September 12, 2017
Do you know what the general credit requirements are for FHA mortgage loans? Outside of FHA loan FICO minimums (580 or above for maximum financing according to HUD 4000.1, though lender standards may apply beyond this) and employment history, there are a set of standards listed in the FHA loan handbook. Those standards include instructions to the lender on how credit is to be analyzed and how credit data may be collected.
Those standards include the requirement that a participating FHA lender must “analyze the Borrower’s credit history, liabilities, and debts to determine creditworthiness.” In the pursuit of this, the lender must get credit reports from “an independent consumer reporting agency”.
The lender “must obtain a credit report for each Borrower who will be obligated on the mortgage Note. The Mortgagee may obtain a joint report for individuals with joint accounts”.
In some cases, there may be a non-borrowing spouse involved depending on whether or not community property laws affect the transaction. Community property states have laws which affect how the borrower and a non-borrowing spouse must proceed in a major credit application.
According to HUD 4000.1:
“The Mortgagee must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject Property is located in a community property state. The credit report must indicate the non-borrowing spouse’s SSN, where an SSN exists, was matched with the SSA, or the Mortgagee must either provide separate documentation indicating that the SSN was matched with the SSA or provide a statement that the non-borrowing spouse does not have an SSN.”
In situations where the non-borrower spouse does not have a Social Security Number, “the credit report must contain, at a minimum, the non-borrowing spouse’s full name, date of birth, and previous addresses for the last two years.”
There are other considerations for FHA credit standards. The lender is required, whenever possible, to use a standard credit report. “However, if a traditional credit report is not available, the Mortgagee must develop the Borrower’s credit history using the requirements for Non-Traditional and Insufficient Credit” as defined by the FHA.
When the lender pulls a traditional credit report, it must contain specific information as defined in HUD 4000.1:
“Credit reports must obtain all information from at least two credit repositories pertaining to credit, residence history, and public records information; be in an easy to read and understandable format; and not require code translations. The credit report may not contain whiteouts, erasures, or alterations. The Mortgagee must retain copies of all credit reports.”
Credit reports cannot be furnished to the lender via the borrower or other third parties. If a traditional credit report is not available, the lender may use a residential credit report or explore the borrower’s credit history via a non-traditional report that meets FHA loan standards.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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