FHA Loan Requirements

by Katrina Roth
(Lancaster, California USA)

Ask Kate about FHA Loan Requirements: Hello Kate, I've been working with a very qualified first-time home buyer for several months now. After several months of searching and writing multiple offers, we finally entered escrow on what we found to be her dream home.

Katrina continues... In fact, we were set to close escrow late next week. However, we quickly learned that all hope would soon change.

Just two days after we had received loan approval from the underwriters, we got a call from our lender stating that my buyer can no longer qualify for an FHA loan. The taxes came back and it turns out that the buyer claims a mortgage interest on her taxes for a home that she had co-signed for with her son years ago.

When they pulled title & loan profiles to that property, they saw that her son "just recently" had a 30-day late payment on his mortgage and never notified his mother (not realizing it would drastically prohibit her from buying her new home.)

Despite the fact that my buyer had outstanding credit (with a 750 plus credit score, 28 years of employment at her job, and ability to supply the down payment with savings left over, my buyer was denied the loan. Here's why:

FHA guidelines regulate that a borrower not have had any 30-day mortgage late payments or delinquencies within the last 12 months.

Even though my buyer was nothing more than a helpful co-borrower to pre-existing loan held by someone else, the new lender would automatically have to count that against her. Given the situation and this rule being in place for 12 months, this would also mean that my buyer would have to put her dreams on hold for 11 months before she once again qualify to buy.

"Kate, do you foresee any changes to these HUD regulated FHA guidelines and/or are there ANY exceptions to this rule that could save this escrow from falling apart?"

Best Wishes,

Katrina Roth
Century 21 Yarrow & Associates

Kate Answers: FHA Loan Requirements

Dear Katrina, It seems harsh, doesn't it? Unpleasant surprises tarnish a real estate transaction for all parties so let's look for a solution.

Co-Borrowers

First of all, co-borrowing does not mean the co-borrower is just helping out the primary borrower. Co-borrowers are equally responsible for the mortgage regardless of verbal or written agreements between the two parties.

Read more about the ramifications of co-borrowing here.

Exceptions to FHA Loan Requirements

There are always exceptions to underwriting guidelines although we see fewer today compared to ten years ago. However FHA loan guidelines have come to the rescue of homeowners since the Great Depression.

But due to the weakness in the economy and mortgage financing in particular, I believe underwriting guidelines will become stiffer not more friendly in the near future.

FHA Loan Approval

As long as the reason for the late payment was isolated, ask the relatives to support your home buyer's case for an exception. They can prepare a letter explaining why they were late and the measures they have taken to prevent further late payments.

Supplement the letter with 24 months of canceled checks, online payment verification, or automatic payment documentation to show the relatives have been making the mortgage payments from their own bank account.

This is a not a guarantee that your home buyer will receive an exception. But depending on the circumstances surrounding the late payment, it may help.

FHA Mortgage Refinancing

I would also encourage the relatives to refinance their FHA mortgage at the earliest possible date, removing your home buyer as co-borrower.

In light of the late payment, I suggest they refrain from calculating their own FHA eligibility but rather seek the guidance of a qualified mortgage professional who is experienced in FHA loan requirements.

Best wishes to your home buyer,



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