August 10, 2012
What can make a borrower ineligible for an FHA guaranteed home loan?
Many things–a credit score that is too low, a lack of verifiable income or employment, and according to HUD 4155.1 Chapter Four Section A, delinquent federal debts.
Instructions to the lender in HUD 4155.1 state, “If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until
–the delinquent account is brought current, paid, or otherwise satisfied, or
–a satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing.
Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage.”
FHA loan rules also advise lenders that the IRS “routinely takes a second lien position without the need for independent documentation.” What does that mean for an FHA borrower who has an outstanding tax lien? “…eligibility for FHA mortgage insurance is not jeopardized by outstanding IRS tax liens remaining on the property, unless the lender has information that the IRS has demanded a first-lien position. ”
Another area that can render a borrower (temporarily) ineligible for an FHA home loan is a past delinquency or default on an FHA home loan. HUD 4155.1 Chapter Four Section A has a subheading titled Waiting Period for Borrowers With Past Delinquencies, Defaults or Claims on FHA Loans. It says:
“If the borrower has had past delinquencies or has defaulted on an FHA-insured loan, there is a three-year waiting period before he/she can regain eligibility for another FHA-insured mortgage.”
When does this waiting period begin? According to the FHA, it starts when the FHA pays the initial claim on the loan to the bank servicing the mortgage. The FHA adds, “This includes deed-in-lieu of foreclosure, as well as judicial and other forms of foreclosures.”
Do you have a question about FHA home loans? Ask us in the comments section.
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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