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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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The Impact of Late Payments on FHA Loan Approval

The Impact of Late Payments on FHA Loan Approval
Can an FHA loan be approved if there are late or missed payments on the credit report? Navigating through financial challenges, such as escalating costs of living and employment uncertainties, can make it difficult to maintain a perfect financial record.

Today's economic landscape is compounded by factors like inflation and rising utility expenses. These are additional hurdles tacked onto other post-pandemic problems that make securing a home loan an uphill battle for some. If you find yourself on the brink of missing payments on your rent or mortgage, the stakes become even higher, especially if you're eyeing an FHA home loan.

For those hoping to buy a home or refinance with an FHA mortgage, try to maintain a clean payment record for at least 12 months before starting the loan application process. Doing so with less than a year of timely payments on your credit history significantly complicates the approval process. Late or missed payments on housing expenses are a red flag, making it challenging for lenders to justify approving your loan.

The FHA Handbook, specifically HUD 4000.1, enforces the "12-month rule," stipulating that, depending on circumstances, the loan must be "downgraded to a refer" and "manually underwritten" if late or missed payments on a mortgage occurred within the 12 months leading up to the application. The FHA provides no leniency in this regard.

While there may be some consideration in cases where FICO scores and other financial qualifications remain strong, the risk of denial increases if the loan is downgraded to a refer status. However, some leniency may be granted if the late or missed payment is a one-time issue, provided it can be adequately documented.

Ultimately, the lender's discretion plays a significant role, and borrowers with any late or missed payments in the last 12 months might consider delaying their loan application until they've achieved a full year with no such issues. This cautious approach could prove to be the pivotal factor in securing loan approval.


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FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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