fha credit report requirements

FHA Credit ReportRequirements

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An FHA loan is supposed to be one ofthe best loans for first-time homebuyers and more recently, for anyonelooking to purchase a home. There aremany reasons for its attractivenessincluding a low down paymentrequirement and low interest rates.



FHA loans do have certain credit reportrequirements in order to be approved,

however, and in some states, a credit report isrequired for both people in a marriage,

regardless if one is a non-borrowing spouse.Typically the credit of the non-borrowing

spouse will not be a reason for denial of theloan, but the debts will play a factor in the

debt-to-income ratio.



What does the Credit Report Need to Say?

There are several things that the FHA loans will require on acredit report in order to be approved. Up first is the need tohave at least two open trade lines. This can sometimes be

difficult for first-time home buyers that have little to no credithistory, but it is important in order for the lender to determine

whether or not you have a history of paying loans back on time.If there are no trade lines on a borrower’s credit report,

sometimes alternate sources can be used, such as a renthistory, utility payment history or insurance payment history.

Not every lender will accept these alternate sources, as manyare requiring a minimum credit score in the wake of the

housing crisis, but it is worth finding out if your lender is willingto substitute credit items.



What if there is a Bankruptcy?

A bankruptcy does not ruin your chances forobtaining an FHA loan, but it could make it a littlemore difficult. Plan to have a paper trail leading up tothe event of the bankruptcy as well as a well writtenexplanation of the situation that put you in thatscenario. In addition, you will need to haveestablished a good credit history following thebankruptcy as well as have the credentials to qualifyfor the loan. Last but not least, you also need to begainfully employed with a steady income.



Chapter 7 – You must be 2 years out from the discharge ofyour bankruptcy. This is not the date that you filed the

documents, but the date that the judge dismissed all of yourdebts.

There are two different types of bankruptcies that you canhave experienced and each of them has different rulesregarding how soon that you can apply for an FHA loan:

Chapter 13 – You must have been making timely paymentson your Chapter 13 bankruptcy for a period of 1 year beforeyou can apply for an FHA loan. In addition, the trustee that is

overseeing your bankruptcy needs to provide approval ofyour ability to add the new mortgage into your debt

repayment plan.



What about Credit Blemishes?

Everyone has experienced a credit hiccup at leastonce in the last few years. The FHA has made theirguidelines so that underwriters are looking at theoverall picture of your credit history, not just one

incident of a late payment. If you have a history oflate payments that have not become current within

the last year, it might preclude you from beingapproved for an FHA loan, but one or two mishaps

likely will not have a negative impact.



Even minor collection accounts are oftenoverlooked as long as the rest of the credit history

is in good condition. What is not overlooked,however, are judgments. Although judgments do

not require an automatic denial, they will berequired to be paid before the loan can close. Ifany of your judgments are government related,such as taxes or student loans, you will not be

eligible for an FHA loan.



FHA loans are easier to qualify for incomparison to conventional loans,

especially if you have a bit of a blemishedcredit history. It is worth talking to your

lender honestly about what your financialhistory looks like and what can be done to

get you approved for an FHA loan.



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C L I C K H E R E



Justin McHood is Americas MortgageCommentator and has been providingMortgage commentary for over 10 years.

INFORMATION PROVIDED BY: JUSTIN MCHOOD

MORTGAGE COMMENTATOR

Information Originally Published:December 31, 2014 BLOWNMORTGAGE.COM LENDER HOTLINE: 888-581-5008

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fha credit report requirements

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