The FHA will be making some changes to their guidelines this coming season and applies to all loans with case numbers assigned on and after September 15, 2015. There will be both positive and negative impact of these changes for the typical FHA borrower this summer. Some of the more dramatic changes are outlined below.
If your parents are planning on helping you buy your first home by gifting you a downpayment, or a substantial sum for say, a wedding present, their Bank Account Statement now must be provided. This is to prove the funds didn’t come from an “unacceptable source” and to determine the donor’s ability and withdrawal of funds.
Lenders are no longer allowed to discount student loan payments if deferred for 12 months or greater from the note date. The actual payment must be used even if the current payment is either zero or deferred. If no payment can be obtained, 2% of the balance is used to calculate your Debt to Income (DTI) ratio.
If you have authorized usership of an account, it must be included in your DTI ratio unless the lender can prove that someone else (primary account holder) has made all required payment in the last 12 months. If you have made 3 payments or less in the previous 12 months, it must be included in your DTI determination.
Voluntary Alimony/ Child Support
Alimony and child support received in the last 6 months on a voluntary basis counts as qualifying income.
Certain late payments on a mortgage or HELCO within the past year will automatically downgrade your land to a manual underwrite.
The lender must have documented evidence that the “other party” to the loan obligation as been making on-time payments regularly during the previous 12 months, without history of deliquency if the cosigned liability is not included in the monthly obligation.
30 Day Accounts
Previously lenders only considered sufficient funds to cover accounts and did not include the liability. However, no the lender must verify that the outstanding balance has been paid in full on every 30-Day account each month for 12 months. If there are late payments, the lender uses 5% of the outstanding balance when determining the borrower’s DTI.
Installment Debt/ Less than 10 Months
Here’s an all around beneficial change! If closed-end debts are to be paid off within 10 months and the cumulative payments are less than or equal to 5% of your gross monthly income, they will not be included!
Part Time Employment
In order to qualify part-time employment earnings, borrowers must have a 2 year, uninterrupted employment history. This is an extension of previous FHA qualifications (1-2 years).
A lender will have to have more documentation and rigorous lending standards when it comes to proving the stability of your income if you have changed jobs more than 3 times in the previous 12 months, or have changed lines of work. If you’ve had a gap of employment greater than 6 months, you must have been employed for 6 months at your new job regardless of reasons (i.e. maternity leave or sickness). A complete 2 year employment history prior to employment gap must be provided.
Gross Up of Non-Taxable Income
For example, Social Security, VA Disability, Child Support, etc. The lender must document that amount of income and the current tax rate for the amount being grossed up. The percentage cannot exceed 15%. The lender may also base the tax rate on the borrower’s most recent tax return.
As these FHA guidelines are utilized beginning on all loan applications dating on or after September 15, 2015, there impact will become more clear and defined.