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Oct 09, 2021 | By Benie Khan
Credit Requirements for FHA Loan Application

Credit Requirements for FHA Loan Application

When applying for an FHA loan, your current and past credit performance will be reviewed. It's not just about the score it's also about how you pay your bills, and how you manage your debt.

For example, If you have a qualifying credit score of 620 but have a horrible history of paying credit cards on time; your loan can possibly get denied.

To help you understand what is considered poor credit history, we've compiled a list below of items that can negatively affect your FHA home loan eligibility.

No credit history

Not having any credit history will not disqualify you from obtaining an FHA loan but it will make it very difficult.

Since there is no history of paying bills, you'll have to go above and beyond to prove that you are able to manage a housing payment.

What are some ways you can show that you are able to handle a new mortgage payment?

  • Provide proof of rental payments for the last 12 months.
  • Show that you have money saved - this helps underwriters understand that you are a financially responsible person, therefore less of a risk.
  • Provide proof that you have been paying other bills on time for the last 12 months. Examples of other bills: Phone, Gas, Water, Cable, Insurance, etc..

Every lender will have different requirements. The above list is what we will need from you for an FHA loan.

Bankruptcy

You've filed for bankruptcy, declaring that you're incapable of paying your debts. You've been given a fresh start.

It's now time to be responsible and take control of your finances.

So, if you have late payments, collections, and/or charge offs after a bankruptcy, your chances of getting approved are extremely low.

FHA loans require a minimum of two years to lapse since the discharge of a Chapter 7 bankruptcy and a minimum of 1 year of payments being made on a Chapter 13.

You need to have re-established credit that is good, you need to show that you are now able to manage debt responsibly. 

What does this mean?

It means that you've been making your payments on time, have no collections, and aren't overloaded with new debt.

More Info: How to get a home loan after a bankruptcy

Foreclosure

Having a foreclosure doesn't ruin your chances of getting another home loan. 7.8 million households went into foreclosure between 2007 to 2016. That's a lot!

However, if you have a foreclosure there is a waiting period for FHA eligibility.

A minimum of three years must have lapsed since the foreclosure.

Proof of on time rental payments for the last 12 months may be required if it's been less than 5 years since the foreclosure has happened.

More info: How to get a home loan after a foreclosure

Student Loans

Having defaulted student loan debt will impact your approval and could disqualify you even with a 700 credit score.

Since an FHA loan is a government home loan, you can't have any federal debt in default.

Student loans must be brought current, or a payment arrangement must be provided.

Child Support

Child support payments that are past due or in collections, must be brought current or have some type of payment arrangement. Child support court order paperwork will be a requirement as well as any payment arrangement paperwork.

Late payments on credit cards or loans

Your credit report will be reviewed to determine how you pay your bills.

If the report shows multiple late payments; this could be a problem.

Late payments will be evaluated based on how recent it is, and how frequently you've paid late.

Lenders will view you less favorably. You'll be viewed as a high risk for default on the new home loan.

The more recent the late payment, the more negative of an impact it may have.

Make sure to make your payments on time. Not only will this help your credit score, but it will also save you money.

Each time you are late, you are charged a "late fee", could be anywhere from $15 to $100, or more depending on the debt.

Read this article by Equifax "can one late payment affect my credit score". It has some great information about this subject.

Read on:

 

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