FHA clarifies new credit dispute rule

The Federal Housing Administration is giving borrowers a chance to provide an explanation on any disputed collection accounts in their history in order to qualify for an FHA-backed mortgage.

The new FHA rule took effect April 1 and had some in the real estate community concerned that it would shut more buyers out of qualifying for mortgages.

According to the FHA’s new rule, borrowers with any credit disputes of more than $1,000 on their file will not be able to get a government-backed loan. Borrowers will either have to pay the remaining balance of the credit amount or show proof of entering into a payment plan for it.

The FHA is easing those restrictions somewhat, according to new instructions it provided to lenders, HousingWire reports. Borrowers will be exempt from the new rule if the credit amount is from a “life event.” This might include a medical bill, death, divorce, or unemployment, HousingWire reports.

“The borrower may provide a written explanation and documentation as it applies to all types of disputed and collections accounts if it makes sense, and is consistent with other credit information in the file,” according to instructions provided to lenders.

Also starting on April 1, the FHA raised its insurance premiums, citing it as another effort to try to rebuild its emergency fund, which has fallen below the mandated amount Congress requires.