2016 FHA Manual Underwriting Guidelines

2016 FHA Manual Underwriting Guidelines

2016 FHA Manual Underwriting Guidelines applies for mortgage loan applications that get a referred/eligible per Automated Underwriting System where the automated system cannot render an approve/eligible per DU FINDINGS . FHA Manual Underwriting  means that a mortgage underwriter will manually underwrite the FHA mortgage loan application and carefully review the borrowers income, assets, liabilities, credit, credit scores, and credit history. Mortgage underwriters will question derogatory credit information, public records, debt to income ratios, and look for compensating factors . Compensating Factors are positive factors that mortgage loan borrowers have to offset bad credit such as 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, and other positive factors the borrower has. All mortgage loans after Chapter 13 Bankruptcy discharge are all manual underwriting 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 a FHA Loan after Chapter 13 Bankruptcy discharge date without any waiting period with a manual underwrite. However, the borrowers need to meet FHA Manual Underwriting Guidelines. All FHA Back To Work Extenuating Circumstances Due To An Economic Event mortgage loans are manual underwriting as well since the automated underwriting system will yield an referred/eligible per automated findings.

FHA Manual Underwriting Guidelines: Verification Of Rent

FHA Manual Underwriting Guidelines will require that the mortgage loan borrower has verification of rent . Verification Of Rent is only valid if the mortgage loan borrower can provide 12 months of canceled checks to the mortgage underwriter. The mortgage loan borrower needs to have been timely with all rental payments for the past 12 months and not have been late 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. The landlord also needs to complete a form of rental verification which will be provided by the mortgage lender. 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 he or she has 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 because the new mortgage payment is the same as the rental payment the mortgage loan 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. If you are 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 mortgage lender and completed and signed by the property management company manager will be sufficient.

FHA Manual Underwriting Guidelines: Reserves

On manual underwriting, the mortgage loan underwriter will most likely want to see three months of reserves by the mortgage loan borrower. One month’s reserves is 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 down payment and closing costs on a home purchase, however, reserves cannot be gifted and needs to be borrower’s own funds. Reserves does 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.

If you are a home buyer that needs an aggressive mortgage lender that specializes in manual underwriting, please do not hesitate to contact us at 262-716-8151 or email us at gcho@gustancho.com. We are specialists in manual underwriting, especially we help many folks who just recently gotten a Chapter 13 Bankruptcy discharge without any waiting period after the discharged date.

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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