NEW FHA Mortgage Loan Requirements

CaptureComing September 15, 2015, the Federal Housing Administration will be changing some of the FHA mortgage loan requirements regarding its single family home loan program. Some of the changes are specified below:

 

Large Deposits

For accounts that have recently opened and for accounts that have had recent deposits, large deposits will be defined as more than 1% of the adjusted value. The adjusted value is the lesser of purchase price minus seller concessions or the appraised value of the home. For example, if a $200,000 home that has a $5,000 seller concession is appraised for $200,000 or more, then a large deposit would be calculated as more than $1,950 (200,000 – 5000 = 195,000. 195,000 x 0.01 = 1,950).

Part Time Income

Two years of uninterrupted part-time income will be required. Your average over that two-year period will be used in calculations. However, if you received a pay increase, you can instead calculate your average over the past 12 months.

Self-employed Declining Income

You cannot use your income if it has had more than a 20% decline except in extenuating circumstances, and it has been either stable or increasing during the past 12 months. However, you need to qualify using your lower income.

Frequent Job Changes

If you have moved more than three times in the past 12 months for work, then the FHA mortgage loan requirements require you to show proof that the moves either advanced your income or benefits, or that you needed the training and can document that fact.

Overtime and Bonus Income

You can include a two-year history of overtime and bonus income in your loan application. You will be allowed to use a 1-2 year history if you have earned overtime and/or bonuses consistently during that time, and are likely to continue doing so.

Rent Obtained from Retained Primary Residence

When relocating for work, the FHA mortgage loan requirements specify that your new residence must be at least 100 miles from your current property. You also need at least 25% equity in the current property, unless the rental income history is on your last tax return.

Non-taxable Income

You can include non-taxable income, such as social security and disability, in your qualifying income, up to a gross maximum of 15% or that income at its actual tax rate.

Deferred Loans

Loan payments must be calculated and included in debt-to-income ratios regardless of their status. You must use the actual monthly payment, but if the actual payment is $0, then you need to use your outstanding balance as your monthly payment.

Installment Debt with Less than 10 Months

According to FHA mortgage loan requirements, you can exclude such accounts from debt-to-income ratios if the total remaining payments due is less than 5% of your gross monthly income.

30 Day Accounts that Require Payment in Full

You can exclude such accounts from your debt-to-income ratio if you can document your payments in full for the last 12 months. If you have had any late payments in that time, then 5% of that balance will be included in your debt ratios.

Authorized User Accounts

If you are the primary holder of an account, and have made payments on time on that account over the last 12 months, then you can exclude that account from your ratio. This helps ensure that debt will not be counted against people who had their parents help them establish credit and who are still listed on an account, but no longer use that account.

Multiple FHA Loans

You can obtain a second FHA loan for your primary residence if you are relocating for work when your workplace is more than 100 miles from your current home. This change does not account for high traffic areas where commutes can take exceptionally long times.

Acceptable Mixed Use Properties

A minimum of 51% of a building’s square footage must be intended for residential use. This is an increase in the allotment of mixed use from the previous rules.

Rental Income for 2-4 Units

When buying a property that has between 2-4 units, you can add the rental income from the other units to your qualifying income. Specifically , you can use 75% of either the appraiser’s estimate of fair market rent or the rent based on the rental agreement.

This change lowers the amount you can specify when qualifying for the purchase of a multi-family property.

Streamlined Refinancing – Net Tangible Benefits

A reduction in term will be deemed an acceptable net tangible benefit as long as the total of the principal, interest, and mortgage insurance is no more than $50 a month higher than your current loan.

 

As always be sure to consult with your Licensed Loan Officer for answers regarding your situation in an effort to ensure the home you’re looking at is priced right for you.