Articles Tagged With: Credit Requirements

April 25, 2013

FHA Loans and Non-Traditional Credit

One commonly asked question about FHA mortgage loans involves the eligibility of borrowers who don’t have what are considered “traditional” credit histories. Can a borrower with little or no credit still qualify for an FHA loan? FHA loan rules do make provisions for those who have little credit history that can be researched via a typical credit bureau report. In cases like these, the lender is required to review certain types of documentation to verify the borrower is a good credit risk. According to HUD 4155.1, “In order for the underwriter to determine that a borrower has sufficient credit references to help evaluate bill paying habits, the credit history must…include three credit references” including at least one of the following: Rental housing payments (subject to independent verification if the borrower | more...

April 23, 2013

FHA Credit Report Rules

By Joe Wallace

When you apply for an FHA loan, your loan application will include forms you sign to give your loan officer permission to pull your credit reports, check your employment history and other items that are required in order to approve your VA home loan. But what are the rules for the lender when pulling your credit reports? What is the loan officer obligated to review and how is the process regulated? FHA loan rules, as printed in HUD 4155.1, give the lender a long set of instructions when it comes to accessing credit data. For starters, the lender can only accept credit report information directly from the credit agencies. It cannot come from any third party including the borrower. Additionally, HUD 4155.1 Chapter One Section Five states, “A credit report | more...

April 22, 2013

FHA Loan Reader Questions: Credit Score Minimums and FHA Requirements

By Joe Wallace

A reader asks, “We have been working for the last year to clean up our credit with the help of a credit repair company. We have made strides. We have been living in our home the last three years which we are purchasing on a land contract.” “It is now the end of the contract and we need to do the financing. I’m reading that the minimum credit FHA requires is 580, but I cannot find any place that will finance a person with less then a 640 credit score. Secondly, it is my understanding that we should be doing a refinance anyhow, but the places I have called are clueless. HELP! Our high score is right at 580 and we need to finish this financing NOW.” This is an | more...

April 19, 2013

FHA Loan Reader Questions: FHA Loans For Retired People

By Joe Wallace

A reader asks, “Have been trying to get my Freddie Mac loan reduced for 16 months with no good results. Can a retired person get an fha/obama loan if they have excellent credit, no debt and low income?” The answer to this question really depends on more information. The FHA itself does not have a minimum income requirement for FHA refinance loan approval. Instead, the FHA guidelines state that the borrower’s debt-to-income ratio would be a factor in some kinds of refinancing. The term “low income” itself is very relative–what might seem to be low income for some is perfectly acceptable in other cases. A borrower with good credit and a low debt-to-income ratio may be perfectly able to qualify for an FHA mortgage assuming other qualifying factors are also | more...

April 17, 2013

FHA Refinance Loans, Disaster Assistance, and Loan Forbearance

By Joe Wallace

The FHA has updated its disaster relief policies to help those recovering from the effects of Hurricane Sandy, but also natural disasters in a federally declared disaster area in general. One area that hasn’t gotten much attention until now is the FHA policy on refinance loans in such cases. What assistance is there for someone with an FHA insured refinance loan who is struggling in a federal disaster area? According to the new FHA mortgagee letter, 13-11, “In accordance with HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage Insurance One- to Four-Unit Mortgage Loans, for the purpose of determining the acceptability of the borrower’s payment history for any FHA refinance, when a borrower has withheld mortgage payments pursuant to either a Formal or Informal Forbearance drafted under this Mortgagee Letter, | more...

April 10, 2013

FHA Loan Answers: Is a Credit Check Required For FHA Loan Assumptions?

By Joe Wallace

FHA loans are assumable, which means that if you buy a home with an FHA mortgage and decide to do so later down the line, you could allow someone else to assume the loan–taking over responsibility for the mortgage rather than selling the home outright. A loan assumption means that the same mortgage you applied for is transferred to a new owner rather than going through a sale of the home, payoff of the original mortgage, and issuing a new loan to the new owner. Most homes today (except for mortgages closed before December 15 1989) purchased with an FHA home loan require a credit check for the person assuming the loan. There’s no such thing as a simple “hand-to-hand” transfer of an FHA mortgage from one person to another. | more...

April 9, 2013

FHA Loan Reader Questions: Foreclosure Waiting Period

By Joe Wallace

A reader asks, “I’m in the process of obtaining a FHA Loan. I completed my Chapter 13 bankruptcy a year ago after completing five years of payments on time. My credit score is not an issue right now. All of my paperwork is in, or so I thought. My mortgage lender now tells me that I need a letter from the bankruptcy court saying that I’m allowed to get a loan.” “She says that this is a requirement of the underwriters. I think that the underwriter should only be asking for this if I was still in the bankruptcy, not now, when I’ve been cleared by the courts. What can I do?” The answers are not simple in a situation like this, and there are many details we aren’t privy | more...

April 4, 2013

FHA Loan Rules For Loan Documentation

By Joe Wallace

FHA loans require paperwork. Whether it’s filled out on line, on paper, or using some combination of the two, there are several ares where borrower and lender must work together to complete. You’ll notice when filling out your FHA loan paperwork that there are requirements for certain types of information including credit history, your monthly financial obligations and much more. But did you know there are rules that govern how this information is handled by the lender? For example, one of the most important rules designed for the protection of the borrower applies to how the lender collects your signature and authorization for various steps of the FHA loan or refinance loan application process. The FHA loan rules spelled out in HUD 4155.1 state: “Lenders may not have borrowers sign | more...

April 2, 2013

FHA Mortgage Insurance Premium Changes

By Joe Wallace

Effective on 1 April 2013, the FHA changed its mortgage insurance premium rules. We’ve discussed this at length in other blog posts, but now that the date has come and gone for the changes to take effect, it seems like a good time to review those changes. According to FHA mortgagee letter 2013-04, ““FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent.” FHA MIP for Jumbo Loans is also going up. An FHA Jumbo Loan is basically described as mortgages at $625,500 or more. The increase on these loans is “5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium.” These MIP increases exclude “certain streamline refinance transactions.” The FHA describes these changes in | more...

March 26, 2013

FHA Loan Questions: Down Payments On Homes Sold Between Family Members

By Joe Wallace

Sometimes an FHA loan transaction involves the sale of a home between family members. In such cases there are FHA loan rules that may apply depending on the circumstances. A reader asks, “If I buy a house from a relative is it true that I have to have 15% down payment for FHA loan?” A quick read of HUD 4155.1 Chapter 2 Section B reveals some special rules that apply in circumstances like these. This situation is known as an “identity of interest” transaction. The FHA defines “identity of interest” as, “a sale between parties with family or business relationships”. What do FHA loan rules say about such sales? “The maximum loan-to-value (LTV) factor for identity-of-interest transactions on principal residences is restricted to 85%.” That means that yes, the borrower | more...