Some FHA refinance loans involve a credit check—if your lender wants to re-evaluate you as a credit risk, the check will be run. This is a source of stress for many, especially those who need to refinance because they fear default or foreclosure on their existing loans. In many cases these fears aren’t founded.

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Your Credit and FHA Refinance Loans

Some FHA refinance loans involve a credit check—if your lender wants to re-evaluate you as a credit risk, the check will be run. This is a source of stress for many, especially those who need to refinance because they fear default or foreclosure on their existing loans. In many cases these fears aren’t founded.

Did you know that FHA refinancing loans are more forgiving when it comes to your credit rating? Refinancing programs designed to save homeowners from foreclosure must be more lenient—how else could a homeowner get out of a precarious financial position? Even if your credit rating has been negatively affected by current conditions, an overall pattern of reliable payments can go a long way towards helping you get into an FHA insured refinancing loan.

Do you have a more serious problem on your credit report? Borrowers should know the FHA loan approval process for refinancing does take into consideration any extenuating circumstances. Did you receive an on-the-job injury? Did you have a prolonged illness or other situation that may have prevented you from paying on time? Never assume you aren’t qualified just because you have a period of non-payment or collections against you if there are extenuating circumstances.

The FHA allows you to submit a written explanation of what happened to damage your credit rating. You can turn this explanation in with the rest of your loan paperwork, and it can make quite a difference. If you submit a letter of explanation, be sure to include any supporting documentation including hospital bills from an extended stay or other evidence.

FHA lenders remind applicants that a few missed bill payments on a credit report don’t necessarily indicate you are a bad credit risk. That said, one area where missed payments creates problems for borrowers is on the mortgage itself. FHA regulations require borrowers to be current on the existing home loan. There must be no missed payments for 12 months prior to your FHA refinance loan application.

Staying current also requires you to make timely payments judgments or collection activity against you. If you are not current on your other bills or have collection agencies to deal with, take steps you need to get caught up before filling out your FHA Refinance application. You don’t have to be paid in full, but you do need to be in agreement with your creditors on repayment.

Like any VA home loan, FHA mortgage or refinancing application, try to prepare your credit before you apply. Do a credit rating check, examine your debt-to-income ratio and figure out how much you owe now versus how much you would pay under the terms of your new FHA insured loan.

You should also cut down your debt-to-income ratio--pay off the amounts due on your credit cards and close lines of credit or credit card accounts you don’t need. Never apply for new credit when you are trying to get an FHA mortgage refinance application approved. Any potential debt may count against you when applying for a mortgage; keep that potential debt as low as possible. If you being addressing the debt-to-income ratio issue the moment you decide to apply for an FHA refinance option, you give yourself a much-needed head start.

FHA refinance loans are examined individually—they are handled on a more personal level than conventional loans. If you want to get into an FHA refinance loan but your current lender is not responsive to your needs, you don’t have to refinance with the same bank. You can always search for a lender willing to work with you and help you get the loan you need.