August 16, 2012
Borrowers applying for an FHA home loan for the first time should know about the FHA rules that apply when a lender denies the loan application. Did you know FHA rules say the borrower cannot be left in the dark about the reasons for the denial?
FHA loan rules, as described in HUD 4155.1 Chapter One, Section A, include a heading titled Borrower Rejection Based on Credit Report Information. That section says, “When a borrower is rejected for unacceptable credit characteristics on the basis of information contained in his/her credit report, he/she must be notified and given the name, address, and where available, the telephone number of the credit reporting agency.”
This is an important rule for many reasons, but the most important one is it empowers the borrower to change behavior, correct an erroneous report, or file a complaint about identity theft–whichever action might be appropriate to fix or improve the credit report at a later date. In cases where there are errors or identity theft issues, the borrower must follow the credit agency procedures for contesting the information.
In cases where the borrower’s bad credit is due to late or missed payments or other negative information, it’s best to consult an FHA-approved credit counselor for assistance.
What happens once the lender decides to reject a borrower’s FHA loan application? According to HUD 4155.1, “When a loan is rejected, the lender must immediately complete
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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