Florida Mortgage asked: FHA CREDIT Qualifying
ANALYZING THE FHA Mortgage applicants Credit History
Florida home buyers should know the many advantages of the FHA mortgage loan programs. FHA loans were created to help increase home ownership. For the
Florida home buyer the FHA program can simplify the purchase of a home, making financing easier and less expensive than a conventional mortgage loan product. Some highlights of the Florida FHA loan program include:
Minimal Down Payment and Closing costs. Down payment less than 3% of Sales Price Gifts are allowed Seller can credit up to 6% of sales price towards closing and prepaid costs. 100% Financing available No reserves required. FHA regulated closing costs.
Easier Credit Qualifying Guidelines such as: No minimum FICO score or credit score requirements. FHA will allow a home purchase
1 year after a
Bankruptcy. FHA will allow a home purchase
2 years after a
Foreclosure.
To take advantage of the
FHA program in Florida, Visit
www.FHAmortgageFHAloan.com
Past credit performance serves as the most useful guide in determining a borrower’s attitude toward credit obligations and predicting a borrower’s future actions. A borrower who has made
payments on previous and current obligations in a timely manner represents
reduced risk. Conversely, if the credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, strong compensating factors will be necessary to approve the loan.
When analyzing a borrower’s credit history, examine the overall pattern of credit behavior, rather than isolated occurrences of unsatisfactory or slow payments. A period of financial difficulty in the past does not necessarily make the risk unacceptable if the borrower has maintained a good payment record for a considerable time period since the difficulty. When delinquent accounts are
revealed, the lender must document their analysis as to whether the late payments were based on a disregard for financial obligations, an inability to manage debt, or factors beyond the control of the borrower, including delayed mail delivery or disputes with creditors.
While minor derogatory information occurring two or more years in the past does not require explanation, major indications of derogatory credit–including
judgments, collections, and any other recent credit problems–require sufficient
written explanation from the borrower. The borrower’s explanation must make
sense and be consistent with other credit information in the file. Neither the lack of credit history nor the borrower’s decision not to use credit may
be used as a basis for rejecting the loan application. We also recognize that some prospective borrowers may not have an established credit history. For those borrowers, and for those who do not use traditional credit, the lender must develop a credit history from utility payment records, rental payments, automobile insurance payments, or other means of direct access from the credit provider. The lender must document that the providers of non-traditional credit do, in fact, exist and verify the credit information. Documents confirming the existence of a nontraditional credit provider may include a public record from the state, county, or city records, or other means providing a similar level of objective confirmation. To verify the credit information, lenders must use a published address or telephone number for that creditor. As an alternative, the lender may elect to use a non-traditional mortgage credit report developed by a credit-reporting agency, provided that the credit reporting agency has verified the existence of the credit providers and the lender verifies that the non-traditional credit was extended to the applicant. The lender must verify the credit using a published address or telephone number to make that
verification.
The basic hierarchy of credit evaluation is the manner of payments made on
previous housing expenses, including utilities, followed by the payment history of installment debts, and then revolving accounts. Generally, an individual with no late housing or installment debt payments should be considered as having an acceptable credit history, unless there is major derogatory credit on his or her revolving accounts.
When reviewing the borrower’s credit and credit report, the lender must pay
particular attention to the following:
A. Previous Rental or Mortgage Payment History. The payment history
of the borrower’s housing obligations holds significant importance in
evaluating credit. The lender must determine the borrower’s payment
history of housing obligations through either the credit report, verification
of rent directly from the landlord (with no identity-of-interest with the
borrower) or verification of mortgage directly from the mortgage servicer,
or through canceled checks covering the most recent 12-month period.
B. Recent and/or Undisclosed Debts. The lender must ascertain the
purpose of any recent debts, as the indebtedness may have been incurred
to obtain part of the required cash investment on the property being
purchased. Similarly, the borrower must provide a satisfactory
explanation for any significant debt that is shown on the credit report but
not listed on the loan application. The borrower must explain in writing
all inquiries shown on the credit report in the last 90 days.
C. Collections and Judgments. Court-ordered judgments must be paid off
before the mortgage loan is eligible for FHA insurance endorsement. (An
exception may be made if the borrower has agreed with the creditor to
make regular and timely payments on the judgment and documentation is
provided that the payments have been made in accordance with the
agreement.) FHA does not require that collection accounts be paid off as a
condition of mortgage approval. Collections and judgments indicate a
borrower’s regard for credit obligations and must be considered in the
analysis of creditworthiness with the lender documenting its reasons for
approving a mortgage where the borrower has collection accounts or
judgments. The borrower must explain in writing all collections and
judgments.
D. Previous Mortgage Foreclosure. A borrower whose previous principal
residence or other real property was foreclosed or has given a deed-in-lieu
of foreclosure within the previous three years is generally not eligible for a
new FHA-insured mortgage. However, if the foreclosure was the result of
documented extenuating circumstances that were beyond the control of the
borrower and the borrower has re-established good credit since the
foreclosure, the lender may grant an exception to the three-year
requirement. Extenuating circumstances include serious illness or death of
a wage earner, but do not include the inability to sell the house because of
a job transfer or relocation to another area.
E. Bankruptcy. A Chapter 7 bankruptcy (liquidation) does not disqualify a
borrower from obtaining an FHA-insured mortgage if at least two years
have elapsed since the date of the discharge of the bankruptcy.
Additionally, the borrower must have re-established good credit or chosen
not to incur new credit obligations. The borrower also must have
demonstrated a documented ability to responsibly manage his or her
financial affairs. An elapsed period of less than two years, but not less
than 12 months, may be acceptable if the borrower can show that the
bankruptcy was caused by extenuating circumstances beyond his or her
control and has since exhibited a documented ability to manage his or her
financial affairs in a responsible manner. Additionally, the lender must
document that the borrower’s current situation indicates that the events
that led to the bankruptcy are not likely to recur.
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining
an FHA-insured mortgage provided the lender documents that one year of
the payout period under the bankruptcy has elapsed and the borrower’s
payment performance has been satisfactory (i.e., all required payments
made on time). In addition, the borrower must receive permission from
the court to enter into the mortgage transaction.
F
. Consumer Credit Counseling Payment Plans. Participation in a
consumer credit counseling payment program does not disqualify a
borrower from obtaining an FHA-insured mortgage provided the lender
documents that one year of the pay-out period has elapsed under the plan
and the borrower’s payment performance has been satisfactory (i.e., all
required payments made on time). In addition, the borrower must receive
written permission from the counseling agency to enter into the mortgage
transaction.
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