May 2, 2014
Some borrowers come to the FHA loan application process worried that late payments on their credit history might jeopardize their chances at FHA loan approval. What do FHA loan rules say about late payments and how does the FHA loan rulebook address this issue?
HUD 4155.1 Chapter Four Section C has guidance for participating FHA lenders about late payments. Chapter Four says, “The lender must document the analysis of delinquent accounts, including whether late payments were based on
• a disregard for financial obligations
• an inability to manage debt, or
• factors beyond the borrower’s control, such as delayed mail delivery, or disputes with creditors.”
That can be comforting for borrowers who do have some minor credit issues in their past. FHA loan rules actually go a bit further to help the lender understand the FHA stance on these issues. Chapter Four adds:
“Minor derogatory information occurring two or more years in the past does not require an explanation. Major indications of derogatory credit, such as judgments, collections, and other recent credit problems, require sufficient written explanation from the borrower. The explanation must make sense, and be consistent with other credit information in the file.”
In some cases the issue isn’t negative information such as the late payment problem, but a simple lack of credit information. What do FHA loan rules in Chapter Four say about that? “The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application.”
In these cases, the lender will need to see any paperwork or receipts that establish the borrower’s payment history. That paperwork can include copies of utility bill payment, rental agreements and payment records, car insurance payment records or any other evidence of recurring financial obligation. In these cases the records cannot come from the borrower–the information must be supplied by the companies themselves.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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