FHA Tightens Credit Standards For Home Buyers

There have been a lot of speculation and news reports saying that lenders are easing their credit standards slightly to help home buyers get into a house. While on the surface that may sound great; FHA announced a tightening of a certain standard that has not been invoked in years that can make it more difficult for FHA buyers to obtain a mortgage if they have delinquent accounts with a balance of more than $1000.00 on it. The standard use to be up to the individual lender discretion; but most lenders did not bother if the account was greater than 2 years old or the buyer had a hardship or legitimate explanation for why they were disputing the charges or the charge off or if the balances were minimal.. if the rest of the credit warranted an approval they would still get the loan. Now, the new changes make it very difficult for lenders to do that. They now need to document the approval and the reason as to why. The new rule requires borrowers with loans in collection that add up to at least $1,000 to either pay off the debt, prove they're making payments on the disputed loans or explain why the disputed loan is somehow wrong -- and document their case -- before they can close on a FHA loan. Lenders that are underwriting the FHA loans will get final say on whether the loans go through. If the borrower's explanation of an outstanding debt and supporting documentation satisfy the bank, it can decide to issue the loan --but they run the risk of FHA rejecting it. lenders are going to side on the side of caution when it comes down to it because they do not want to be on the hook for the mortgage with 3.5% down if FHA rejects it. Now, more than ever; you need to look at your credit report and see if there are any old medical charges or charge offs on your account form years ago and work on getting them settled. Because even something as old as 5 to 6 years can hold you up from getting an FHA mortgage now. Dave diCecco Realtor/Broker www.davedicecco.com