A reader asks, “I have an existing FHA insured house in Dallas TX. Two years ago i moved to GA for Job an rented sonce. I am moving again to Houston TX And looking forward to buy a house. I am a professional Engineer and make a Decent salary. But unfortunately have 570 credit score. My wife has a score of 650 but she has no job. Please advise what is the best option to get approved”
Let’s see what the FHA loan rulebook says about this situation. According to HUD 4155.1 Chapter Four Section A, all co-borrowers, co-signers and other parties named on the loan would have both income and credit histories examined by the lender:
“When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their income assets liabilities, and credit histories”. Notice that the first word mentioned in that list is “income”.
In community property states, a spouse may be required to be included in certain parts of the FHA loan application process even if not technically obligated on the loan as a co-borrower or co-signer. From Chapter Four:
“If required by state law in order to perfect a valid and enforceable first lien, a non-purchasing spouse may be required to sign either the security instrument or documentation indicating that he/she is relinquishing all rights to the property. When the security instrument is executed for this reason, the non-purchasing spouse is not considered a borrower, and not required to sign the loan application. Note: Non-applicant individuals can have an ownership interest in the property at the time of settlement without executing the mortgage note and security instrument, regardless of whether the transaction is a purchase or a refinance.”
So a portion of the answer to the reader question depends on the laws of the state he resides in. The FICO score issue may require a larger down payment than the FHA minimum 3.5%. The fact that the borrower already has an FHA loan is a potential problem as the FHA normally does not approve second FHA mortgages for a borrower unless that applicant meets a specific set of circumstances.
The borrower would need to discuss the loan with a loan officer to see what might be possible in such instances.
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