FHA Credit Guidelines
On October 4th, 2010 HUD issued rules relating to borrowers
credit score. Borrower's who are
applying for a FHA mortgage now need to have a certain
minimum scores. Keep in mind that Lenders may impose higher
standards than HUD in order to protect themselves from losses
and have the ability to sell the mortgages on the secondary
markets. The new credit score requirements are:
with a minimum decision credit score at or above 580
are eligible for maximum financing.
with a minimum decision credit score between 500 and 579
are limited to 90 percent LTV.
with a minimum decision credit score of less than 500
are NOT eligible for FHA-insured mortgage
with a non-traditional
credit history or insufficient credit are eligible for
maximum financing but must meet the underwriting guidance for
using 203(h), Mortgage Insurance for Disaster Victims, are
eligible for 100 percent financing and no downpayment is
required, provided that the borrowers have a minimum credit
score of 500 (borrowers with decision credit scores below 500
are not eligible for FHA financing).
Get Your Credit Report Now!
Credit Scores, while not perfect,
they do give an indication of the borrower’s credit history.
Borrowers with Credit Score
above 620 will generally be able
to get approved through the use of automated underwriting
engines. Borrowers with Credit Score
below 620 may not get approved through the automated engines
and have to go through a manual underwriting process. Manual
underwriting usually takes a few extra days and a little more
documentation. Once again it will be the overall pattern of
credit that will be evaluated.
BORROWER WITH NO CREDIT:
HUD recognizes that some borrowers may not
have yet established a credit history. For those borrowers,
and those who do not use traditional credit, the lender will
try and develop a credit history from utility payment records,
rental payments, automobile insurance payments, or other means. This is called
Credit. Specific guidelines in dealing with this
were released on April 29 ,2008.
In trying to establish credit a borrower may consider applying
secured credit or debit cards or
rebuilding their credit history.
accounts that were 60 days or more past due in the last 12
months will greatly reduce their chances of being approved,
unless they have a solid explanation and other compensating
factors. Borrowers with isolated 30 day late payments should be able
to be approved provided the rest of their accounts are paid
COLLECTIONS & JUDGMENTS: FHA
does not require collection accounts to be paid off as a
condition of mortgage approval. However, FHA does recognize
that collection efforts by the creditor for unpaid collections
could affect the borrower’s ability to repay the mortgage. To
mitigate that risk, FHA is requiring the lender to follow the
guidelines on collection accounts with an aggregate balance
equal to or greater than $2,000, as described below.
If the Automated Underwriting System using
the TOTAL Mortgage Scorecard rates the mortgage as an Accept
and the cumulative outstanding balance of all collections of
all borrowers is less than $2,000 the lender is not required
to consider or evaluate collection accounts.
Else, if the cumulative outstanding balance
of all collections of all borrowers is equal to or greater
than $2,000 the lender must include monthly payments in the
borrower’s debt-to-income ratio for accounts that will remain
open subsequent to closing.
Collection accounts of a non-purchasing
spouse in a community property state are included in the
cumulative balance. A lender must analyze the impact of the
borrower’s ability to pay all collection accounts, including
those of the non-purchasing spouse (with the exception of
obligations excluded by state law).
They will almost always require that
court-ordered judgments be paid-off before the mortgage loan
may fund. (An exception may be made if the borrower has been
making regular and timely payments on the judgment and the
creditor is willing to subordinate that judgment to the
insured mortgage.) Previous or current collections of
judgments are considered when evaluating a borrower’s credit
PREVIOUS MORTGAGE FORECLOSURE: A
borrower whose previous residence or other real property was
foreclosed on or has given a deed-in-lieu of foreclosure
within the previous three years is generally not eligible for
an insured mortgage. However, if the foreclosure of the
borrower's principal residence was the result of extenuating
circumstances beyond the borrower's control and the borrower
has since established good credit, an exception may be
Extenuating circumstances do not include
the ability to sell a house when transferring from one area to
another or divorce.
BANKRUPTCY - CHAPTER 7 LIQUIDATION:
A bankruptcy (Chapter 7 liquidation) will not disqualify the
borrower if at least two years have passed since the
bankruptcy was discharged and the borrower has re-established
good credit (or has chosen not to incur new credit
obligations), and has demonstrated an ability to manage
financial affairs. An elapsed period of less than two years
(but not less than twelve months) may be acceptable if the
borrower can show that the bankruptcy was caused by
extenuating circumstances beyond his or her control and has
since exhibited an ability to manage financial affairs and the
borrower's current situation is such that the events leading
to the bankruptcy are not likely to recur.
BANKRUPTCY – CHAPTER 13: A borrower
paying off debts under Chapter 13 of the Bankruptcy Act may
qualify if one year of the pay-out period has elapsed and
performance has been satisfactory. The borrower must also
receive court approval to enter into the mortgage transaction.
If a married borrower is purchasing a property by
himself/herself, the credit obligations of the spouse must be
included with the application and will be factored in with the
borrower's credit obligations and used to determine the
financial capacity of the borrower only if the borrower lives
in a community property state. Furthermore, the
non-purchasing spouse may be required to sign a security
instrument or documentation relinquishing all rights to the
One more topic to learn -
continue here ....
FIND OUT what's in your CREDIT REPORT TODAY! - so it's 100% ACCURATE TOMORROW. Order a 3- BUREAU REPORT from