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Home / Blog / FHA Loans / 5 Recent FHA Changes That May Affect Borrowers’ Ability to Qualify for an FHA Loan

5 Recent FHA Changes That May Affect Borrowers’ Ability to Qualify for an FHA Loan

October 1, 2015 By Mary Catchur

FHFAs New Refinance Program Could Save Homeowners Hundreds Every MonthEffective for FHA case numbers issued on or after September 14, 2015, the Federal Housing Administration (FHA) implemented some changes to its underwriting guidelines which may significantly affect the ability of homebuyers to qualify for this program.  Addressed herein are a few of the more significant changes.

Student Loans

Previously, as long as a borrower could demonstrate that student loan payments were deferred for at least one year from the closing date of the loan, the payment amount would not be included in the calculation of the borrower’s debt to income ratio.

The new rule states that for all deferred debt, including student loans, a payment amount of 2% of the outstanding balance will be included in the debt to income ratio.

Authorized Signer Accounts

Currently, when a borrower is listed as only an authorized signer on a credit card, no monthly payment has been required to be included in the borrower’s debt to income ratio.

The new rule states that the payment must now be included in the borrower’s debt to income ratio unless it can be demonstrated that the account holder has made the payments on the account for the 12 months preceding the case number issuance date.

Payments on Revolving Debt

If a debt will be paid in full over the next 10 months FHA currently does not include that payment in the borrower’s debt to income ratio.  The new rule states that you must evaluate the CUMULATIVE  monthly payment of such debt to determine if the total monthly payment exceeds  5% of the borrower’s gross monthly income and any amount that exceeds 5% will be included in the debt to income ratio.  The borrower also is not permitted to pay down debt in order to meet the 10-month requirement.

For accounts that are paid in full each month and no payment amount is shown, a payment amount of 5% of the outstanding debt will be included in the debt to income ratio UNLESS it can be shown that the account was paid in full for all of the preceding 12 months and there were no late charges.

Definition of a “Family Member”

A family member includes parents, grandparents, children, domestic partner or spouse, siblings, aunts and uncles, and in-laws.  Cousins have been removed from the definition of family members and in-laws have been added.

The definition of family member most often comes into play when determining acceptable sources of gift funds as they must be received from a family member.

“Grossing Up” of Non-Taxable Income

Previously FHA allowed for the “grossing up” of non-taxable income such as social security and disability income by 25% to account for the fact that these funds are generally non-taxable.  In other words, if the borrower was receiving $1000 in Social Security income monthly, the allowable income was $1250 ($1000 x 125%).  The percent used to gross up income has now been reduced to 15%.

Closing Thoughts

These recent changes by FHA are part of a consolidation by FHA of numerous handbooks, mortgagee letters, and policy statements issued over the past several years.  As such, the new manual is extensive and includes many changes, clarifications, etc.  This article is intended to merely touch on a few of the more commonly seen circumstances encountered by borrowers.   I will provide additional guidance as to some of the more significant changes in subsequent articles and always welcome questions from homebuyers and Realtors regarding their particular circumstances.

Marimark Mortgage

Marimark Mortgage is based in Tampa, Florida and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.

We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.

To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.

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Filed Under: FHA Loans Tagged With: FHA Changes, FHA Mortgage

Opinions, estimates, forecasts and other views contained in this page do not necessarily represent the views of Marimark Mortgage or its management and should not be construed as an offer to provide financing at the rates or terms mentioned. Due to market fluctuations, interest rates are subject to change at any time and without notice. Interest rates are also subject to credit and property approval. Although Marimark Mortgage attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this page may be used with proper attribution.

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