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 When
analyzing a borrower's credit report, it is important to
focus upon the general pattern of credit behavior rather
than isolated occurrences of late payments. Often
times, people will experience a period of financial
difficulty in the past and does not necessarily translate
into an unacceptable risk. Reasonable explanations of
the credit derogatory and evidence of offsetting factors
(such as a new job or promotion with greater stability and
pay, for example) will be necessary. All derogatory
credit information must be explained, in writing, by the
borrower. HUD requires a borrower to demonstrate a good to
excellent repayment history of all debts. This history
serves as the most useful guide in determining a borrower's
willingness to repay credit obligations and serves as a
model in predicting his/her future actions.
Chapter 7 Bankruptcy
FHA requires a minimum of 2 years since the discharge of the
bankruptcy. An explanation of the bankruptcy will be
required. Furthermore, the borrower should have
re-established credit (i.e. secured credit card) with no
late payments. This is not to be confused with the
bankruptcy filing date. A full explanation will be required
with the loan application. In order to qualify for an FHA
loan, the borrower must qualify financially, have
re-established good credit, and have a stable job.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy does not need to be paid off in order
to originate a new FHA loan! FHA will consider a borrower
still paying on a Chapter 13 bankruptcy if the payments to
the court have been made for a minimum of 1 year in a
satisfactory manner (as verified with the courts) and with
the approval of the court trustee. The court trustee's
written approval will also be needed in order to proceed
with the loan. The borrower will have to give a full
explanation of the bankruptcy with the loan application and
must also have re-established good credit, qualify
financially and have good job stability.
A collection is minor in nature usually does not need to be
paid off as a condition for loan approval. It is stated as
such in FHA guidelines. Any judgments will have to be paid
in full prior to closing. A borrower is not eligible for a
FHA loan if he/she is delinquent or in default on any
federal debt (such as a HUD or VA mortgage, student loans,
SBA loans or a tax lien against his/her property).
Borrowers can become eligible by bringing any delinquent
accounts current, making satisfactory repayment arrangements
with the creditor (generally a 3 month history will be
required), or paying the account in full.
Two lines of credit are necessary to apply for an FHA loan.
However, in the event a borrower does not have sufficient
credit on their credit report the FHA will allow substitute
forms. This would include items such as auto insurance
payment history, utility bills, etc.
Contact FWL and let our FHA
Mortgage Specialist help you qualify for a loan.
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