October 18, 2013
A reader asks, “My plan is to buy the house I’m leasing, my 3 scores are 616, 621 and 619. Will I qualify for an FHA loan? I have a student loan that i haven’t paid on my credit report it states its on dispute, will this disqualify me from an FHA?”
The answer to this question depends greatly on what is meant by the “unpaid” student loan. Does that mean the borrower has not made any payments? Or does that mean payments are being made but the loan hasn’t been paid in full? Are there missing or delinquent payments in dispute?
When there are disputed items on a credit report, the lender is required to learn more in order to process the FHA loan application. FHA loan rules found in HUD 4155.1 Chapter Four, Section C state:
“The lender must document the analysis of delinquent accounts, including whether late payments were based on
• a disregard for financial obligations
• an inability to manage debt, or
• factors beyond the borrower’s control, such as delayed mail delivery, or disputes with creditors.”
Some bad credit information may be disregarded by the lender according to FHA loan rules. “Minor derogatory information occurring two or more years in the past does not require an explanation. Major indications of derogatory credit, such as judgments, collections, and other recent credit problems, require sufficient written explanation from the borrower. The explanation must make sense, and be consistent with other credit information in the file.”
However, the FHA loan rules aren’t the only ones at work when it comes to the FHA loan application–the lender’s standards are also important.
If a lender decides that some bad credit information makes the borrower a “bad risk”, the FHA loan may be denied even if the applicant technically meets FHA minimum standards. That is why some borrowers with FICO scores still within the limits of FHA minimums (500 or above) don’t get FHA loan approval in some cases–the lender’s FICO score standards are higher.
Borrowers worried about their credit score information should call 1-800 CALL FHA and speak to an FHA representative about a referral to an FHA-approved housing counselor who can help with credit issues and other pre-purchase advice.
Do you have questions 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.
Browse by Date: