and the borrower must work directly with the credit reporting agency to clear up the problem. And according to a recent headline at the Consumer Financial Protection Bureau (CFPB) official site, there may be more of these issues in store for some potential FHA loan applicants. According to Were ordering JP Morgan Chase to refund $50 million and stop collecting on 528,000 accounts, JP Morgan Chase’s sale of credit card accounts to debt buyers resulted in inaccuracies that brought complaints of aggressive, improper, and inaccurate debt collection activity. | more...

February 17, 2015

FHA Loan Questions: Student Loans, Delinquency, and Credit Reports

By Joe Wallace

A reader asks, “I co signed a student loan in 2004 and the student loan went delinquent on February 2008. When will it come off my credit report? And will I be able to apply for a fha loan after it comes off?” To get the answer about when a student loan delinquency might come off a credit report, the reader will need to contact the credit reporting agencies to see what standards may apply. There are three major credit reporting agencies and a potential borrower would need to contact all three. The agencies are Equifax, Experian, and TransUnion. If the borrower’s credit rating is sufficient, and the derogatory credit information no longer shows up on the credit report, it’s entirely possible that the borrower might be able to successfully | more...

March 6, 2012

Reader Question: FHA Loan Rule Changes On Collection Actions

By Joe Wallace

In a recent blog post we reported the FHA’s announced changes to its rules concerning collections, court judgments, and payoffs of those actions. FHA mortgagee letter 2012-3 published new instructions for FHA lenders added to HUD 4155.1 .4C.2.E. which now says, “If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments-paid as agreed) or paid in full at the time of, or prior to closing.

January 6, 2012

FHA Loans: What Is The Ideal Credit Score?

By Joe Wallace

Many readers write us asking questions about FHA loans. We field questions about bankruptcy, foreclosure, loan default, and many others. We also get plenty of questions about credit scores, qualifying for FHA home loans in general, and what it takes to qualify. Credit is the topic of many of our most frequently asked questions. Many borrowers want to know what the FHA is looking for in a credit report, what the minimums are, but the FHA’s “ideal credit score” is seldom discussed. Please note: this score is NOT the FHA minimum, it’s what the FHA considers to be an “ideal” score. Something to live up to, rather than basic qualifying criteria. What does the FHA consider to be an optimal credit score? According to the FHA official site at FHA.gov,