FHA Mortgage Pointers For Verifying Your Credit score Historical past
The FHA loan rules have a lot to say about what the lender should look for in order to verify the creditworthiness of a potential FHA borrower.
Whether you’re looking for a home loan, RV loan, or want to build a home on your own property with an FHA home loan, the requirements in the FHA lender’s guide are the same.
There are minimum FICO score requirements, instructions to the lender to verify the borrower’s on-time payments (12 months of reliable payments for all financial commitments are highly recommended), and much more.
One area also covered in HUD 4000.1 is what the lender should do if collections are included in the borrower’s credit history.
The presence of a collection operation on a loan applicant’s file can be a cause for concern, but there are instructions for the lender on how to view collection accounts and what to do if those collections are within the lender’s “tolerance” for loan approval.
Under the FHA loan rules, what will the lender ask if the loan goes on?
HUD 4000.1 page 183 begins by defining what it regards as a “collection account”:
“A collections account refers to a loan or debt of a borrower filed by a creditor with a collection agency.” In cases where such an account exists, the lender will be instructed as follows:
“If the credit reports used in the TOTAL Mortgage Scorecard analysis show accumulated outstanding collection account balances of $ 2,000 or more, the mortgagee must:
- Ensure that the debt has been paid in full with acceptable sources of funds at the time or prior to payment;
- Make sure the borrower has payment arrangements in place with the creditor and include the monthly payment in the borrower’s Debt To Income (DTI); or
- If no payment arrangement is available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the DTI for borrowers. “
There are also rules for the lender regarding collection accounts in a non-borrowing spouse’s records in “jointly owned” states where state law can have a say in how the joint debts of a legally married couple are viewed in the eyes of the law or handled:
“Collection accounts of a non-borrowing spouse in a jointly owned state must be included in the $ 2,000 cumulative balance and analyzed as part of the borrower’s ability to pay all collection accounts, unless state law prohibits it.”
In cases where there are collection accounts, the lender must provide the following documents:
- Proof of full payment if payment is made prior to settlement;
- The payout statement, if paid upon settlement; or
- The payment agreement with the obligee, if not paid before or at the time of settlement.
If your lender uses five percent of the outstanding balance, no HUD 4000.1 documentation is required.
If you are unsure how these rules might apply in your situation, discuss your needs or concerns with a loan officer to see what that financial institution may ask for in such cases.
Find out more about the path to home ownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Home Buying Rights
Step 3: basic mortgage terminology
Step 4: buy a mortgage
Step 5: shopping for your home
Step 6: Make an offer to the seller
Step 7: get a home inspection
Step 8: home insurance
Step 9: what to expect upon graduation