We get many reader comments and questions about qualifying for FHA guaranteed home loans. Borrowers new to the home buying process are often concerned that they may not qualify for an FHA mortgage loan because of student loans, past mistakes with credit or other factors.

While the FHA does have rules and regulations concerning these areas, borrowers should know that the rules can be more forgiving than some might assume. In its instructions to lenders in HUD 4155.1, FHA loan rules state:

“Past credit performance is the most useful guide to

• determining a borrower’s attitude toward credit obligations, and
• predicting a borrower’s future actions.

Borrowers who have made payments on previous and current obligations in a timely manner represent a reduced risk.”

But what does the rulebook say about credit mistakes?

“Conversely, if a borrower’s credit  history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, significant compensating factors will be necessary to approve the loan.”

For borrowers nervous about their credit history, it’s important to study the language of this statement. Note that the rulebook pays strict attention to the circumstances of late payments, liens and account delinquency.

“…if a borrower’s credit  history, despite adequate income to support obligations, reflects continuous slow payments, judgments…”

The FHA can and does allow circumstance to play a role in informing the lender as to whether or not the borrower is a good credit risk. That’s not to say that all lenders (or any lender) will be inclined to offer an FHA loan to someone with a record of bad credit, but borrowers who got into financial trouble at one stage in life aren’t necessarily barred from a home loan because of it.

The lender needs to see that the financial difficulty that resulted in problems with on-time payments has been successfully resolved and that the borrower has been faithful with current obligations ever since.

It’s one reason loan experts urge FHA loan applicants to begin preparing for a home loan at least one year in advance and get credit counseling where appropriate. Did you know you can speak to an FHA approved counselor about mortgage credit guidelines and more? Contact the FHA for information at (800) CALL-FHA or (800) 225-5342.