FHA Guidelines, FHA credit guidelines, first time home buyers, FHA mortgage loans, FHA home loans, FHA refinancing, FHA streamline refinance, purchase loans, excellent credit, California

FHA Credit Guidelines

FHA guidelines for credit is more liberal than on a conventional loan.  FHA does not necessarily have a minimum credit score requirements if the loan is approved by the automated underwriting system, however, some lenders have placed minimum requirements for approval when the loan is manually underwritten..

The lender will be looking at the previous 2 year credit history with the most scrutiny.  However, the overall performance as a whole will be evaluated.  If the automated underwriting system does not approve the loan due to credit derogatories, the loan can be manually underwritten by the underwriter.  The underwriter will then look at the risks and compensating factors in the loan file to see if a loan approval is possible.

No Credit History - If the borrower does not have a credit history, the lender can use alternate credit sources to build a credit history. Some of the items that can be used are:

• 12 months cancelled checks (front and back) for rent payments to show that all  payments have been made on time.

• 12 months cancelled checks for the different utility companies.

• Revolving and installment debts that do not show up on the credit report can be used.  12 months verification of payments made on time will be required.

Co-signed LoansIf the borrower co-signed on a loan or credit card for another party, that payment does not have to be used against the borrower if a copy of 12 months cancelled checks (front and back) from the other party can be obtained showing the account has been paid on time with no late payments for the entire 12 month period.

Deferred payments - will not be used for qualifying if it can be documented that the scheduled payments will not start in the next 12 month period.  If payments will begin in less than 12 months, then the payment must be used as a liability.  A common example of a deferred payment would be a student loan that is deferred until the student is has graduated from college.

Collection Accounts - FHA does not always require collection accounts to be paid off.  Each account will be evaluated on a case-by-case basis.  If the loan is approved by the automated underwriting system, the findings will determine which accounts must be paid off at closing.  If the loan is manually underwritten, then the underwriter has sole discretion on whether the collection accounts need to be paid.

Judgments - FHA requires that all open judgments be paid in full and released.  Proof of the satisfaction of judgment must be obtained.

Foreclosures - The borrower will be eligible for a new FHA home loan after 3 years has gone by since the foreclosure date. 

Bankruptcy - A borrower that filed a Chapter 7 will be eligible for a new FHA mortgage loan 2 years after the discharge date.  The lender will be looking for newly established credit accounts that have been paid on time since the bankruptcy.

A borrower that filed for a Chapter 13 can be eligible for a new FHA home loan even if the bankruptcy has not been discharged.  A borrower must show 1 year paying as court ordered through the Chapter 13 restructure.  The court must approve the new mortgage loan.  Any debts outside of the bankruptcy must also show that they have been paid on time for the previous 12 months.

If you are not sure if your credit will qualify for an FHA loan, please give me a call at 818-920-1600 to discuss your personal situation.

Please note:  The above information is just an overview of the credit guidelines used for underwriting an FHA mortgage loan, there may be other restrictions or guidelines that are not stated above.  If you would like to discuss your personal situation, please E-mail or call us at 818-920-1600.

Contact us today at 818-920-1600.