FHA Changes, Post September 14

Recently FHA had some changes in policy, some becoming more restrictive, some more defined, and some relaxed. Over the next few days we will give a brief breakdown for these FHA guideline changes.

  • Student loan/deferred debt – more restrictive policy in which deferred obligations must be included; an actual payment must be used for repayment (even if the payment is zero); if payment is deferred, they have to calculate 2% if the payment is either unavailable or is zero.
  • Acceptable credit history, manual – more defined policy. The underwriter can now consider a borrower to have acceptable credit history if: (1) All housing and installment debt payments made on time for the previous 12 months; (2) no more than 2 x 30 day late mortgage installment payments in the previous 24 months; (3) no revolving account payments more than 90 days late in the previous 12 months, or three or more revolving payments made more than 60 days late.
  • Refinancing options, FHA to FHA – more defined policy for a simple refinance (appraisal always required), a streamline refinance (no appraisal – an option), rate/term, and cash-out.
  • Streamline refinance, fund to close – a relaxed policy. The funds that are needed to close, in excess of the total new mortgage payment, can be verified with: (1) VOD and most recent bank statement; (2) a statement showing previous month’s ending balance for the most recent month required (if the previous month’s balance is not shown, then the most recent two-months statements).
  • Net tangible benefit, streamline – relaxed policy, when it comes to Fixed-to-Fixed, Fixed-to-ARM, ARM-to-Fixed, ARM-to-ARM, and reduction in term. Fixed-to-Fixed: New combined rate must be at least 0.5% below the prior interest rate plus MIP rate. Fixed-to-ARM: New combined rate must be at least 2% below the prior interest rate plus MIP rate. ARM-to-Fixed: New combined rate must be at least 2% above the prior interest rate plus MIP rate. ARM-to-ARM: New combined rate must be at least 1% below the prior interest rate plus MIP rate. Reduction in term: (1)The mortgage term is reduced; (2) the new interest rate does not exceed the current interest rate; (3) the combined principle, interest, and MIP payment of the new mortgage does not exceed the combined principle, interest, and MIP of the refinanced mortgage by more than $50.
  • Net tangible benefit rate/term – relaxed policy in that it is no longer required.
  • Grossing up non-taxable income – it is a more restrictive policy. The percentage of non-taxable income that can be added cannot exceed the greater of 15% or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year. If the borrower was not required to file a federal tax return for the previous tax reporting period, the non-taxable income may be grossed by 15%.
  • Relocation policy eligibility to obtain additional FHA insured mortgage – not only is it a more restrictive policy, but also a more defined policy in that a borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property secured by an FHA insured loan, if the borrower (1) relocated or has relocated for an employment related reason and (2) establishes or has established a new principle residence in an area more than 100 miles from the borrower’s current residence. If the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence provided the two above requirements are met.

To be continued…..