Learning Fha Loan Qualifications
If you need to purchase a home, FHA loans are there to help those dreams become reality
. There are many things to remember when applying for and dealing with FHA loans.
In analyzing a borrower's credit and applying the requirements of an FHA mortgage, past performance and financial history serve as the most useful guides in determining the attitude toward financial obligations.
Therefore, your credit score is an important factor. But, it does not have to be perfect, great or even good to qualify for an FHA loan; it is possible for most people to qualify.
A borrower who has made payments on previous or current obligations in a good, timely response will represent a smaller risk than someone who irresponsibly makes sporadic payments, never reaching deadlines and costs.
If the financial history reflects constant slow payments, judgments and delinquent accounts, other factors will need to be strong to approve the loan. This is all considering that income to support such obligations were in place.
When an underwriter looks at a borrower's Fico Scores, it is the overall pattern of spending behavior that is looked at as opposed to an isolated occurrence of unsatisfactory payments which cause poor reports.
If a borrower has had a period of difficulty in their credit history, it does not necessarily mean that the loan is not possible or will be denied, especially if a good payment record has been maintained since then. You should always apply to see what they determine, even if you do not think you have a chance.
If bad credit records surface, the underwriter looks to determine if the cause of the late payments is due to financial mismanagement or extenuating circumstances. These two things are very different in determining your status.
Most underwriters will ignore minor derogatory information that occurs two or more years previous to the application. However, major indications of poor financial records, including judgments and collections, and any other recent credit problems require a detailed written explanation from the intended borrower.
This written explanation needs to make sense and be very clear. It must also be consistent with other credit information in the person's files.
Underwriters will look very closely to make sure that all dates correspond to the explanation. The basic hierarchy of account evaluation is the manner of payments that have been made on previous housing expenses, including utilities, followed by the payment history of installment debts as opposed to revolving accounts.
Typically, a person with no late housing or installment debt payments should be considered as having an acceptable credit history unless there are major derogatory reports on his or her revolving accounts.
Borrowers who are applying for an FHA mortgage do not need to have a defined minimum credit report. In fact, HUD does not impose any minimum financial score standards.
Many lenders may impose a minimum, but the FHA requirement is a lender's choice to minimize his or her risk of potentially problematic loans. Fico reports are not perfect, but they do give an indication of the borrower's credit history.
Borrowers with a Fico score above 620 will typically be able to get approved through the use of automated underwriting engines. If their numbers are below 620, they may not get approved through the automated engines and will have to go through a manual underwriting process.
Manual underwritten reports usually take a few extra days and a little more documentation. These reports are essential and must be written with much attention to detail as they are looked at so closely.
Also, it will be the overall pattern of financial history that is evaluated, not the specific incidences that occur every once in a while. Beginning July 14, 2008 borrowers with a credit score that sits between 300 and 499 will not be eligible for financing over 90% LTV.
FHA loans are not for everyone. It is important to talk to a professional or perform much research independently so you ensure that you choose the best financing option for your specific needs.
There are many kinds of mortgage programs to consider when purchasing a home, or other things for that matter. FHA loans simply make it possible for those with a below average credit history to be approved for a mortgage.
by: Tom Selwick
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