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Previous Mortgage Housing Obligations and Your Credit

November 18th, 2014 by [shareaholic app="share_buttons" id="27157108"]
When you fill out your FHA loan application paperwork online or in person, it’s obvious that part of the qualification process involves having your credit scores examined and your employment verified.
What may not be so obvious is that the lender is also looking for patterns of reliability in areas such as the timely payment of your monthly obligations. Some FHA loan applicants might mistakenly assume that while late or missed mortgage payments might be a factor that missed rent payments aren’t held in the same esteem.

Is this true? Not according to HUD 4155.1 Chapter Four, Section C, which has instructions for the lender on checking credit report data. A strict interpretation of Chapter Four reveals that there is no difference between how the FHA or the lender should view late or missed mortgage payments OR the equivalent in meeting monthly rental obligations.

“The borrower’s housing obligation payment history holds significant importance when evaluating credit. The lender must determine the borrower’s housing obligation payment history through the

  • credit report
  • verification of rent received directly from the landlord (for landlords with no identity-of-interest with the borrower)
  • verification of mortgage received directly from the mortgage servicer, or
  • review of canceled checks that cover the most recent 12-month period.”

The FHA takes this issue seriously enough to include the following note to the lender; “The lender must verify and document the previous 12 months’ housing history even if the borrower states he/she was living rent-free.”

A lender may not reject an FHA loan application on the basis of a one-time missed payment, or a period of financial difficulty that the borrower can show is now resolved. But much is left to the lender’s discretion. It’s good to know this before you apply for an FHA mortgage loan. Knowing what the lender is looking for in your credit history is a very good thing to understand fully as you get ready to apply.

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