FHA Credit Performance and Credit Problems
Before approving a loan, the lender analyzes the integrity of the borrower's
past credit performance. Those who have a good credit history demonstrated by a
solid track record of timely payments will likely be eligible for a loan.
Potential borrower's whose credit history is marred by slow payments, poor
financial judgment and delinquent accounts is not a good candidate for loan
The following is a list of items concerning the borrower's credit.
No Credit History
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.
Chapter 13 Bankruptcy
FHA will consider approving a borrower who is still paying on a Chapter 13
Bankruptcy if those payments have been satisfactorily made and verified for a
period of one year. 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.
Chapter 7 Bankruptcy
At least two years must have elapsed since the discharge date of the borrower
and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. 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
During an underwriter analysis of borrower credit, the overall pattern of credit
behavior is being reviewed rather than isolated cases of slow payments. If a
good payment pattern has been maintained, regardless of a specific period of
financial difficulty preceded it, the borrower may escape disqualification.
FHA insured mortgages are generally not available to borrowers whose property
was foreclosed on or given a deed-in-lieu of foreclosure within the previous
three years. However, if the foreclosure of the borrower's main residence was
the result of extenuating circumstances, an exception may be granted if they
have since established good credit. This does not include the inability to sell
a home when transferring from one area to another.
Collections, Judgments, and
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. Borrowers who are
delinquent on any federal debt, such as tax liens, student loans, etc., are not
Financial Services Unlimited, Inc.
Client Services: 800-238-9202
11950 SW 2nd St. Suite 300
Beaverton, OR 97005
503-626-8910 - Fax
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