Many readers contact us asking about the FHA loan rules for late or missed housing payments.
These questions aren’t usually along the lines of “what happens if I am late making my FHA mortgage loan payment”, but rather how a participating FHA lender will view late or missed housing payments when it comes time to approve or deny the mortgage loan application.
FHA loan rules governing the lender’s loan approval process are found in the FHA Single Family Loan Handbook, HUD 4000.1. These instructions to the lender aren’t the only rules that may affect your transaction; lender standards and state/federal laws will also apply.
But the basic guidelines for the FHA home loan approval process give the lender specific instructions for FHA loan minimum requirements, and that will be the foundation of the decision to move forward (or not) with a home loan application for a FHA mortgage, refinance loan, One-Time Close construction loan, etc.
In general terms, it is strongly advised that all house hunters come to the FHA loan process with no fewer than 12 consecutive months of on-time payment for all financial obligations.
Anything less puts loan approval in jeopardy unless the borrower has compensating factors the lender may require to continue processing the mortgage application.
Being late or having missed payments on your housing obligation is a major issue for the lender, who will be looking to your record of payments in general, but especially your housing payments as that would be an indicator to the lender of your overall creditworthiness where owning or renting a home is concerned.
But how does the FHA define “late or missed” payments? What should the borrower know about this criteria? The specific definition for late or missed payments in HUD 4000.1 states:
“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.”
The requirements for what the lender must do with late/missed payment information may depend on the type of loan-forward mortgage, refinance, cash-out refinance, etc. At a minimum, late or missed payments can force the lender to use manual underwriting rather than the faster and more streamlined automated process.
Depending on circumstances and your lender, manual underwriting may require more scrutiny on debt ratios, FICO scores, and other factors. Borrowers should be prepared to work more closely with the lender in manual underwriting situations. In another blog post, we will examine what specific steps the lender is required to take in manual underwriting cases involving late/missed/delinquent housing payments.