FHA Manual Underwriting Guidelines And Requirements

FHA Manual Underwriting Guidelines And Requirements

This BLOG On FHA Manual Underwriting Guidelines And Requirements Was UPDATED On April 15th, 2019

FHA Manual Underwriting Guidelines

FHA Manual Underwriting Guidelines applies for borrowers who cannot get an approve/eligible per AUS. Borrowers who get referred/eligible per Automated Underwriting System qualify for manual underwriting. Refer/Eligible per AUS means that the automated system cannot render automated approval and approve/eligible per DU FINDINGS .

  • FHA Manual Underwriting  means that a mortgage underwriter will manually underwrite the FHA mortgage loan application
  • The underwriter carefully reviews the following information:
    • borrowers income
    • assets
    • liabilities
    • credit
    • credit scores
    • credit history

How Mortgage Underwriters Analyze Derogatory Credit Tradelines

  • Mortgage underwriters will question derogatory credit information, public records, debt to income ratios, and look for compensating factors
  • Compensating Factors are positive factors borrowers have to offset bad credit or less than perfect financial profile
  • Examples of compensating factors are the following
    • reserves
    • longevity on the job
    • verification of rent
    • income such as part-time income that is not used as qualifying income
    • spouse with income but not on the mortgage loan
    • larger down payment
    • other positive factors the borrower has
    • All FHA Loans during and right after Chapter 13 Bankruptcy discharge are all manual underwriting
    • This because the automated underwriting system does not render an automated approval until at least two years has passed from the Chapter 13 Bankruptcy discharge date
    • Home Buyers can qualify with no waiting period for an FHA Loan after Chapter 13 Bankruptcy discharge date without any waiting period with a manual underwrite

Eligibility Of FHA Manual Underwriting

To be eligible for FHA Manual Underwriting, borrowers need timely payments in the past 12 months.

FHA Manual Underwriting Guidelines On Verification Of Rent

FHA Manual Underwriting Guidelines will require borrowers to have verification of rent .

  • Verification Of Rent is only valid if borrowers can provide 12 months of canceled checks and/or 12 months bank statements to underwriter
  • Borrowers need to have been timely with all rental payments for the past 12 months
  • No 30 day late payments with any rental payments
  • If the borrower has paid their rental payments online, then 12 months of bank statements will be required to validate the verification of rent showing the exact rent payment leaving bank account
  • The landlord also needs to complete a form of rental verification
  • VOR Form will be provided by the mortgage lender

What Is Payment Shock

The importance of verification of rent is due to determine payment shock

  • Payment Shock is the proposed new mortgage payment a home buyer will have compared to the monthly rental payments they have been paying
  • If the renter has been paying $1,000 per month in rent and the new P.I.T.I. ( principal, interest, taxes, insurance ) is $1,000, there is zero payment shock
  • This is because the new mortgage payment is the same as the rental payment the borrower has been paying
  • If the new proposed housing payment will be $1,200 per month and the old rental payments were $1,000 per month, then the home buyer will have a $200 payment shock or 20%
  • If the home buyer has been renting and has been paying timely rental payments but was paying with cash, that will not count as verification of rent
  • Renters should always pay their rental payments with checks or online to show documentation
  • Renters renting from a property management company, then bank statements and canceled checks are not required
  • A verification of rent form which is provided by the lender and completed and signed by the property management company manager will be sufficient in lieu of 12 months canceled checks and/or bank statements

FHA Manual Underwriting Guidelines On Reserves

On manual underwriting, the mortgage underwriter will most likely want to see three months of reserves by the mortgage loan borrower.

  • One month’s reserves are equivalent to one month’s of P.I.T.I., which is principal, interest, taxes, and insurance as well as HOA fees if applicable
  • FHA allows 100% gifted funds for the down payment and closing costs on a home purchase
  • However, reserves cannot be gifted and need to be borrower’s own funds
  • Reserves do not have to be liquid cash in bank accounts
  • Retirement and investment accounts can be used for reserves
  • Asset accounts such as IRAs, 401k, and securities investment accounts can be used for reserves

Home Buyers in need of an aggressive mortgage lender with no mortgage overlays on government and conventional loans and specializing in manual underwriting, please do not hesitate to contact us at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are specialists in both VA and FHA manual underwriting. We help many folks who just recently gotten a Chapter 13 Bankruptcy discharge without any waiting period after the discharged date.

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