Credit Scores and FHA Mortgages
By admin | April 3, 2008
While the term “credit score” has grown in popularity over the past few years, it is a very important role in the credit approval process. There are three major companies, Experian, Equifax and Trans Union; whereas, each one provides a score based on the credit information provided. Mortgage lending uses all three companies called a tri-merge report, and the middle score is usually the one referred to when credit score is mentioned.
A middle score of 620 is the rule of thumb for receiving an AU (automated underwriter) approval; however, FHA financing allows those with lower scores and no credit to be considered for a manual approval. While lower scores or prior derogatory credit may be approved, specific documentation is required in order for a credit decision to be made. In addition, FHA will consider Chapter 7 (after 2 years) and Chapter 13 (after 1 year) bankruptcy as well as previous foreclosures (after 3 years) for approval; however, credit must have been re-established. FHA does not allow delinquency on any federal debt and requires all judgments to be paid.
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