FHA Loans and FICO Scores
The FHA has issued guidance in 2013 about something called the Back To Work program which gives participating FHA lenders a bit more leniency for borrowers who have credit problems in their past that is specifically related to the recession--but what do the FHA loan rules say in general about credit, bill repayment history, and the borrower?
HUD 4155.1, the FHA loan rulebook, says in Chapter Four, Section C, “Past credit performance is the most useful guide to
- determining a borrower’s attitude toward credit obligations, and
- predicting a borrower’s future actions.”
Your loan officer will review the repayment patterns established by your credit reports--the review is not designed to single out isolated incidents. A one-time problem is not viewed the same as a pattern of disregard for repayments, etc.
“When analyzing a borrower’s credit history, the underwriter must examine the overall pattern of credit behavior, not just isolated occurrences of unsatisfactory or slow payments. A period of past financial difficulty does not necessarily make the risk unacceptable, if the borrower has maintained a good payment record for a considerable time period since the financial difficulty occurred.”
If the FHA loan applicant fills out an application for a home loan with 12 months of reliable payments on record at the time of that application, there is an increased chance of getting an FHA loan approved. What does the FHA consider to be a reliable payment record? From Chapter Four, consider the “clues” a lender is looking for according to FHA loan requirements:
“The lender must document the analysis of delinquent accounts, including whether late payments were based on
- a disregard for financial obligations
- an inability to manage debt, or
- factors beyond the borrower’s control, such as delayed mail delivery, or disputes with creditors.”
Keep all of these things when you’re planning for your FHA home loan and you’ll have a much better idea of what the loan officer is looking for.
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