If you’re applying for a residential mortgage loan and you’re looking at an FHA loan to purchase or refinance the home, the FHA requirement could be problematic for you as it relates to qualifying.

All FHA Mortgage Lenders in the United States use a system by HUD called FHA Connection.  Its database is used to insure and generate FHA case numbers in association with your home loan application.  When you are applying for a mortgage loan and you’re denied the FHA mortgage loan, an MCR report must be logged on that denial. It’s called a Mortgage Credit Reject. A mortgage credit rejection requires the lender to specifically state within the FHA connection why they could not close that loan. Another lender cannot issue an approval for the same borrower. but the information needs to be in the system.

Here is where this could become problematic. Not all lenders look at things the same. So, for example, let’s say you apply for an FHA loan to buy a home with lender A. Based on their interpretation of your income and credit they deny your application and subsequently input this into FHA Connection. So, you pull the plug with them, and you move onto lender B. Will you then go to the same FHA connection and pull all the information that was put in there about why they rejected your loan previously? That doesn’t mean that lender B cannot close your loan, it just means that your loan is going to be tainted, so to speak, with lender B or any other lender that takes a stab at your mortgage loan application because it’s under the same FHA case number in the FHA connection.

Here is also something you need to be aware of.  Any lender that concludes your loan most likely is going to have to get by a credit policy manager or a senior underwriter to get a second set of eyes on the loan to make sure the loan indeed meets FHA standards. Maybe the property needed some work that couldn’t get done, maybe the credit score or maybe the debt-income ratio was too high. Whatever the case is, it just means that whoever you’re going to apply with is going to get more scrutiny and more potential which is called underwriting conditions or otherwise known as asks for more paperwork in the process. Be prepared for it, know it, and understand it. If you’re going to be looking at an FHA B residential mortgage loan to buy a home.

Scott Sheldon is a local mortgage lender; with a decade of experience helping consumers purchase and refinance primary homes, second homes and investment properties. Learn more at www.sonomacountymortgage.com.

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