April 29, 2011
There are many types of FHA insured loans available for single-family residences. Borrowers can apply for a traditional home loan with a down payment, fixed interest rate and a 15 or 30-year mortgage. But there are plenty of other loans which can be applied for including;
Section 203h Insured Mortgage for Disaster Victims
Section 255 Home Equity Conversion Mortgage (HECM)
Section 203k Rehabilitation Mortgage
Energy-Efficient Mortgage Program (EEM)
Adjustable rate mortgages
Section 248 Indian Reservations and Other Restricted Lands
Title I Home Improvements
Regardless of what loan product is preferred, for new purchases and many FHA refinancing options, borrowers must fill out an application giving information that includes employment and residence history, detailed accounts of outstanding debts and monthly financial obligations and much more. The FHA requires this information in order to determine a borrower’s creditworthiness and to examine past habits of handling financial responsibility.
When the FHA loan application is filled out, FHA rules give clear instructions to the lender. “When determining the creditworthiness of borrowers, co-borrowers, or cosigners, the underwriter considers their income, assets, liabilities, and credit histories.”
But the data entered on the application isn’t the only thing the lender examines.The lender must verify all the information entered, and run credit reports on the borrower and any co-borrowers on the mortgage. Credit scores do necessarily determine whether a borrower can get an FHA mortgage (unless the score is 500 or below) but credit scores do have a lot to do with how much the FHA loan amount will be.
FHA instructions to the lender state, “If a credit score is available, it must be used to determine the decision credit score for the application and for eligibility for FHA-insured mortgage financing.”
There are three major credit reporting agencies; Equifax, Experian, and TransUnion. Not every applicant has a credit score from all three agencies, but many do. When more than one credit score is available, the FHA rulebook says, “A ‘decision credit score’ is determined for each applicant according to the following rule: when three scores are available (one from each repository), the median (middle) value is used; when only two are available, the lesser of the two is chosen; when only one is available that score is used.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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