What are the most common credit issues that may negatively affect your ability to get approved for an FHA home loan? There are several areas you can anticipate in the home loan planning stages; addressing these areas long before you apply for any major line of credit, including a home loan, goes a long way toward helping you get your new home.
FHA Loan Credit Issues: On Time Payments
The timely payments issue is one of the simplest areas to address, but also one of the most common problems going into a home loan application. In general, borrowers should never apply for a loan with any late or missed payments on their record in the 12 months leading up to the loan paperwork.
Anything less than this can seriously compromise your ability to get approved for a home loan. And it’s not just new purchase loans you will need to be concerned with.
Refinancing loans also require the same kind of on-time payment record in the last 12 months unless you are specifically applying for a refinance loan intended to help you avoid foreclosure or loan default. This may also apply for loans such as the FHA Home Equity Conversion Mortgage (HECM) also known as an FHA Reverse Mortgage.
FHA Loan Credit Issues: Disputed Accounts
A borrower who has a dispute with a creditor may need to work closely with a lender if the dispute is not resolved when the FHA home loan application is submitted.
Disputed accounts will require additional lender attention and if the applicant and the creditor have reached an agreement, proper documentation of the agreement and any associated payments may be required.
If the dispute is not resolved at application time, the home loan process may become more complicated. It’s best to try to resolve a disputed account in some fashion prior to your FHA mortgage loan or refinance loan.
FHA Loan Credit Issues: Identity Theft
Begin checking your credit reports at least a year in advance before you apply for a new loan whether that’s a new purchase loan or an FHA refinance. If you find items on your credit report that point to identify theft, consumer fraud or other unauthorized use of your account, you should try to resolve these problems before applying for a mortgage.
This process can take time, and it’s best to expect several months or more to go by before the problems are fully sorted out. You will need to file complaints, police reports, and submit evidence as required by the credit reporting agency in order to have your claims investigated properly.
In all these areas, FHA loan rules, lender standards, and state law may apply if there are problems outstanding when your loan application is submitted.