Filling Out Your FHA Loan Application

June 28, 2018

When it comes time to fill out our FHA loan application or pre-approval paperwork or online forms, some might feel tempted to overlook or fail to include their most recent financial obligations. When this data is missing from the application, it can slow down the loan process. In some cases it may lead to additional paperwork as the lender may require an explanation in writing in order to approve the loan.

For some, missing application data is just an oversight, in others it might be a question of an applicant mistakenly thinking that the lender won’t know or can’t find out about a very recent loan, credit card or other obligation.

But the lender can, and does find out about these things when doing credit checks and other verifications as part of the FHA loan approval process.

What’s more, FHA loan rules anticipate these issues. In HUD 4155.1, Chapter Four, Section C, you’ll find a section called “Recent and/or Undisclosed Debts or Inquiries”, which gives instructions to the lender on how to handle these types of circumstances. Why does the FHA give so much attention to this area? Because the lender cannot accept down payment money from unapproved sources, and a recent undisclosed debt must be examined to make sure it has not been the source of a down payment if it’s from an unapproved source.

According to Section C:

“Lenders must determine the purpose of any recent debts, as the borrower may have incurred the indebtedness to obtain the required cash investment.”

But that’s not the end of the issue--in cases where an undisclosed debt is discovered during the FHA application process, Section C instructs the lender:

“A borrower must provide a satisfactory explanation for any significant debt that is shown on the credit report but not listed on the loan application. Written explanation is required for all inquiries shown on the credit report for the last 90 days.”

FHA loan rules are very specific with regard to what the lender must do next:

• Verify the actual monthly payment amount of any undisclosed indebtedness.
• Include the monthly payment amount and resubmit the loan if the liability is greater than $100 per month.
• Determine that any funds borrowed were not/will not be used for the borrower’s cash investment in the transaction.
• Explanation is not required for inquiries.

Best advice? Never leave any required information off your credit application. An honest mistake is one thing, but FHA loan rules are designed to prevent more deliberate concealment of debt and whether that debt is being used to make a down payment--the lender can’t approve your FHA home loan until these sorts of issues are addressed.