October 15, 2018

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FHA Loan Applications And Your Credit Report

FHA Loan Applications And Your Credit Report

When you apply for an FHA mortgage, your lender is required to check your FICO scores and credit history. But do you know what the lender must gather to determine whether or not to approve your mortgage loan? This process is a mystery to some home buyers and knowing what’s involved can help you plan for your mortgage loan long before you ever contact a lender.

FHA Loan Requirements For Checking Credit Scores And Credit History

The rules that govern this process are found in HUD 4000.1, the FHA Single-Family Loan handbook. It instructs the lender to use a traditional credit report whenever possible-some borrowers may have little to no credit history and a non-traditional credit report may be needed.

But in cases where the lender is able to obtain an actual FICO score for the applicant, FHA loan rules generally require that the traditional credit report be used.

The lender must pull at least two credit reports, which must include the following details:

  •  the name of the FHA lender ordering the report;
  •  the name, address, and telephone number of the reporting agency;
  •  the name and SSN of each Borrower; and
  •  the primary repository from which any particular information was pulled for each account listed.

The information in the report about the FHA loan applicant’s credit must include the following credit data:

  • All inquiries made within the last 90 Days;
    All credit and legal information not considered obsolete under the Fair
    Credit Reporting Act (FCRA), including information for the last seven years regarding:
    Bankruptcies;
    Judgments;
    Lawsuits;
    Foreclosures;
    Tax liens

For each borrower on the application the dates credit accounts were opened, the credit limit, unpaid balance, and monthly payment minimums are also required.

What Happens If The FHA Lender Finds Inconsistencies?

FHA home loan rules state that when inconsistencies are present in the credit report (compared to application data, other credit reports, etc.) the lender is required to obtain an updated report or supplemental report.

If there are debts listed on the mortgage application that do not appear on the credit report, HUD 4000.1 tells the lender, “A Mortgagee must develop credit information separately for any open debt listed on the mortgage application but not referenced in the credit report by using the procedures for Independent Verification of Non-Traditional Credit Providers.”

The rules listed here address FHA requirements only, not individual lender standards, which may vary. You will need to check with your lender to see what lender requirements may apply above and beyond these rules. State law may also apply, especially the rules in community property states where state law affects how legally married couples handle shared financial commitments such as an FHA home loan (where applicable).

Bruce Reichstein - Staff Writer

By Bruce Reichstein

October 2, 2018

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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