In previous blog posts, we’ve discussed the importance of coming to the FHA loan application process with at least 12 months of on-time payments on your credit history. This isn’t just a good idea–it’s critical to your chances for loan approval. Why is this so important?
There are two major factors at work when it comes to on-time payments, your lender’s review of your payment history, and especially how your mortgage or housing payments factor into that equation. FHA loan rules in HUD 4000.1 instruct the lender in quite specific ways on how to proceed when reviewing a borrower’s housing payment history.
To begin HUD 4000.1 includes a definition for the lender: “Housing Obligation/Mortgage Payment refers to the monthly payment due for rental or Properties owned. A Mortgage Payment is considered delinquent if not paid within the month due.”
That’s the foundation for what follows:
An FHA mortgage loan for purchase or no-cash-out refinance must be “manually underwritten” and given additional scrutiny, “…if any mortgage trade line, including mortgage line-of-credit payments, during the most recent 12 months reflects:
–three or more late payments of greater than 30 Days;
–one or more late payments of 60 Days plus one or more 30-Day late payments; or
–one payment greater than 90 Days late.”
A missed payment on housing obligations is not an automatic barrier to FHA loan approval, but the issue is serious enough. The rules for cash-out refinancing state:
“The Mortgage must be downgraded to a Refer and manually underwritten if any mortgage trade line, including mortgage line-of-credit payments, reflects:
–a current delinquency; or
–any delinquency within 12 months of the case number assignment date.
A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late housing payments.”
It should be pointed out that this is ONLY the FHA minimum standard. The lender can, and often does, have higher standards than these and is permitted to do so as long as those standards are applied in accordance with federal law such as the Fair Housing Act. So while the FHA minimums may sound a bit forgiving in some places (requiring further attention if there are three late payments greater than 30 days, for example, as opposed to one) the lender’s standards may not be. That is very important to keep in mind when trying to choose the timing of your new loan.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today: