Will My Credit Qualify for an FHA Loan?
During the reviewing stage of your process, FHA will analyze your previous debts, income, and credit reports, to assess your ability to comfortably pay your mortgage. By learning how you have handled previous loans and debts, FHA will be able to judge how your future dealings are going to result.
To learn exactly what your past credit reports will show, it is recommended that you request a free credit report, which you can find online.
Perfect credit is something we should all have, and this is what the FHA is looking for.
If your loan is approved, you are entering into a contract and a commitment with FHA to pay back your loan on the terms upon which you will mutually agree. This means that making your payments on time is a necessity, or your commitment is compromised. Any payment mishandlings can and will go directly on your credit report for the future.
Keeping your commitment is black and white. There is no room for excuses as to why payments were late, or not transferred. It is not the role of your creditor to manage your debt, or your bills. When the offer is extended, it is up to you to accept and abide by the terms.
When it comes to qualifying for a home loan, reviewing your credit is absolutely essential. While the FHA has a degree of mercy when it comes to minor past credit issues, this only covers that which is reasonable.
Your last two years of credit history are what the FHA will examine most closely. If there are discrepancies in your report, you can submit sufficient documentation explaining why these issues occurred. Reasonable reasons for discrepancies include:
- Sudden loss of a job
- Job transfers
- Serious illness
Previous debts holding you back are not considered a valid excuse.
However, if you have encountered credit problems in the past, that doesn't not mean that you are automatically disqualified from obtaining an FHA loan. Allow a mortgage professional to review your history, and determine from that point.
You must allow two years from the date of a discharge for bankruptcy, and three years from the date of a foreclosure before you can qualify for an FHA loan.
While your loan is being approved, you may be required to pay off your other outstanding debts, such as collection accounts, judgments, and charge off's. This will ensure the process can move forward.
Typically, you will also need to pay in full any remaining State Tax Liens you may have before your loan will be approved. However, if you have a Federal Tax Lien which is in a repayment agreement, you will not be require to pay this in full, but rather you must meet the standards of the repayment agreement.
If you do not have a credit score, don't worry-that doesn't mean that you will be denied your loan. FHA does not require a FICO (Fair Issac Company Score), as other lenders do. If you do have credit, your chances of being approved for a loan will increase if your score is at least a 620.
Once you pre-qualify for your FHA home loan, at that point they will order your personal credit report. This will include a comprehensive record of payments on loans, credit cards, and other debts you may have incurred. If you have never had a credit card or loan in the past, FHA will still be able to analyze your payment dependability by observing how you have paid your rent and utility bills with consistency.
If you have concerns about your credit or this process, we are more than happy to sit down and look at your credit report with you. Unlike other lenders, we can show you exactly how to fix any issues that may be holding up your application. We want you to qualify to buy your home!
