Some first-time home buyers are tempted to leave information off of credit applications, hoping that the lender won’t find out or that the omitted information will get lost in the details of the loan.
But this is not a good strategy; FHA home loan rules in HUD 4000.1 anticipate such issues and there are instructions to the lender accordingly. Leaving out crucial information including certain debts may jeopardize FHA home loan approval.
FHA Loan Rules For Undisclosed Debt
In a situation where the borrower fails to disclose debts and the lender discovers them by other means, HUD 4000.1 instructs the loan officer as follows for undisclosed debt that does not involve another mortgage:
“When a debt or obligation (other than a Mortgage) not listed on the mortgage application and/or credit report and not considered by the AUS is revealed during the application process, the Mortgagee must
- verify the actual monthly payment amount;
- re-submit the Mortgage for evaluation by TOTAL if the cumulative change in
- the amount of the liabilities that must be included in the Borrower’s debt increases by more than $100 per month; and
- determine that any funds borrowed were not/will not be used for the minimum required investment.
For undisclosed debt that is mortgage-related, the lender must check to see if there has been a delinquency on the mortgage within 12 months of the FHA home loan case number assignment, or more than two 30 day late payments within 24 months of the FHA loan case number.
Part of the reason for checking on the undisclosed debt is, as some of the above describes, a measure to insure the borrower’s down payment (also known as the minimum required investment) is not coming from unapproved or unverified sources.
Leaving information off your credit application is a bad idea for any type of loan, but especially a major investment such as a mortgage. The lender wants to find evidence that the borrower is a good credit risk; omitting information is definitely getting off on the wrong path toward working with your lender to get you your first home.
It’s also crucial to remember that your credit will be reviewed multiple times during a loan application process and you may have your credit reports pulled again before your closing date gets near.
The lender can and will see your credit activity all the way up to closing day; it’s best to assume your records are fully available to the lender at any time. Avoid running up new credit debt in the year leading up to your home loan application and work on improving your FICO scores for best results at application time.