Looking for an FHA home loan? The rules have changed. Understand those changes and know them well by reading below.
It's my goal to keep you posted so you can continue down the path to home ownership, take a look at the changes for 2015 that have come down already.
If you think you are ready, be sure to get a loan that works well with first time home buyers.
The FHA home loan continues to be a good choice for first time home buyers. Because of the low down payment and the mortgage insurance being reduced just recently, it still looks like a great option.
However there have been some changes to the rules lately. As of September 15, 2015, the U.S. Department of Housing and Urban Development (HUD) requires mortgage lenders at the first point of contact with the borrower to advise them to get a home inspection.
Also on the same date, there were some changes that affect the eligibility of the borrower. Because at my website, many of my visitors are first time home buyers and will likely use the FHA home loan, I wanted to share briefly these updates with you.
I know that a number of people read my blog posts so I'm putting this information in the blog. Be sure to subscribe to my RSS or book mark this page for later consumption.
Up until recently, buyers who have gone through a short sale had to wait 3 years before they could qualify for an FHA loan.
Now they can purchase a new home right away. That is good news!
The buyer must have been current on the existing mortgage prior to the short sale and any installment debt for the previous 12 months. If this was the case, you can apply for a new FHA home loan.
This can describe a good number of home buyers. I'm one of them. I did a short sale on my home because of a move from Michigan to Florida. My home was so deep under water, it needed more than a snorkel to breathe air. Man, it needed a 50 foot hose!
With a mortgage balance of $105,000, I sold my home for $52,000. All of my payments were current on the mortgage and any credit card debt before our short sale. I had a credit score in the 780's. I didn't have any installment loans. I had to actually miss one mortgage payment before the lender would approve my short sale.
If this describes you, then the good news is you can actually do a short sale if you must and buy a new home right away with an FHA home loan. You don't have to wait to buy another home!
If you've had bonus income or overtime for the past two years, this can now be figured into the debt to income ratio (DTI). You must be able to document that it has occurred for the past one or two years for it to be considered and is likely to continue as verified by your employer.
Hmmm, what are the chances you can get your employer to put this in writing??
If your job relocates you at least 100 miles from your current primary residence, now you can get a second FHA home loan for another primary residence.
In my opinion it looks like FHA is getting desperate for new home loans.
In order to count any part-time income into the DTI, if has to be steady and uninterrupted income for the past two years. Any pay increase can be averaged over the most recent 12 months.
Self-employed borrowers cannot use their income to help qualify for a loan if it has declined more than 20% during the past 12-24 months. However, if you've had extenuating circumstances and your income has been stable and on the increase during the most recent 12 months before loan application, it may be considered. You will still end up having to qualify using the lower income amount though so I cannot make much sense of this rule.
Down payment requirements still remain at 3.5% of the buyers own funds. No exceptions here. In the past you could get a HUD approved second mortgage to cover the down payment and closing costs. In various states, these could be deferred or even forgiven after a certain period of time in some areas. It looks like HUD wants to see buyers with their own skin in the game now.
This change could affect many low-to-moderate income borrowers that depend on these second mortgages.
If you have any deferred student loans, the payments for these must be calculated into your debt-to-income ratio regardless of the status. This has been the case with conventional loans for years.
Before the changes, if student loans were deferred for 12 months or more they did not have to be included in the DTI for a FHA home loans.
Last and certainly not least, if you're buying a two to four unit building, you can count 75% of the rental income to qualify. This applies to the rent projections by the appraiser or the current leases when applying for the loan. However, this does lower the loan amount you can ask for on the multi-family purchase.
So, you have to decide if this type of loan is for you or not. If you want to learn more about the FHA home loan, check out this webpage. There you can read about the FHA home loan and much more.
Now as you realize there's much more to the changes than mentioned here. Be sure to ask your loan officer or real estate agent how these changes may affect you.
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