May 24, 2012
When you apply for an FHA home loan, there are several pieces of required information you need to complete the application. One is your work and residence history, another is the nature of your income, and still another is your credit data–what lines of credit you currently have and how much you owe.
When the lender receives your application, all this information is verified according to standard procedures as described in the rules for FHA home loans. The loan officer must request your credit report, in the form of something called the Three Repository Merged Credit Report or TRMCR. What many FHA loan applicants don’t know is what the lender is looking for from this report.
According to HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance on One-to Four-Unit Mortgage Loans, the lender needs data on “all inquiries made within the last 90 days” for a start. That means the lender can see any pending credit card applications or other requests for credit.
The rules also state the lender must review “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, and tax liens, and for each borrower debt listed, the date the account was opened high credit amount, required payment amount unpaid balance, and payment history.”
Some borrowers don’t realize that their application will be cross-referenced in this way. There is sometimes a temptation to leave information off a loan application in the hopes that it might be overlooked somehow during the loan approval process, but it’s the lender’s job to insure all information available and pertinent to the loan application is checked.
But information left off the FHA mortgage loan application is only one of the issues a lender may have to deal with–FHA loan requirements also state the lender must verify information included on a loan application that’s not found on the credit report. According to HUD 4155.1, “A corrected credit report must supplement the TRMCR if the report does not verify legal actions such as bankruptcies, judgments, lawsuits, foreclosures, and tax liens.”
Additionally, “For any open debt listed on the loan application, but not referenced on the TRMCR, the lender must develop credit information separately.”
If your credit report hasn’t quite caught up with your current status, the lender will verify that information separately as required by the FHA loan rules mentioned above
If you’re considering a new home loan, start off by thinking like a banker–all FHA loan applicants should pull their own credit reports to insure there is accurate–and up to date–information. Any disputes, lack of updates, or inaccuracies on a credit report should be handled as early as possible to avoid having them complicate the loan approval process. If you’re uncertain about your credit rating, whether an old collection or debt has fallen off your report yet, or want to insure you haven’t been the victim of identity theft, consider checking your credit reports at least one year prior to starting the loan process.
If you do have unsatisfactory information on your credit report, start working on establishing a history of reliable payments–at least one year’s worth prior to applying for the FHA home loan, and try to put as much time between your new credit habits and your past mistakes as possible.
Do you have a question about how FHA home loans work? 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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