By Gina Pogol
Do Credit Counseling Programs and FHA Home Loans Mix?
Mortgage Credit Problems Columnist
Dave Says - Dear Gina, My wife and I got in over our heads with our credit cards. We made our payments (only late a couple of times) and then we enrolled in Consumer Credit Counseling. We have been making our payments to the program on time and our credit scores aren't too bad. Will we be able to get an FHA mortgage or will we have to pay everything off first? - Dave in Tuscon
Gina Says: Dear Dave - Congratulations on taking control of your spending before things got too much out of hand. Whether you can get approval for an FHA loan right now depends on a few things.
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- The Home Affordable Refinance Program (HARP) has been announced by President Obama, saving homeowners thousands over the lifetime of their mortgage
- Eligible homeowners may be able to refinance, regardless of how much they owe on their home
Typically, HUD underwriters view counseling programs the same way they would consider Chapter 13 bankruptcy. If you have been paying on time for at least twelve months and the counselor recommends you and your wife as good credit risks, you may be acceptable.
Because some creditors (jerks!) might still report you as delinquent, even though they agreed to accept a smaller payment, lower interest, or a smaller principal payoff, this affects the analysis of your overall credit. HUD's rules require that the underwriter examine your application on a case-by-case basis and use his or her best judgement.
Factors that can help your cause are:
- Saving money. If you managed to steadily put away some savings while reducing your debt, you are proving that you are learning financial responsibility.
- Stable job history. If you have been in the same industry at least two years, preferrably with increases in responsibility and pay, you look like a better candidate.
- Good housing payment history. I f you can show that you have successfully made a rent or mortgage payment as high or higher than the one on the loan you are applying for, you're a better risk.
So, once you have that twelve month history under your belt it makes sense to try for an FHA loan if you feel ready. It also helps to establish a great working relationship with your counselor. Good luck!