Affinity Real Estate and Mortgage Services Practice Exam

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If a judgment appears on the credit report, how will it be treated for an FHA loan?

As long as the judgment was over one year ago, it has no bearing

With a letter of explanation the borrower may be approved for the loan

The judgment must be paid in full before the borrower can get an FHA loan

When assessing how a judgment impacts the eligibility for an FHA loan, it is essential to understand the FHA's guidelines regarding judgments. For an FHA loan, any judgment appearing on the credit report must be resolved prior to loan approval. This means that the borrower is required to pay the judgment amount in full before they can proceed with securing an FHA loan.

FHA lenders are particularly cautious about judgments because they indicate a history of financial distress, which could affect the borrower's ability to repay the loan. Therefore, resolving outstanding judgments is a necessary step to ensure the borrower’s financial stability and responsibility, aligning with the FHA's focus on sustainable homeownership for borrowers.

Understanding the reason behind this requirement highlights the importance that lenders place on a clean slate for significant debts or liabilities, ensuring that the borrower does not carry any unresolved financial issues into their home purchase.

If the judgment was over two years ago it will have no bearing

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