FHA Credit Guidelines

FHA Credit Guidelines

The Federal Housing Administration dates from the 1930s. It was produced to aid low- and moderate-income Americans buy homes with little down payments. The FHA creates guidelines for loans that it will cover. The banks themselves are created by banks and other creditors brought to the program due to the insurance and since other government-related entities such as Fannie Mae will then buy the FHA loans and replenish working capital to the creditors.

Credit History

Credit history is among the first concerns of a lender when reviewing a loan program. FHA credit history guidelines are decidedly more lenient than those for standard loans. There is not any minimum credit rating. On the other hand, the borrower must have a credit history. If no credit lines appear on a credit report, the lender has to establish a credit history from utility documents, rent obligations and other debt obligations. Regardless of what documents are utilized, the lender will look at the borrower’s overall payment history. A record demonstrating poor performance repaying debts won’t be accepted unless it happened in the past and has since been corrected, or there are extenuating circumstances such as a severe illness.


A borrower can still qualify for an FHA loan if he’s filed for bankruptcy, but only under specific conditions. To get a Chapter 7 bankruptcy, at least 2 years must have passed since the discharge date and the borrower needs to have re-established great credit during the interim. For a Chapter 13 bankruptcy, in the event the borrower has repaid debts according to the payment plan for a minumum of one year or has fully repaid all debts, he may qualify for your mortgage.

Federal Debt

Borrowers who are delinquent on any federal debt are not eligible for an FHA loan. This includes federal taxes and student loans. These debts and some other judgments, whether associated with federal debt or not, must be paid off before loan approval in the case of federal debt and prior closure in the case of decisions arising from non-federal debt.


If a borrower has been foreclosed on, he must wait at least three years prior to applying for an FHA loan. An exception may be granted if the foreclosure has been to the debtor’s principal residence, there are documented extenuating circumstances along with the borrower has great credit. In December 2009, the FHA issued a policy on criteria applicable to borrowers who had completed a brief sale–that is, a sale where the creditors received significantly less than the mortgage balance. Under this policy, borrowers who had participated in the brief sale to take advantage of the declining market and purchased a similar or superior property at the same geographic region are not eligible for an FHA loan. There is absolutely no time limit to the prohibition, implying that a borrower who falls into this category will never qualify for an FHA loan. Borrowers who were current in their loan and whose creditors accepted the profits from the brief sale as payment in full are eligible for an FHA loan. Borrowers who were in default at the time of a brief sale must wait three years prior to being approved for financing.

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