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Do FHA Loans Require a Criminal Background Check?

There are many steps to take on the road to home ownership. When applying for an FHA mortgage, some of those steps include furnishing information to help the FHA determine whether an applicant is a good credit risk. FHA requirements include a credit check that includes residency information, employment history and other details to give an accurate picture of an applicant’s background as it relates to paying bills on time and maintaining good credit.

Thanks to some recent changes to the FHA program, some borrowers are left wondering if a criminal background check is also part of the FHA loan application process. In August of 2010, the FHA published guidance for lenders offering FHA refinancing to home owners who are currently underwater on their mortgages—those who owe more than their homes are currently worth on the open market.

The short answer is no–there is no criminal background check required.

As part of something called the Dodd-Frank Wall Street Reform and Consumer Protection Act, lenders are required to review the requirements listed in Section 1481(d) of the reform act with applicants on such loans and get their signatures indicating they understand the contents of that section.

According to the FHA official site, “Section 1481(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed July 21, 2010, prohibits anyone convicted within the last 10 years, in connection with a real estate or mortgage transaction, of any of the following: (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion from receiving assistance authorized or funded by EESA.”

It’s easy to understand why some might be concerned that signing the document is part of a larger background check for possible criminal activity, but according to the FHA, “The mortgagee is not required to execute a criminal background check on the borrowers.”

That means that the basic procedures for getting FHA refinancing for an “underwater” property are the same as they always were–credit checks are performed where required, but no additional or extraordinary background information is required. Signing the document is all that’s needed.

The requirement to review Section 1481 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is not applicable to other FHA loans other than those connected with the Emergency Economic Stabilization Act. First time home buyers, cash-out refinancing applicants and other FHA borrowers are unaffected.

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