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Denied for an FHA loan.

Hi,

My girl-friend and I recently applied for an FHA loan with the Federal Credit Union here in Philadelphia. She has a good credit history with a score of around 720. However, my credit history does need some work. I have a score of 631 and I have a collection on my report that is currently under dispute. I also had some late payments, which are a few years old now. We have about 10 percent down payment and we were still denied. My question is; Can you get a FHA loan with a collection still on your report?

Also, we are first time home-buyers, so would working with a mortgage broker be more helpful in our quest to get a loan for a home? Any advice would be appreciated.

Thanks!
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July 26 2013 - South Philadelphia
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Answers (8)

Different mortgage companies will have different overlays on top of the FHA requirements. Just because you were denied by one company doesn't mean you will be denied by the next. Talk to a Loan Officer who can help you get that dispute removed (at most a good LO will take 2-3 days) and work with them.
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August 05 2013

Hello!  I saw your post and wanted to reach out for help.  How large is the collection you have on file?  If it not sizeable, then there shouldn't be an issue... I can do FHA loans down to 580, so please reach out to me so we can chat more.

Thanks

John Cushma
Loan Officer
NMLS #847424
[Phone removed by Zillow moderator. Please see our Good Neighbor Policy for more information.]

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August 05 2013
Are you in the city? I'm in Chester County, just outside of West Chester.
As some other folks have stated the 'dispute' needs to be removed from the account, easy fix I can remove in a day. Disputing accounts helps to improve the credit score, but FHA does not allow an account to be in 'dispute' for this very reason. So it is likely that your score will drop when the 'dispute' is removed. That said,we can go down to 580 for FHA. I can run a 'what if simulator' with my credit vendor, which allows me to see how many points we can get by doing this or doing that, like paying down/off a credit card(s), or removing a falsely reported late, etc..Its a great tool! Feel free to send me an email or give me a call if you would like to discuss further.
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July 30 2013
The easy way to resolve the issue is to just have your girlfriend apply for the loan.  If she can not qualify on her own then you will need to resolve the dispute.  After that if your score is still 631, there are some lenders that will help you out.  However your options improve if your score can get over 640.  An experienced LO can look at your credit and tell you if there is anything to be done to get that score up.  Happy to help if you would like to contact me through my profile.
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July 26 2013
FHA does not like "disputed" accounts on your credit report because the outcome is uncertain. You will need to get the Dispute remark removed. Look over your own credit report carefully and make certain that all late payments reported are accurately recorded. Some borrowers can correct inaccurate reporting - but you have to have proof (documentation). Many lenders have services that can assist you in correcting any errors, sometimes called Rapid Re-Score or Quickscore. It costs a little bit, but not outrageous. You will have many more options if you can boost your middle score to 640.
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July 26 2013
You need to find out the reason for the denial; they should have sent you a letter stating this. It could be something as simple as your account being in dispute. As stated previously, you cannot have accounts in dispute and it could be very easy for the loan officer to fix this if they know how. Get the reason then you will know the next course of action.
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July 26 2013
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Hi Eric,

Thanks for the quick response. I am copying and pasting this from an FHA website:

http://www.fha.com/fha_requirements_credit

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS

A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.

So I am a bit confused. You're telling me that it needs to be resolved and the FHA website says it's minor. I thought it was minor too and that is why I went ahead with the loan process.

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July 26 2013
Hello,

collections have to be resolved per FHA guidelines. Given your credit scores, FHA is still likely the best option. IF you are not in contract, I would recommend reviewing your credit to see about getting the score improved. This can mean contacting creditors that currently negatively rate you, and negotiating. Increasing your score to 660 would allow you several OTHER options that are non FHA, and that would open up less mortgage insurance and in turn lower payments.

Best of luck to you!
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July 26 2013
 
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