December 2, 2021

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FHA Loans And Your Credit–What Is The Lender Looking For?

In our last blog post, we discussed FHA loans and credit history. Many people are afraid to apply for a home loan because of past credit mistakes, but it’s easy to assume the worst about credit reporting, your history with credit, and what an FHA approved lender is looking for when reviewing an FHA loan application. In some cases, those assumptions also apply to a lack of credit history.

An FHA lender must investigate the applicant’s credit reports. A few late credit card payments or other minor issues in the past aren’t enough to condemn the borrower or have an application rejected.

The FHA rules don’t have a chart for counting credit issues and a cut-off number for how many late payments are too many. Instead, the FHA rules state, “…minor derogatory information occurring two or more years in the past does not require explanation…”

That said, larger problems do require further attention. But even these aren’t enough to rule out an FHA insured home loan simply because they exist on your record. According to the FHA, “…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.”

In the case of those who chose not to use credit much or at all, FHA rules still provide a way to be considered for a home loan. “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.”

Credit history in such cases may include public records or other “objective” sources. In all cases, “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.”

A loan applicant with no late payments is considered an acceptable risk, generally speaking. An applicant with limited credit history who can show reliable payments is more likely to be approved for an FHA insured mortgage because the history that does exist shows reliability.

Joe Wallace - Staff Writer

By Joe Wallace

May 26, 2011

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 for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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