This ARTICLE On Updated FHA Loan Requirements On FHA Home Mortgages Was Published On May 8th, 2020
Updated FHA Loan Requirements Effective Immediately:
- In this blog, we will cover Updated FHA Loan Requirements
- FHA Loan Programs have traditionally been one of the most easiest mortgage loans for home buyers to qualify
- This is due to the lax and lenient FHA mortgage lending guidelines and HUD understanding that just because consumers had periods of bad credit does not mean that they should be excluded from home ownership
- FHA Loan Programs are great for first time home buyers, home buyers needing non-occupant co-borrowers to qualify due to little or no income documentation, home buyers with prior bad credit, home buyers with prior bankruptcy and foreclosure, and home buyers with high debt to income ratios
- FHA Loans only require credit scores of 580 FICO and only require 3.5% down payment on a home purchase FHA Loan
- Updated FHA Loan Requirements went into effect through HUD 4000.1 FHA Handbook
- More changes and updated FHA Loan Requirements will be expected into 2020
In this article, we will discuss and cover the Updated FHA Loan Requirements On FHA Home Mortgages.
Updated HUD Guidelines That Went Into Effect
Updated FHA Loan Requirements include FHA Home Appraisals.
- The FHA Home Appraiser needs to document a three year chain of title on all home appraisals
- The appraiser needs to refer 2 sources from the multiple listing service, also referred to as MLS, and/or public records
- The FHA Home Appraiser needs to check all appliances in the subject property the appraiser is inspecting
- Need to make sure that it is operational which means that utilities needs to be on
- Appliances such as dishwashers, refrigerators, and stoves needs to be tested for proper operations so the home needs to have live electricity, running hot water, and gas
The FHA Home Appraiser also needs to review the home ownership record. The appraiser needs to evaluate when the property was sold in the past 12 months. Also need to check for undisclosed identity of interest property transactions.
Updated HUD Requirements On Deferred Student Loans
Updated FHA Loan Requirements On Deferred Student Loans will affect many home buyers with large student loans that are deferred.
- In the past, any deferred student loans that is deferred for at least 12 months can be excluded from debt to income calculations
- With updated FHA Loan Requirements, this will no longer be the case. All student loans, deferred or not, a monthly payment will be taken into effect
- The actual student loan monthly debt obligation is to be used in calculating the borrower’s debt to income ratios
- In the event if the monthly student payment debt is zero or the monthly payment is not available, then the monthly payment used for student loan calculation will be 1.0% of the outstanding student loan balance
Or, we can use a hypothetical fully amortized monthly payment over an extended term by the student loan provider in lieu of the 1.0%.
Mortgage Guidelines On Credit
Credit cards that are due within 30 days such as American Express credit card accounts will have updated FHA Loan Requirement changes as well.
- These types of credit accounts can be excluded from debt to income ratio calculations
- This only holds true if the lender can verify that borrowers have paid the outstanding credit card balance in full each and every month for the past 12 months
- In the event if the borrower had any outstanding collection accounts, then 5% of the credit accounts outstanding balance needs to be used for debt to income ratio calculations
- All authorized credit card user accounts will count towards the authorized users debt to income ratios
- This holds true unless the authorized credit card user can prove that the main user has paid the whole monthly minimum payments in the past 12 months
Need to show proof of 12 months canceled checks and/or bank statements of the main card user.
Updated FHA Loan Requirements On Installment Debts Less Than 10 Months
The old rule with installment debts less than 10 months was that these debts can be excluded from debt to income calculations.
- However, updated FHA Loan Requirements on installment debt less than 10 months may be excluded from debt to income ratio calculations
- This holds true if only and only if they have cumulative payment of less than or equal to 5% of the borrower’s gross monthly income
The borrower is forbidden from paying down this balance to reach this required percentage.
Updated FHA Loan Requirements On Employment
Updated FHA Loan Requirements On Employment require if the borrower has changed employers more than 3 times in the past 12 months, the lenders is required to take measures and steps to verify the borrower has stable employment and the income is likely to continue for the next three years.
- The old Requirements on part time employment was that the mortgage underwriter had full underwriter’s discretion when the borrower has been employed part time for less than two years but is most likely to continue
- The updated FHA Loan Requirements On Part Time Income is mandatory two years uninterrupted employment of part time income if part time income will be used
With regards to gaps in employment , for borrowers who had gaps in employment for greater than six months, then six months on their new job is required to qualify for FHA Loan. Taking time off to raise a family will no longer be considered an acceptable reason for gaps in employment.
Updated FHA Loan Requirements On Gift Funds
Gift Funds are allowed with FHA Loans.
- If the down payment gift funds is given to the home buyer, the lender needs to verify the gift funds
- Make sure that the donor gift funds have been seasoned in their bank account for at least 30 days
- Need to source any large or irregular deposits of the donor’s bank statements
- Real Estate Commissions can be used as a source of down payment as a gift by family member who is a licensed real estate agent
- The lender needs to verify and get proof when real estate commission income is used as funds to close
Need proof the real estate commission and/or gift that either the borrower and/or family member and/or relative legitimately holds a real estate agents or real estate brokers license and that they are entitled to the commission.
Updated HUD Guidelines On Rental Income On Retained Primary Home
- The old FHA Loan Requirements on this subject matter was that rental income can be used when the home buyer relocates outside of reasonable commuting distance
- Relocation needs to be due to job
- The borrower has at least 25% equity in their home
- The new updated FHA Loan Requirements on rental income on retained primary home is that rental income can be counted due to relocation
- The new home purchase is at least 100 miles from the home buyer’s previous residence
In the event if the new home buyer had no history of rental income on his or her income tax returns, then the borrower needs to have at least 25% equity on retained primary property.
Updated FHA Loan Requirements On Non-Taxable Income
The old FHA Loan Requirements on social security income and/or non-taxable income was if the mortgage loan borrower did not file an income tax return, then they can use the tax rate of 25% to gross it up. The updated FHA Loan Requirements on non-taxable income is using the greater of 15% and/or actual tax rate of the mortgage loan borrower. If the borrower did not file an income tax return, then the lender will need to use the income tax rate of 15%.
With regards to multiple FHA Loans, a home buyer can have multiple FHA Loans if they are relocating to another jurisdiction due to a job transfer and/or new job that is at least 100 miles from their departing home with the first FHA Loan.