The Impact of Late Payments on FHA Loan Approval
June 20, 2023
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.
------------------------------
RELATED VIDEOS:
Let's Talk About Home Equity
Understanding Your Loan Term
Your Home Loan is Called a Mortgage
FHA Loan Articles
March 16, 2023Planning your FHA loan means asking some important questions early in the process. The most obvious question is associated with the type of home you want. How large a house do you need? FHA mortgages allow the purchase of homes with between one and four living units.
February 7, 2023There are tons of reasons why people decide that they’re done with renting and start looking into buying a home. Whatever your reason, deciding to buy a home is a big step, and one of the most daunting aspects is saving up enough money for the down payment.
January 27, 2023Before you get ready to commit to a home loan application, it’s good to review your circumstances and ask a few basic questions about your loan, your plans, and the home itself. Believe it or not, knowing what type of home loan you need is an important step.
January 10, 2023When getting ready to shop for a home loan, it's worth taking a look at your credit report. Your credit score is a big factor when lenders take a look at your loan application, and it plays a huge role in the interest rate you get.
December 23, 2022When it comes to buying a house, saving up for a down payment can be one of the most overwhelming aspects. While down payments are one of the biggest obstacles for many in the mortgage process, it helps to understand the ins and outs of why they play such a big role.
