Monday, April 2, 2012

FHA Updates Credit Qualifying Guidelines

FHA Updates Credit Qualifying Guidelines


FHA Updates Credit Qualifying Guidelines



FHA (Federal Housing Administration) mortgages are known for the easier and flexible credit qualifying guidelines that are offered to borrowers. It is for this reason that so many people choose FHA mortgages for their financing. Recently, FHA has updated the credit qualifying guidelines for disputed accounts and collections that becomes effective April 1st.
When the borrower has one or several disputed credit accounts and/or collections with a total balance that is equal to or above $1,000, the accounts must be resolved by payment arrangement or paid in full prior to or at closing. If not paid in full, these payments will be included in the debt to income ratios. If payment arrangements have been made, there must be at least three months of verified payments as per the agreement made with the creditor. Any disputed account or collections that are the result of credit card theft, identity theft or unauthorized use are excluded from the $1,000 calculation. There must be related and appropriate documentation, such as a police report, to substantiate this claim.
When the total amount due on outstanding credit and/or collection accounts is below $1,000 the borrower does not have to pay off the accounts in order to receive approval. It is not considered an acceptable resolution according to FHA to pay down balances on any of these accounts in order to bring the balance below $1,000. FHA requires that court ordered judgments be paid in full prior to FHA mortgage approval. In the case of a court ordered judgment in which the borrower has an agreement to make regular payments and can show the documentation that at least three months of payments have been made, a borrower can continue to pay off the judgment and the payments will be included in the debt to income ratios.
Acceptable documentation to support any resolutions to credit or collection accounts include a letter from the creditor which outlines the terms of the payment arrangements or verifies the payoff of debt, canceled checks or a credit report supplement that verifies the payoff or payment arrangements. It is likely that more borrowers will be cleaning up their credit prior to making an FHA mortgage application once these FHA updates for credit qualifying go into effect.


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