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FHA Loans And Outstanding Debt: A Reader Question

067A reader asks, “If you have those (FHA) minimum scores do you still have to pay some remaining debt on your credit report? What if most those are doctor bills, and do they have a special buyers program for people on disability?”

Though this reader question isn’t entirely clear, it seems the main issue is whether having outstanding debt might be an issue when applying for an FHA home loan. The real question for the lender in cases like this is whether the debt is typical monthly payments or a delinquency which needs to be resolved. According to FHA loan rules, outstanding debt can be an important factor in FHA loan approval or denial:

“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. 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.”

That information is found in HUD 4155.1 Chapter Four, Section C under the heading “Past Credit Performance”.

Typical debt may or may not be a problem, depending on how much the debt factors into the borrower’s debt-to-income ratio. A borrower with too much debt and not enough income won’t qualify for an FHA loan regardless of the credit score unless there are “compensating factors” that might work in the borrower’s favor, as mentioned above.

These factors can include “substantial cash reserves” according to the FHA loan rules found in HUD 4155.1, or a large down payment, or other things such as the ability to tap into retirement plans or cash out investments. The nature of some outstanding delinquent debt may be taken into account, depending on the circumstances.

According to Chapter Four, the lender must analyze both the debt and the payment patterns behind it. “When analyzing a borrower’s credit history, the underwriter must examine the overall pattern of credit behavior, not just isolated occurrences of unsatisfactory or slow payments. A period of past financial difficulty does not necessarily make the risk unacceptable, if the borrower has maintained a good payment record for a considerable time period since the financial difficulty occurred.”

The FHA loan program is designed for all qualified applicants. That doesn’t mean that no programs are available to help disabled borrowers and/or home owners, but it’s best to call the FHA directly at 1-800 CALL FHA to ask for a referral to a local FHA/HUD-approved housing counselor who might be able to help find a suitable program where available.

Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at, a private company and not a government website.

Joe Wallace - Staff Writer

By Joe Wallace

January 10, 2014

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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