New FHA regulations mandate increased scrutiny of borrower debts, income, and other finances. Not all buyers will be impacted, and the overall implications of the new regulations are positive as they will help support a more secure housing market in the future.
New FHA Lending Requirements: What they Mean On June 15, 2015, new FHA lending regulation requirements will kick in. The new requirements will require lenders to factor in more information about the applicant into their decision to make the loan. For recipients, these new regulations may seem restrictive, but their presence will ultimately benefit the increasingly strong-preforming housing market as well as current and future property owners because:
- Tighter lending guidelines mean non-qualified buyers will be vetted out
- This will mean fewer foreclosures and loan defaults
- Fewer foreclosures due to more qualified buyers means occupied homes, maintained properties, and ultimately, higher property values
Breakdown of the New Requirements
There are several changes to FHA loans, two of which involve more comprehensive debt-to-income-ratio scrutiny and more rigorous employment analysis. Specifically, the most significant changes
- Student loan debt factored into debt-to-income ratio. Though student loan debt is still “good” debt as a degree will ideally increase one’s earning potential, the current policy that enables FHA underwriters to overlook student loan debt that has been deferred for at least the following 12 months. This exclusion will no longer apply.
- More robust employment verification.Loan applicants who have either changed lines of work or who have changed jobs more than three times in 12 months will be subject to have the security of their income validated with increased rigor.
- Account review of downpayment gift providers. Often, home buyers (especially first-time homebuyers) will receive monetary gifts to help them make the downpayment on the house. New regulations require a review of the gifter’s accounts along with identifying the source of any substantial deposits to that (or those) account(s).
- Late payments on short–term debts will matter.The previous year’s worth of payments on short-term debts like credit card debts will be reviewed. Short-term debts that were paid the full amount due for that month and on time can be excluded from the borrower’s debt-to-income ratio; however, any late or partial payments documented within 12 months prior will result in five percent of the debt being factored into the debt ratio.
- Related short-term debts will be factored in. Related short-term debt accounts are those in which the applicant is not the primary card holder but who is on the account (for example, if the applicant is the secondary on a credit account with a parent (the primary) and the parent has debt on the credit account or vice versa)will be factored into debt-to-income ratio unless documented verification of a full and up-to-date payment schedule for the last 12 months has been maintained.
How to Get an FHA Loan after June 15, 2015
FHA loans are still just as procurable as they always were in that they can still be approved with less-than-perfect credit (for example) and with a low downpayment. FHA loans are excellent, highly accessible loan options for both first and second-time homebuyers.
The difference is that now, serious buyers should enter the discussion with the lender armed with additional financial history including outstanding student loan debt amounts, information from donor accounts, and short-term debt information.
The new regulations will help support qualified buyers get into mortgages they can comfortably afford while they buy houses they can happily call homes.
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