News, updates, and explanations to keep you informed.
Is There a 'No Credit Check' FHA Loan?
One type of question that sometimes arises about FHA loans--is there a no-credit-check version of an FHA mortgage loan? What is the criteria required for FHA loans that do not require a credit check and/or appraisal?
Those are questions that come up from time to time because of the advertising you may see about "no credit check" loans for other purposes. But when it comes to mortgage loans, ALL FHA new purchase home loans do require a credit check and an appraisal, as do all FHA cash-out refinance and Home Equity Conversion Mortgages or HECM loans.
Basically you won’t find a no-credit check FHA loan for a new purchase transaction or for any transaction that includes cash back to the borrower (that is not in the form of a refund). That said, there may be exceptions possible for FHA energy efficient add-ons for a Streamline Refinance loan, depending on the circumstances. Speak to a lender about this option and how it can affect the FHA streamline loan application.
Is there ANY type of FHA loan that features no required credit check?
The FHA Interest Rate Reduction Refinance Loan or Streamline Refinancing loan is the ONLY FHA loan product that has no FHA-required
credit check in most cases, and no FHA-required appraisal. This type of home loan refinance is available only for existing FHA mortgages. They cannot be used to refinance a conventional or other non-FHA mortgage.
This “no-credit check/no appraisal” option for FHA Streamline loans is just that--an option. Your lender is free to require a new credit check and/or appraisal for these loans. Doing so is not a violation of FHA loan program policy--the fact that the FHA does not require a credit report or appraisal for FHA Streamline Refinancing does not obligate the lender to do the same.
Loan approval criteria for Streamline Refinancing is based on the borrower’s original mortgage loan application, but the new loan normally requires lower interest or mortgage payments are the result of the new loan (unless the old loan being refinanced is an Adjustable Rate Mortgage).
When could such a refinance loan application actually have an FHA-required credit check? Situations where the borrower finds his or her payments going up 20% or more as a result of the new loan--all such cases are required to include a new credit check. The reason payments or interest rates go up so much in these cases often includes putting too many add-ons into the loan amount such as the financing of certain allowed fees and/or expenses.