Updated FHA Loan Requirements 2015

FHA Loans are the most popular loan programs today in the United States. The United States Department of Housing and Urban Development is the parent of the Federal Housing Administration, which is commonly know as FHA by many.  FHA is not a mortgage lender and has nothing to do with the origination, processing, underwriting, funding, and servicing FHA Loans.  FHA’s main function is insuring residential mortgage loans that is originated and funded by FHA approved mortgage lenders such as banks and mortgage companies.  Private lenders such as banks and mortgage companies need to be approved by FHA and follow FHA mortgage lending guidelines in order for the mortgage loans they originate and fund to be insured by the Federal Housing Administration in the event the FHA mortgage loan borrower defaults on their FHA Loans.  FHA Loan Requirements 2015 has been updated with regards to credit scores, credit requirements, down payment requirements, debt to income ratio requirements, collection accounts, charge offs, and disputed credit accounts.

Down Payment FHA Loan Requirements 2015

There are FHA Loan Requirements with regards with minimum down payment on home purchases. If the home buyer has credit scores of 580 FICO or higher, FHA requires a 3.5% down payment on a home purchase.  If the home buyer’s credit scores are 579 FICO or lower, than the minimum down payment required is 10% down payment on a home purchase.  Down payments on FHA Loans can be gifted by a family member and/or relative.  100% of the down payment can be gifted, however, the donor of the gift needs to sign a gift letter stating that the down payment is only a gift and not a loan and that the gift will not be paid back after closing of the FHA Loan.  Gift funds can be used for down payment on a home purchase and closing costs. Gift funds cannot be used for reserves.

FHA Loan Requirements On Types Of Properties

FHA Loan Requirements on the types of properties a home buyer can qualify are that the home needs to be a one to four unit residential property and needs to be owner occupant properties only.  A home buyer cannot qualify for a second home or investment property with a FHA Loan.  Any residential one to four unit can qualify for a FHA Loan. However, with condominiums are different.  For a condominium home buyer to qualify for a FHA Loan on a condominium purchase, the condominium complex needs to be FHA approved.  More and more condominium complexes are not renewing their FHA condominium approved list certifications and many condominium home buyers cannot purchase condominiums due to the condominium complex not being FHA condominium approved. Before you go out shopping for a condominium with a FHA Loan, please make sure that the condominium complex is FHA condo approved.

FHA Loan Requirements On Two To Four Unit Properties

You can purchase a two to four unit property with a 3.5% down payment FHA Loan and use 85% of the potential rental income on the rental units to qualify for the FHA Loan.  Minimum FHA Loan Requirements on credit scores to purchase a 2 to 4 unit property is 580 FICO.  However, there is a three months of reserves required on three to four unit properties.  Reserves are one month of principal, interest, taxes, and insurance also known as PITI.  Reserves cannot be gifted and needs to be the home buyer’s own funds.  Reserves does not have to be in cash. Stock and investment accounts, IRAs, 401k, and other liquid assets can be used to meet FHA Loan Requirements with regards to reserves.

FHA Loan Requirements On Debt To Income Ratios

FHA requires a minimum credit score of 580 FICO in order for the FHA mortgage loan borrower to qualify for a 3.5% down payment home loan. However, if your credit scores are under 620 FICO credit scores, the debt to income ratios are capped at 43%.  If your credit scores are 620 FICO or higher, then your back end debt to income ratios can go as high as 56.9%.  The front end debt to income ratios will be capped at 46.9% for mortgage loan borrowers with credit scores higher than 620 FICO.  Front end debt to income ratios for mortgage loan borrowers with credit scores under 620 FICO are capped at 31%.

FHA Loan Requirements On Collection And Derogatory Items

FHA does not require you to pay off unpaid collection accounts in order to qualify for a FHA Loan.  However, there are certain FHA Loan Requirements with regards to collection accounts.  If you have unpaid collection accounts that total over $2,000 on non-medical collections, FHA requires that 5% of the unpaid collection account balance be used to calculate the FHA mortgage loan borrower’s debt to income ratios.  For example, if you have an unpaid collection balance of $10,000, FHA does not require you to pay off the $10,000 and you can still qualify for a FHA Loan. However, FHA does require that 5% of the unpaid $10,000 or $500 be used to calculate your debt to income ratios.  If the $500 will disqualify the mortgage loan borrower due to the high monthly payment used to calculate their debt to income ratios, then the mortgage loan borrower can enter into a written payment agreement with the collection agency for a lesser minimum monthly payment amount and that amount will be used to calculate the monthly payment used to calculate the debt to income ratios. There is no seasoning requirement on the FHA Loan Requirement and the day both the debtor and creditor signs the written payment agreement, it will go into effect.

With medical collections, this rule from FHA does not apply.  Medical collections are exempt from the unpaid collection account debt to income ratio calculations.

With regards to charge offs, charge offs are exempt and does not matter with FHA Loans.

FHA Loan After Bankruptcy And Foreclosure

FHA is extremely generous and lenient when it comes to derogatory accounts.  A home buyer can qualify for a FHA Loan two years after bankruptcy.  The waiting period starts from the discharge date of the Chapter 7 Bankruptcy.  FHA allows a home buyer to qualify for a FHA Loan one year into a Chapter 13 Bankruptcy with the approval of the bankruptcy trustee.  You can purchase a home with a FHA Loan three years after a foreclosure, deed in lieu of foreclosure, short sale.  The waiting period starts three years from the recorded date after foreclosure or deed in lieu of foreclosure and three years from the short sale date which is reflected from the HUD Settlement Statement.

 

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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