The FHA home loan program has some new rules and guidelines starting September 14th 2015 for all approved FHA banks, lenders and brokers. These FHA Guideline Changes 2015-2016 should be noted for any home buyers that wish to utilize the FHA mortgage program in 2016. Below we have listed some of the major changes that impact new home buyers the most. Please contact us at www.FhaMortgageSource.com or call 800-743-7556 for more information. We serve home buyers in all 50 states.
FHA & Student loans debt:
Underwriters will no longer be able to exclude monthly student loan payments for FHA loans in regards to qualifying and debt to income ratios. In the past, student loan payments in deferment for at least the next 12 months ( 1year) could be excluded from debt-to-income ratios. FHA will now require these payments to be include into the borrowers monthly debt, similar to the USDA Mortgage. If there is no monthly payment reported, lenders will use 2% of the loan balance for the monthly payment. What this means? Pre qualified amounts could be much less for home buyers that have significant student loan debt.
New update May 2016: Please note – The old FHA loan policy for student loan debt required lenders to calculate a monthly payment for deferred Student Loans using 2 percent of the outstanding balance, and include the payment in the Borrowers Debt-to-Income ratio for qualification purposes.” New rules going into effect June 30, 2016 will reduce this to only 1% of the outstanding balance. This guidance is effective for all new FHA case numbers assigned on or after June 30, 2016.
Gift funds from family, etc:
If the home buyers down payment is received in the form of gift funds (from parents as example) the mortgage company will be required to obtain a bank statement from the gift donor’s account, and also document any large deposits to their account in order to verify the donor’s funds came from an acceptable source. Mom and Dads should be prepared for this as the lenders will now verify your asset accounts.
Earnest Money “Good Faith” Deposit:
Any earnest money paid on the contact over 1% over the purchase price need to be sourced and documented.
Job History and Employment:
If an loan applicant has changed jobs more than three times in the previous 12 months or has changed lines of work, the mortgage company must take additional steps to verify the stability of the borrower’s employment income. Gaps of employment greater than six months will require six months on the new job, regardless of what created the gap – illness, new child, etc. Job gaps under 6 mnths require no explanation. Applicants with recent inconsistent job history should take note of this change.
Part Time Employment – Minimum of 2 years on the job to be considered as income on the FHA loan application.
30-day revolving accounts:
For 30-day accounts such as credit cards, lenders will soon be required to verify the borrower paid the outstanding balance in full on every 30-day account each month for the past 12 months. 30-day accounts that are paid monthly will not be included in the borrower’s debt to income ratios. If the credit report reflects any late payments in the past 12 months, the lender must utilize 5% of the outstanding balance as the borrower’s monthly debt to be included in the debt ratios for qualifying.
Authorized user or Co-Sign accounts:
Accounts for which the borrower is an authorized user or co signer will be included in a borrower’s DTI ratio unless the lender can document that the primary account holder has made all required payments on the account for the previous 12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount must be included in the borrower’s DTI. Borrowers with tight debt to income ratios please take note. If may be a good idea to remove yourself from these type of accounts.
FHA Mortgage Credit Requirements:
FHA Guidelines on the minimum credit score needed by a borrower to obtain max 96.5% financing on a FHA loan is 580. However, many lenders have in house “overlays” (basically these are addition rules) that require a min of 620 or 640 score for FHA loans. More credit items changing: Any borrower that has a credit score below 620 should be prepared to put down at least 5%-10% down payment.
Late payments – lenders will look closer at late payments, especially late payments in the last 24 months.
Medical Collections – these are pretty much disregarded as they were in the past.
Charge Offs – Letters of explanation as why the charge off happened, etc.
Tax Liens – If unpaid – valid repayment plan – agreement in place for min 3 months.
General FHA Purchase Benefits for 2016:
- Fixed interest rate– One of the biggest advantages of the FHA loan is the fixed 15 or 30 year rate of interest. Compared to other traditional loans where the interests vary, the interest rate remains the same for the entire course of the loan. This period is usually for 30 years. Due to this provision the borrower can plan out his fixed monthly instalment in advance.
- Low down payment – The Federal government insures or backs FHA loans, therefore the borrower /applicant incur very minimal charges during the process. FHA loan require a minimum 3.5% investment from the borrower. The loan does allow for the home seller to pay all closing costs, up to 6% which is generally enough to cover just about any home purchase.
- Simple to qualify – Pre approval for a FHA loan is one of the simplest. Since it is the FHA that insures your house loan, the lenders and banks make it easy for anyone to qualify that meets the basic requirements. The main components of qualifying are credit and income/employment.
- ARM – Adjustable Rate Option – The FHA loan came into being keeping in mind the tight budget constraints of first time homeowners. For this reasons the FHA has an adjustable rate house loan, which entails a very low monthly payment and curiosity rate.
- Low cash reserves required – Compared to most conventional loan programs, FHA is a nice option for first time homeowners that have little money saved up.
First Time buyers need to know what to expect before starting the FHA loan application process. Being prepared will always better your chances in successfully getting your FHA mortgage approved. Below we have listed some steps and things to remember.
Before you start application:
- Debt-to-income ratio ( DTI)
Close analysis will be done by lenders to insure total debt in within the requirements. 41 to 45 percent is risky for an FHA loan, however this can be exceeded in some cases. You will need two years of consistent employment with no unexplained gaps in employment.
- Credit Score Check
It’s usually the little things that can hurt your credit. Check your income, credit, as well as rent history that might show up on a credit report. Get everything on the up and up, aiming for a clean record. As of 2016, a credit score of 620 or better is needed for the 3.5% down payment FHA. If you came out of a bankruptcy or foreclosure, you would need to have maintained a perfect credit since then (4 years and 5 years) regardless of current credit score.
FHA Loan Application:
- Fill out the Information request form on this page, this will allow the FHA loan specialist to contact you to discuss your goals. Later a full application will have to be filled out that detail everything about you, the borrower, which will be used in figuring out whether you’re eligible for a loan or otherwise. The rate and the terms of the loan will also be determined largely by the information in your application form, credit score, etc.
- In the event the application is pre approved, you will get the disclosure documents which are essentially initial loan documents that have all the minute details regarding the terms, interest rates, cost and payments of the loan.
- This has to be signed and returned along with other documents such as your bank statements, IDs, references, etc., for verification purposes. Usually these documents are prepped and readied well before the loan application is submitted to the lender.
- The processor reviews all verifying documents and requests for missing or any additional documents from the borrower if need be.
- Upon completion, the documents are then submitted to the underwriter.
- The underwriter will send a Conditions List of additional missing items or documents to the buyer.
- Once the buyer completes the needed items on the list, it’s sent back to the lender for final approval. A closing date is then set.
FHA Refinance Notes for 2016:
Interest rates are starting out low in 2016, there is still time for current FHA home owners to refi and save money. The FHA streamline refinance program requires that the new loan be an FHA to FHA transaction only, meaning only current FHA loans can qualify. Second, credit requirements ask only for a 640 credit score and no late payments on your mortgage in the past 12 months. Finally, limited to no income information is needed for the FHA streamline refinance program.
Because this program does not require an appraisal it means that those with an FHA loan can refinance even if they owe more than their home is worth (Upside down) As long as the basic requirements of the FHA streamline application can be met, no appraisal is needed. This saves both time and money.
Please contact us for more info about the latest FHA refinance program changes in 2016. We are hear to help with any questions – home buyers please reach out to us 7 days a week by calling 800-743-7556 or by filling out the quick Info Request Form on the right side of this page. Mobile users will find the short Info Request form at the top of this page.
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