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Florida FHA Mortgage Qualifying

Past credit performance serves as the most useful guide in determining the attitude toward credit obligations that will govern the borrower’s future actions. A Florida mortgage applicant who has made payments on previous or current obligations in a timely manner represents reduced risk. In contrast if a Florida mortgage applicant despite adequate income to support obligations reflects continuous slow payments, judgments, and delinquent accounts, strong offsetting factors will be necessary to approve the Florida mortgage loan.

When analyzing the Florida mortgage applicant’s credit record, it is the overall pattern of credit behavior that must be examined rather than isolated occurrences of unsatisfactory or slow payments. A period of financial difficulty in the past does not necessarily make the risk unacceptable if a good payment record has been maintained since. When delinquent accounts are revealed, the Florida mortgage lender must determine whether the late payments were due to a disregard for credit, or an inability to manage, financial obligations, or to factors beyond the control the Florida mortgage applicant including delayed mail or disputes with creditors.

While minor derogatory information occurring two or more years in the past does not require explanation, major indications of derogatory credit, including judgments and collections, and any other recent credit problems, require sufficient written explanation from the Florida mortgage applicant. The borrower’s explanation must make sense and be consistent with other documentation provided by the Florida mortgage applicant.

FHA approved lenders also recognize that some prospective borrowers may not have as yet established a credit history. For those mortgage applicants who do not use traditional credit, the lender must develop a credit history from utility payment records, rental payments, automobile insurance payments, or other means of direct access from the credit provider or may elect to use a nontraditional mortgage credit report developed by a credit reporting agency as described in paragraph 2-4,, below. Neither the lack of credit history nor the borrower’s decision not to use credit may be used as a basis for rejection.

The basic hierarchy of credit evaluation is the manner of payments made on previous housing expenses such as Rental history, including utilities, followed by the payment history of installment debts, then revolving accounts. Generally, a Florida mortgage applicant with no late housing or installment debt payments should be considered as having an acceptable credit history unless there is major derogatory credit on his or her revolving accounts.

When reviewing the Florida mortgage applicants  credit and credit report, the Florida mortgage lender must pay particular attention to the following:

1. Previous rental or mortgage payment history. The payment history of the Florida applicants housing obligations is of significant importance in evaluating credit. The Florida mortgage lender must determine the borrower’s payment history of the housing obligations through either the credit report, directly from the landlord or mortgage servicer, or through canceled checks covering the most recent 12-month period.
2. Recent and/or Undisclosed debts. The Florida mortgage lender must ascertain the purpose of any recent debts as the indebtedness may have been incurred to obtain part of the required cash investment on the property being purchased. Similarly, a satisfactory explanation must be provided by the borrower to account for the omission of any significant debt shown on the credit report but not listed on the loan application. The Florida mortgage applicant must explain all inquiries shown on the credit report.
3. Collections and Judgments. We do not arbitrarily require that collection accounts be paid off as a condition for loan approval, but we do require that court-ordered judgments be paid-off before the mortgage loan is eligible for insurance endorsement. (An exception may be made if the borrower has been making regular and timely payments on the judgment and the creditor is willing to subordinate that judgment to the insured mortgage.) Both collections and judgments indicate the borrower’s regard for credit obligations and must be considered in the analysis of creditworthiness.
4. Previous mortgage foreclosure. A Florida mortgage applicant whose previous residence or other real property was foreclosed on or has given a deed-in-lieu of foreclosure within the previous 3 years is generally not eligible for an insured mortgage. However, if the foreclosure of the borrower’s principal residence was the result of extenuating circumstances beyond the borrower’s control and the borrower has since established good credit, an exception may be granted. Extenuating circumstances do not include the inability to sell a house when transferring from one area to another.
5. Bankruptcy. A bankruptcy (Chapter 7 liquidation) will not disqualify the borrower if at least 2 years have passed since the bankruptcy was discharged and the borrower has reestablished good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs. An elapsed period of less than 2 years (but not less than twelve months) may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited an ability to manage financial affairs and the borrower’s current situation is such that the events leading to the bankruptcy are not likely to recur. A borrower paying off debts under Chapter 13 of the Bankruptcy Act may also qualify if one year of the pay-out period has elapsed and performance has been satisfactory, and the borrower also receives court approval to enter into the mortgage transaction.

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