Major Changes In FHA Guidelines And HUD 4000.1 Handbook

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This Article Is About The Major Changes In FHA Guidelines And HUD 4000.1 Handbook

Major Changes In FHA Guidelines were implemented for two years in a row under the revised HUD 4000.1 Handbook. The HUD 4000.1 FHA Handbook lists all HUD Agency Mortgage Guidelines on FHA loans. As changes occur, Gustan Cho Associates will be updating this article so our viewers are aware of changes in qualifying for FHA loans. Over 30% of our viewers at Gustan Cho Associates are loan officers and other mortgage professionals. Therefore, we find it very important to have all of our content with regards to the latest agency changes in mortgage guidelines updated. Please feel free to use the comment section below this article if you have any questions and/or concerns with the latest changes in the HUD 4000.1 Handbook on FHA loans.

Importance Of Updating Changes In Agency Mortgage Guidelines For Our Viewers

Gustan Cho Associates will do our very best to update this article the moment we hear of any changes in agency mortgage guidelines:

  • These changes can often affect home buyers and homeowners refinancing their home loans to an FHA-insured mortgage loan.
  • This mortgage blog article will be helpful for those thinking about getting into the housing market, especially first-time home buyers.
  • FHA, under the umbrella of the United States Department of Housing and Urban Development (HUD), has created a newly revised set of FHA Guidelines under the revised HUD 4000.1 FHA Handbook.
  • One of the major changes in FHA Guidelines under HUD 4000.1 is the changes of deferred student loans and documentation of gifted funds by family members and/or relatives for the main borrower to use for the down payment on a home purchase and closing costs for a home purchase.

Changes In Loan To Value On Cash-Out Refinance On FHA Loans

One of the major benefits of doing a cash-out refinance on FHA loans versus other home mortgage programs was FHA allowed a maximum of 85% loan to value on cash-out refinances. However, HUD changed its cash-out loan to value agency guidelines where it lowered the LTV to 80% on cash-out refinance mortgages. The housing market is booming and home prices are soaring. Many homeowners are gaining substantial equity in their homes due to skyrocketing home values. Due to rapidly increasing home values, HUD and the Veterans Administration lowered the loan to value caps on cash-out refinances. VA lowered the loan to value on cash-out refinances to 90% LTV from the 100% LTV.

Major Changes In HUD Guidelines Deferred Student Loans

The Federal Housing Administration has released the new HUD 4000.1 Handbook on September 14, 2015, which will replace all other HUD FHA Handbooks. Some guidelines will remain the same while others will have major changes in FHA Guidelines. One of the most significant changes in FHA Guidelines will be the changes in deferred student loans which will definitely affect and hurt home buyers who have larger student loan balances. Homebuyers with student loans prior to this new FHA Guideline change could have their student loan payments exempted from debt to income ratio calculations. This only holds true as long as their student loans were deferred for at least 12 months. Now that is not the case. Whether the student loans are deferred for longer than 12 months or if borrowers have zero payments on student loans due to an income-based repayment plan, also referred to as IBR, there will always be an amount that is included in the borrower’s debt to income ratios.

Student Loan Debt Versus DTI

Student Loan Debt Versus DTI

In the event, if the monthly student loan payments cannot be documented by the borrower and/or student loan provider due to the student loan being in deferment, or the payment is really $0 per month because the borrower is on an income-based repayment plan, IBR, then the mortgage underwriter will use the following:

  • 1.0% of the balance of the student loan will be used as a monthly hypothetical monthly debt expense
  • The 1.0% of the outstanding student loan balance figure will be used to calculate the borrower’s debt to income ratios
  • The borrower does not have to pay anything on the student loan debt
  • However, the 1.0% of the outstanding student loan is just a hypothetical debt used in DTI calculations
  • Or, the second option is to contact the student loan provider and get a hypothetical monthly fully amortized payment over an extended-term (normally 25 years)
  • The fully amortized monthly payment over an extended-term needs to be in writing by the student loan provider and can be used in lieu of the 1.0% of the outstanding student loan balance
  • This amount normally turns out to be just under 0.60% of the outstanding student loan balance

Borrowers with higher student loan balances need to see if they can qualify for conventional loans. Conforming Loans accepts IBR Payments as long as it reports to credit bureaus. This holds true even for zero monthly payment IBR payments.

Other Major Changes In FHA Guidelines Under HUD 4000.1 Handbook

There are other major changes in FHA Guidelines that can affect FHA borrowers. Borrowers who are self-employed need to still provide two years of income tax returns. However, with self-employed borrowers who have a 20% or more declining income from one year to the next year, this needs to be downgraded to manual underwriting. The self-employed borrower mortgage loan application cannot be based on Automated Underwriting System findings with cases where self-employment income has been decreasing by more than 20% from one year to another year. There are changes in waiting periods after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale to qualify for FHA Loans. The waiting period will be determined by the ordering of the FHA case number assignment date instead of the application date. This change in FHA guidelines is a benefit and will speed up mortgage loan applications. On FHA refinance mortgage loans on land contract refinances, the deed of the land contract needs to be recorded in order for the refinance mortgage to proceed.

Major Changes In FHA Guidelines With Gift Funds

Homebuyers getting gift funds for their down payment need to have the gift fund donor provide 30 days of bank statements. The bank statement needs to show proof of the gift funds leaving the donor’s bank account and into the home buyer’s bank account if it is from a bank wire transfer or provide a canceled check to show documentation. A gift letter is provided by the mortgage lender stating that the gift funds are solely a gift and are not a loan. The gift letter also needs to state the gift will not be paid back needs to be signed by the gift fund donor. The gift fund letter needs to be fully legible and cannot have white-outs or cross-outs on the bank account balances and/or any numbers. Any irregular and large deposits of the donor’s bank accounts will be carefully reviewed and questioned. Gift funds can be used for the down payment and/or closing costs on a home purchase.

FHA Spot Loans On Non-HUD Approved Condominiums

FHA Spot Loans On Non-HUD Approved Condominiums

More and more condominium complexes are not renewing their annual HUD condo certifications due to the costs and red tape involved. HUD has allowed FHA Spot Loans. FHA Spot Loans is when condo buyers can qualify for a condo purchase with an FHA loan in a condo complex where the condo complex is not HUD Approved. Condominium sales are expected to surge with the reemergence of FHA Spot Loans. The reemergence of FHA Spot Loans will enable homebuyers who prefer a condominium versus a single-family home to purchase a condominium unit with an FHA loan.