FHA will analyze a borrower's credit history to determine the approval status of a mortgage loan. They will look at a borrower's credit history, late payments, bankruptcy, collections, judgements, federal debts, and foreclosures.

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FHA Credit Issues

HUD will analyze a borrower's credit history in determining the FHA loan for approval. A borrower who has made timely payments serves as a guide and demonstrates their willingness to repay future credit obligations. On the opposite side, a borrower who reflects continuous slow payments, judgments and delinquent accounts is not a good candidate for FHA loan approval. Below is a list of items concerning the borrower's credit.

When the underwriter analyzes the borrower's credit, it is the overall pattern of credit behavior that must be reviewed, rather than isolated cases of slow payments. A period of financial difficulty does not disqualify the borrower if a good payment pattern has been maintained since then.
In the event a borrower does not have any credit lines (2 needed) on their credit report, the FHA will allow substitute forms of credit such as utility payment records, rental payments, car insurance payments, etc.
The FHA guidelines state that a minimum of two years must elapse since the discharge date of the borrower and / or spouse's Chapter 7 bankruptcy, not the filing date. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.
The FHA guidelines state that they will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. In addition, the court trustee will need to give written approval to proceed. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.
The HUD guidelines state that if a collection is minor in nature, it usually does not need to be paid off as a condition for loan approval. Judgments must be paid in full prior to closing. A borrower is not eligible for the loan if they are delinquent on any federal debt. This can include tax liens, student loans, etc. Payment arrangements that would bring the borrower up to date may be considered for loan approval.
A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for an FHA insured mortgage. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances beyond the borrower's control, and they have since established good credit, an exception may be granted. This does not include the inability to sell a home when transferring from one area to another.

First-time homebuyers considering an FHA home loan have plenty of questions, including one of the all-time most popular early inquiries: “How much can I borrow?” If you have done some Internet research on FHA loan limits in the past, check again—some reports are now out of date because of recent changes to the rules for FHA lending limits. FHA-insured mortgages and mortgage insurance requirements can be confusing, but the facts are simple. FHA home loans aren’t any more difficult to understand than a conventional loan. You just need to learn the lending vocabulary. When you decide to apply for an FHA Refinance loan, there are several questions you’ll need to answer to set the approval process in motion. Some questions are about planning issues, others are directly related to whether or not an FHA Refinance loan is for you.