FHA Credit Guidelines           

BORROWER WITH NO CREDIT:

HUD recognizes that some borrowers may not have yet established a credit history. For those borrowers, and those who do not use traditional credit, the lender will try and develop a credit history from utility payment records, rental payments, automobile insurance payments, or other means. This is called Non-Traditional Credit.  Specific guidelines in dealing with this were released on April 29 ,2008.   In trying to establish credit a borrower may consider applying for a secured credit or debit cards or rebuilding their credit history.

CONSUMER CREDIT: Borrower’s with accounts that were 60 days or more past due in the last 12 months will greatly reduce their chances of being approved, unless they have a solid explanation and other compensating factors. Borrowers with isolated 30 day late payments should be able to be approved provided the rest of their accounts are paid satisfactory.

COLLECTIONS & JUDGMENTS: HUD does not always require that collection accounts be paid off as a condition for loan approval. Most underwriters will also not consider medical collection in their overall evaluation. Especially if the other credit of the borrower is satisfactory and the collection are not extremely large. They will almost always require that court-ordered judgments be paid-off before the mortgage loan may fund. (An exception may be made if the borrower has been making regular and timely payments on the judgment and the creditor is willing to subordinate that judgment to the insured mortgage.) Previous or current collections of judgments are considered when evaluating a borrower’s credit profile.

PREVIOUS MORTGAGE FORECLOSURE: A borrower whose previous residence or other real property was foreclosed on or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for an insured mortgage. However, if the foreclosure of the borrower's principal residence was the result of extenuating circumstances beyond the borrower's control and the borrower has since established good credit, an exception may be granted.

Extenuating circumstances do not include the ability to sell a house when transferring from one area to another or divorce.

BANKRUPTCY - CHAPTER 7 LIQUIDATION: A bankruptcy (Chapter 7 liquidation) will not disqualify the borrower if at least two years have passed since the bankruptcy was discharged and the borrower has re-established good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs. An elapsed period of less than two years (but not less than twelve months) may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited an ability to manage financial affairs and the borrower's current situation is such that the events leading to the bankruptcy are not likely to recur.

BANKRUPTCY – CHAPTER 13: A borrower paying off debts under Chapter 13 of the Bankruptcy Act may qualify if one year of the pay-out period has elapsed and performance has been satisfactory. The borrower must also receive court approval to enter into the mortgage transaction.

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