FHA Mortgage Guidelines Updated 2018

FHA Mortgage Guidelines have been updated in 2018:

 

One of the biggest changes has come in the way of Collection and Chargeoffs:

You can qualify for an FHA Insured MOrtgage with unpaid collections:  Here are the TRUE guidelines issued by HUD.  However, you need to make sure your LENDER is not using their OVERLAYS that may require any and all collections to be paid in FULL.  We will discuss OVERLAYS in this BLOG.

Non-Medical Collection Accounts

 

Borrowers with non-medical collection accounts with an aggregate unpaid collection balance of $2,000 or more, mortgage underwriters need to take 5% of outstanding collection balance into account towards calculating debt to income ratios.
  1. Let’s go over an example of this:
  • the borrower has $10,000 in unpaid collections
  • 5% ($500) will be added to the borrower’s monthly debts

This is NEW in 2018 and may cause many potential Home Buyers from being able to purchase a home.

CHARGED OFF ACCOUNTS

 

FHA does not require that outstanding charged off accounts be paid in order to qualify for FHA Loans.

  • The 5% rule on outstanding collections balance does not apply with charged off accounts
  • Charged Off accounts is always has a dollar amount balance on credit reports
  • That balance is the amount charged off
  • Borrowers cannot have credit disputes on charged off accounts
  • There are times where charged off accounts are reported as Profit And Loss on credit reports
  • Charged Off Accounts and Profit And Loss are the same on credit report verbiage

 

Mortgage Overlays:

What Exactly is a MORTGAGE OVERLAY:
  • Debt to Income ratio – The guidelines offered by FHA state that the maximum debt to income ratio is 56.9% so long as the customer has a minimum credit rank of 620. However, specific lenders will not approve a loan if the debt to income ratio is over 43%
  • Minimum credit scores – FHA states that a credit score of at least 580 is all that is needed for loan approval. But, the majority of lenders require a score of 620 to 640 in order to be considered for any type of home loan.
  • Down Payment requirementsFannie Mae and Freddie Mac have clear rules that allow borrowers to buy a home with only a 5% to 10% down payment using a conventional mortgage. However, if a person’s credit score is below 700 or if their debt to income ratio is on the high end, there may be an issue. The lender may increase the interest rate on the mortgage by 0.125% up to 0.50%. Or, they may require a bigger down payment.
  • Bankruptcy requirements – After a person is discharged from bankruptcy they may apply for a mortgage loan. However, most lenders ask customers to wait at least one year and as much as two years once the discharge is complete. Lenders will go so far as to require specific waiting periods for different types of loans.
  • Property types – The VA mortgage is available to veterans for almost any kind of property. But, certain lenders may not offer a VA mortgage for a condo or a manufactured home.
  • Credit History – Having a diverse range of credit lines is often a good way to boost your credit score and prepare for a home loan. Lender overlays may require a certain number of credit accounts along with a minimum number of years of payment history in order to qualify for a loan.
  • Minimum Reserves – In the mortgage world reserves are used to describe cash assets owned by the borrower. Typical examples include checking accounts, savings accounts, money market accounts, certificate of deposits, stock and bond investments and retirement accounts. The mortgage guidelines may not require a specific amount of reserves or only enough reserves to cover 2 or 3 mortgage payments. On the contrary, a lender may have a set rule that all conventional loan approvals require the borrower to have 6 months of reserves.
Regulatory Information: Nationwide Multistate Licensing System's Consumer Access Website" (www.nmlsconsumeraccess.org), Premier Financial Services, Inc. NMLS #266214. The State of Illinois | Division of Banking located at 100 W Randolph St, Chicago, IL 60601 (312) 814-4500 | NMLS # 266214 Dan Frio NMLS 246527