December 14, 2012
When it’s time to apply for an FHA home loan or get pre-approved for an FHA loan, there is paperwork that must be completed and submitted to the lender. This can be a bit time consuming and requires more detail than a typical credit card application or similar lines of credit.
But what does the lender do with all that information? Why is the borrower required to submit so much detail for a home loan? It’s obvious that the size of the amount has a lot to do with that, but there are rules the lender must follow for these applications that adds to the paperwork reqiurements.
According to the FHA official site, “The purpose of the mortgage credit analysis is to
- determine
? a borrower’s credit performance
? a borrower’s capacity to repay the mortgage, and
? whether or not the borrower has sufficient funds to close, and - limit collection actions or foreclosure.”
That definitely places a “burden of proof” on the bank to verify that a loan applicant is ready for the financial commitment of an FHA mortgage. Additionally, “Lenders must obtain and verify a borrower’s information with as much care as they would take if the mortgage were entirely dependent on the property as security.”
There are additional guidelines. When submitting credit information to the lender, the borrower cannot provide his or her own credit reports or other material the loan officer is charged with obtaining. HUD 4155.1 Chapter One Section A states:
“The credit report and verification forms cannot pass through the hands of
• the borrower
• a real estate agent, or
• any other interested third party.”
These requirements do create extra paperwork, but the FHA rules are designed to keep the process fair, free from fraud or bias, and equitable for all applicants. We describe them here to help borrowers better understand how the FHA loan process works, and to know what happens once the paperwork has been submitted. Borrowers who know the process seem to be far less intimidated by it; an informed borrower is much more satisfied with the experience as a whole.
Do you have questions about the FHA loan program? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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