New FHA Guidelines Could Affect Number of Livonia FHA Loans
by Michael Perna
on Friday, September 18th, 2015 at 4:18pm.
As of Sept. 14, 2015, the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), will be changing their guidelines thus making it more difficult for people with student loans or less-than-perfect credit to buy a home. The FHA insures mortgages and provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans, and has insured over 34 million mortgages since its start up in 1934, according to HUD.
With Livonia leading the number of FHA loans between its surrounding areas such as Northville, Novi, Farmington, and Plymouth, these guideline changes could affect the number of Livonia FHA loans that get approved.
According to the National Association of Realtors, the average credit score of FHA borrowers has been increasing. “FHA borrowers in FY 2014 have an average credit score above 680. FHA credit quality has improved steadily since 2007. Over 40 percent of FHA loans made in every quarter since 2009 had credit scores above 680. In 2006 and 2007, only about 20% of the FHA loans insured in 2006-2007 had credit scores above 680.”
FHA loans are known to help people become homeowners with lower down payments, lower closing costs, and easy credit qualifying compared to conventional home loans. The easy credit qualifying aspect of FHA will now have stricter policies in place in order to qualify for an FHA loan for case numbers received on or after Sept. 14. With more than 50 changes that will go into effect, a few of the main changes in policies include:
Topic Current FHA Guideline New FHA Guideline
Credit - Authorized User Accounts
If the primary account holder has made all required payments on the account for the previous 12 months, debt does not have to be included in the borrower’s ratios. If less than 3 payments have been required on the account in the previous 12 months, the payment must be included in the borrower’s ratios.
Assets - Gift Funds- Documenting Transfer
Not clear about requiring donors bank statement in all instances
Requires donor’s bank statement showing withdrawal of funds
Credit - deferred Student Loan
Loans deferred more than 12 months from closing do not have to be counted in ratios. (no mention of loans in forbearance)
All deferred student loan obligations, regardless of when they will commerce, must be included in the qualifying ratios. The lender must obtain evidence of the following:
The outstanding balance
The terms of deferred liability
The anticipated monthly payment if available
Lender must use:
The actual monthly payment
If monthly payment is zero or not available, use 2% of the outstanding balance
Simply put, FHA will now hold the borrower responsible for the debt on an authorized user account unlike the previous guideline. Accounts for which the borrower is an authorized user 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.
“The client now will have their parent's card included in their debts unless a 12 month payment history from the parent is on file,” said Shawna Hunt, a senior underwriter at Quicken Loans who often deals with FHA loans. “I'm just using parent as an example, but it would apply to any authorized user situation.”
Also, in order to gift funds, donors will now have to provide their bank statements showing their withdrawal funds if down payment proceeds are gifted to the buyer, and they will also have to source any large deposits to the account in order to document that the donor’s funds came from an acceptable source.
And perhaps the most drastic change in the guidelines, FHA will also no longer accept applicants with student loans in deferment and will require the borrower to have active payment on the installment in order to be considered.
“The student loan change is probably going to affect current students and grads a lot,” said Hunt. “They'll have to qualify as if they're paying their student loans even if they're deferred.”
Among the three primary changes mentioned, there will also be more requirements on frequent job changes and employment gaps. If the borrower has changed jobs more than three times in the last year or has changed lines of work, the lender must obtain transcripts of the training and education showing the borrower’s qualification for the new position, or documentation that shows increase in income or benefits.
Gaps in employment greater than six months will require six months on the current job at the time of case number assignment and a two year work history prior to the absence from employment by verification. Raising a family is no longer an acceptable reason for the gap.
A rental income policy will also be affected. Rental income may be counted when relocating and the new residence is located at least 100 miles from the previous residence if the borrower has landlord history based on the last tax filing. If the borrower has no landlord history, the borrower must have 25% equity in addition to the 100 mile radius in order to use the rent to offset payment.
Some current FHA lenders in Michigan include: Quicken Loans, Summit Funding, Wells Fargo, Chase Bank, Bank of America, CitiBank, GMAC Mortgage, and HSBC.
If you’re interested in investing in a home or condo or selling your current home, then please contact us at The Perna Team, today. We’ll be more than happy to assist you in finding your dream home or your perfect buyer.