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Information on Credit

To qualify for an FHA loan, the borrower is required to have a positive credit history within the last 12 to 24 months. If a potential borrower has had serious derogatory marks in their credit history but has been able to rectify the situation and improve their credit, they are generally eligible for an FHA loan. Because FHA is not a score driven program, the underwriter is allowed to consider the overall risk of the loan based on the borrower’s credit, income, assets, and risks related to the property.

FHA guidelines provide a great deal of flexibility when reviewing credit; they are tolerant towards borrowers who have had previous derogatory payment items such as bankruptcy. A borrower who has had a Chapter 7 bankruptcy has to have been discharged for a total of two years before being eligible for an FHA loan. A borrower in a Chapter 13 bankruptcy program may be eligible, with a court trustee’s permission, for an FHA approved loan or refinance provided that they have been in the program for at least 12 months and have made their payments on time. Similar guidelines apply to borrowers who are in a consumer credit counseling program; they may be eligible for an FHA approved loan or refinance provided that they have been in the program for at least 12 months, made payments on time, and have no derogatory marks on their current credit report.
FHA guidelines are not sympathetic towards borrowers who have had previous homes that ended up in foreclosure, especially if it was a previous HUD/FHA approved loan. In this case, the borrower must pay back the money on that home before they will be eligible for a new FHA approved loan. The minimum discharge time for a foreclosure is three years from the date it was redeemed.
Family Home Funding  NMLS ##19581
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