FHA underwriters care most about last twelve months of your credit history. Late payments on small debts beyond twelve months are not detrimental, but all nonmedical collections should be paid prior to closing or be part of a documented payment plan. Late payments within the past twelve months should be explained in a letter to show that you've addressed and corrected what led to the past credit issues.
Mortgage payments must be on-time for twelve months. A lender may accept a sufficient letter of explanation for a thirty-day late. Beyond thirty days, you will be denied unless you have a very high score, a legitimate documented excuse, high assets, etc.
Car payments and installment loans should be on-time for twelve months, but must not show sixty-day lates and preferably no more than two thirty-day lates, unless accompanied by a sufficient letter of explanation.
Revolving debt should have no more than two thirty-date lates or one sixty-day late, unless accompanied by a sufficient letter of explanation.
Collections-Liens-Judgments should be at least two years old and paid-in-full, or in a payment plan with current on-time payments.
Bankruptcy must be discharged at least two years if a chapter 7, with a sufficient letter of explanation, and either re-established credit or no new credit obligations incurred. FHA loans are allowed if you are have in a chapter 13 bankruptcy for a least a year, with on-time payments for a year, and the court's permission.
Foreclosure must be at least three years old and caused by circumstances beyond your control. You must also document that you are managing your financial responsibly.
If divorced, you must show via divorce decree that debts are the former spouse's responsibility or else they will be considered yours, also.
REMEMBER: FHA has no credit score requirement, but your lender will generally require a score of at least 620. If you fall outside of the guidelines for any of the following, you may still be approved if you have strong compensating factors based on:
- High credit score
- Low debt-to-income ratio
- Length of time with current employer
- Verifiable assets
- Equity or amount of down payment.
Make sure your loan officer is asking the right questions to know just how to prepare your file for the approval you need. Experience in doing so can make the difference between you getting approved versus getting an email saying "We're sorry, but …"