FHA Mortgage: You Have to Pass a CAIVRS Check to Get an FHA Home Loan

By Gina Pogol
Mortgage Credit Problems Columnist

FHA mortgages are more popular than ever. Their advantages include low down payments, competitive interest rates, and more flexible underwriting. But FHA is not a bad credit lender--you have to pass a Credit Alert Interactive Voice Response System (CAIVRS) test.

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CAIVRS was created by HUD. It's a federal government database that lists those who have defaulted on federal debt or obligations; have a federal lien, judgment, or loan that is currently in default or foreclosure; have had claims paid on direct or guaranteed federal loans; or have had a claim paid by a reporting agency. That means you can't get away with blowing off a student loan or tax debt and be eligible for an FHA mortgage.

CAIVRS contains delinquent borrower records from:

  • Department of Housing and Urban Development (HUD)
  • Department of Veterans Affairs (VA)
  • Department of Education
  • Department of Agriculture (USDA)
  • Small Business Administration (SBA)
  • Federal Deposit Insurance Corporation (FDIC)
  • Department of Justice (DOJ)

FHA applicants must be screened and lenders have to check the CAIVRS database. It's required by law. If you apply for an FHA mortgage or other government loan and are not delinquent on federal debt and/or do not have a federal tax lien outstanding, then you don't have anything to worry about.

If you show up on CAIVRS as delinquent on federal debt or if you have had a claim paid in the last three years on any HUD loan, you will not be granted FHA financing. You have to pay off that debt and bring your payments current under an approved repayment plan. Then you have to provide a written copy of the plan from the debt holder. Federal IRS tax liens may go unpaid if the IRS is willing to subordinate the tax lien to the FHA home loan.

There are a few exceptions to this rule:

  • Assumptions: If you sold the property and the buyer assumed your loan and then defaulted, you are eligible for an FHA loan.
  • Divorce: If the divorce decree or legal separation agreement awarded the property and responsibility for payment to your ex and he or she defaulted after the divorce, you are still eligible for FHA home loans. But if the mortgage was already in default when you divorced, you are out of luck.
  • Bankruptcy: If the property was included in a bankruptcy that was caused by circumstances beyond your control, you may be eligible (it's up to you to prove the circumstances of the bankruptcy).

What If You Are on the CAIVRS List by Mistake?

It isn't uncommon to be listed by mistake, so you don't have to be embarrassed. You can't correct the error yourself; the general public doesn't have access to CAIVRS. Your lender can tell you why you are listed, and you then provide documentation to prove that you don't have any outstanding federal obligations. Your lender can call the CAIVRS line and go through the "telephone script for government employees using CAIVRS" to correct your entry.

The federal government is a generous but tough creditor. While it might finance your home purchase when no one else will, it doesn't back down when it's time to collect.

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