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FHA Loan Credit Issues

Before an FHA loan gets approved, the borrower’s past credit performance and overall credit score must be evaluated to see if any potential issues with credit could arise that would get in the way of the borrower successfully achieving an FHA loan. Based on the FHA’s requirements, those with solid credit standing will demonstrate such by having a track record of payments consistently made on time. On the other hand, borrowers who have a credit history showing negligent payments, evidence of bad or consistently irresponsible purchase/financial decisions, and accounts that are delinquent marks a candidate who ought to not have a loan approved.

See below for a list of items which will likely have a negative effect on your or another borrower’s possibilities of obtaining an FHA loan:

No Credit History

In order to apply for an FHA loan, two lines of credit are required. However, if a borrower doesn’t have enough credit on their report, the FHA will permit forms of substitution.

Chapter 13 Bankruptcy

The FHA will still consider approving someone who is still making payments to a Chapter 13 Bankruptcy if those payments have been made on time and verified for at least one year, despite the potential for credit issues. That being said, certified approval from a court trustee will still be needed in order to move ahead with the loan. In addition, the borrower will be required to give a complete explanation of the bankruptcy and why it happened within the application for the loan, and will have to have again established a good credit score, job stability, and be financially qualified.

Chapter 7 Bankruptcy

If a borrower or the borrower’s spouse has filed for Chapter 7 Bankruptcy, at least two years will have to have elapsed since the discharge date before applying for an FHA loan, according to FHA guidelines. The discharge date is not the same thing as the filing date, so it’s important not to mix those two up! Just like with a Chapter 13 Bankruptcy, a complete explanation of the bankruptcy and why it happened will be required in the loan’s application. To qualify for an FHA loan, the borrower(s) will, again, have to have established a good credit score and job stability.

Late Payments

When a borrower’s credit is analyzed in preparation of approval for an FHA loan, the overarching pattern of behavior is evaluated as opposed to isolated cases. If an overall pattern of good payment exists, the borrower may not to worry about being disqualified.


Mortgages that are insured by the FHA are not generally available to those whose property has been subject to foreclosure or been faced with a deed-in-lieu of foreclosure in the last three years. That being said, if a foreclosure of the borrower’s primary residence occurred because of circumstances which can be justified, a pardon made me granted if good credit still exists. However, this does not include an incapability to sell a home if the borrower is moving from one area to another.

Collections, Judgments, and Federal Debts

A collection is typically fairly minor and usually is not required to be paid off as a trade-off for loan approval; FHA guidelines state as such. However, outstanding judgments will be required to be paid off in full before closing can take place. Borrowers facing delinquency on federal debt (for instance: tax liens, student loans, etc.) are absolutely not eligible.

More FHA Loan Information from David Jacobson

For more information on FHA loans or other potential home financing options, contact David Jacobson – OakStar Bank today.

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