In this article, we will discuss Major Changes In FHA Guidelines And HUD 4000.1 Handbook.
Major Changes In FHA 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 changes could have their student loan payments exempted from debt to income ratio calculationsas 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
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 1.0% of the balance of the student loan as a monthly debt expense and put this figure in to calculate the borrower’s debt to income ratios.
Borrowers with higher student loan balances needs to see if they can qualify for conventional loans. Conforming Loans accepts IBR Payments as long as it reports to credit bureaus.
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 in 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 needs to have the gift fund donor to provide 30 days of bank statements and the bank statement needs to show proof of the gift funds leaving the donor’s bank account and into the home buyers bank account if it is from a bank wire transfer or provide a canceled check to show documentation. A gift letter that is provided by the mortgage lender stating that the gift funds is solely a gift and is not a loan and 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.
Michael Gracz NMLS 1160212 is a veteran mortgage loan officer with The Gustan Cho Team at Loan Cabin. Mike can help borrowers with less than perfect credit and higher debt to income ratios. Due to The Gustan Cho Team at Loan Cabin being a no overlay lender on government and FHA Loans, Mike can structure any less than perfect borrowers files and help them qualify for a home loan in a matter of a short time. It is not if you can qualify for a mortgage with Mike but when. Mike Gracz can be reached at 630-659-7644 or email at firstname.lastname@example.org