For FHA case numbers assigned on or after June 15, 2015, there will be significant changes to current guidelines, which will impact the typical FHA borrower both positively and negatively. Here are some of the most game-changing aspects of the new FHA rules:
Underwriters will no longer be able to exclude student loan payments for FHA loans. Currently, student loan payments in deferral for at least the next 12 months can be excluded from debt ratios.
If down payment proceeds are gifted to the buyer, lenders will soon be required to obtain a bank statement from the donor’s account, as well as source any large deposits to the account in order to document that the donor’s funds came from an acceptable source.
For 30-day accounts such as Amex, mortgage companies will soon be required to verify the borrower paid the outstanding balance in full on every 30-day account each month for the past 12 months. 30-day accounts that are paid monthly will not be included in the borrower’s DTI. If the credit report reflects any late payments in the past 12 months, the lender must utilize 5 percent of the outstanding balance as the borrower’s monthly debt to be included in the debt ratios.
Authorized user accounts
Accounts for which the borrower is an authorized user will be included in a borrower’s DTI ratio unless the lender can document that the primary account holder has made all required payments on the account for the previous 12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount must be included in the borrower’s DTI.
If an employee has changed jobs more than three times in the previous 12 months or has changed lines of work, the lender must take additional steps to verify and document the stability of the borrower’s employment income. Gaps of employment greater than six months will require six months on the new job, regardless of what created the gap. Raising a family is no longer an acceptable reason for the gap.
A prolonged period of low housing supply has made the Atlanta real estate market extremely competitive, with many more buyers than sellers. When these changes roll out, it will become crucial for real estate agents to have their buyers underwritten and approved before making any offers.
Given the extent of the new documentation requirements, lenders will need to make sure to be very thorough upfront to prevent deals from falling out of escrow. A prequalification letter based on stated income/assets and a cursory review of the credit report is no longer going to be enough.
Please keep in mind these changes are not all encompassing — more details are expected soon. Click this linkto see the full manual that will go into effect June 15, 2015.
Tony Davis is a Senior Loan Officer with Movement Mortgage, in Atlanta, Georgia.