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FHA LOAN QUALIFYING: CREDIT ISSUES
FHA will analyze a borrower's credit history in determining the FHA loan for approval.
A borrower who has made timely payments serves as a guide and demonstrates their willingness
to repay future credit obligations.
On the opposite side, a borrower who reflects continuous
slow payments, judgments and delinquent accounts is not a good candidate for
FHA loan approval.
Below is a list of items concerning the borrower's credit.
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When the underwriter analyzes the borrower's credit, it is the overall pattern of
credit behavior that must be reviewed, rather than isolated cases of slow payments.
A period of financial difficulty does not disqualify the borrower if a good payment
pattern has been maintained since then.
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In the event a borrower does not have any credit lines (2 needed) on their credit report,
the FHA will allow substitute forms of credit such as utility payment records, rental
payments, car insurance payments, etc.
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The FHA guidelines
state that a minimum of two years must elapse since the discharge
date of the borrower and / or spouse's Chapter 7 bankruptcy, not the filing date.
A full explanation of the bankruptcy will be required. The borrower must also
have re-established good credit, qualify financially and have good job
stability.
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The FHA guidelines
state that they will consider a borrower still paying on a
Chapter 13 Bankruptcy if the payments to the court have been satisfactorily
made and verified for a period of one year. In addition, the court trustee
will need to give written approval to proceed. A full explanation of the
bankruptcy will be required. The borrower must also have re-established
good credit, qualify financially and have good job stability.
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The HUD guidelines
state that if a collection is minor in nature, it usually does not
need to be paid off as a condition for loan approval. Judgments must be paid in full
prior to closing. A borrower is not eligible for the loan if they are delinquent on
any federal debt. This can include tax liens, student loans, etc. Payment
arrangements that would bring the borrower up to date may be considered for
loan approval.
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A borrower whose previous residence or other real property was foreclosed on or given a
deed-in-lieu of foreclosure within the previous three years is generally not eligible for
an FHA insured mortgage.
However, if the foreclosure of the borrower's main residence was the result
of extenuating circumstances beyond the borrower's control, and they have since established
good credit, an exception may be granted. This does not include the inability to sell a
home when transferring from one area to another.
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