First time buyers frequently use an FHA loans for their home purchase. FHA loan criteria changes on September 15, 2015 include many important changes. Here is some information on those changes.
Changes to Income Categories
- Part-time Work
Home buyers who work part-time must present documentation of earnings for the last two years. The average will be used for loan qualification. If your income recently improved, an average of the most recent 12 months can be considered.
- Overtime or Bonus Loan
If you can document a 2-year pattern of bonus or overtime earnings, then it can counted towards additional earnings.
- Declining Self Employment Loan
For self employed persons whose earnings reduced by twenty percent or more, your earnings may not be considered for mortgage qualification. There can be an exception for special circumstances AND if you can document consistent or elevated earnings over the past 12 months.
- Non-taxable Income
Non-taxable income such as social security or disability may be qualified but only up to fifteen percent.
Changes apply to rental and mixed-use real estate. For rental homes, only 75% of rental income may be used as qualifying income. Figures are based on either signed leases or on appraisal projections of fair market rents. FHA loans can only be issued for buildings with at least 51% maintained for residential use.
Interpretation of Debt
Loans are being handled a bit differently. Loans with 10 or fewer months left are not easily left out of monthly debt. Your remaining monthly payments must be less than 5% of your gross monthly earnings. For deferred loans, the entire loan balance is counted as the monthly payment. Accounts where you pay off the full balance each month are only excluded as debt if you can demonstrate a one-year history of timely payments in full. If any late payments were submitted, then 5% of the current balance will be considered as debt. Lastly, credit cards where you are only an authorized user may be disregarded only if timely payments were submitted over the last year.
Employment History Changes
Frequent employment moves or gaps in employment status are particularly important. If you have moved jobs more than 3 times during the past year, then you must furnish verification that the moves were for training reasons or that you received greater earnings and benefits with each change. If you were unemployed for 6 or more months, you must prove that you received consistent earnings over the past 6 months and some history during the last two years (training does not qualify).
- Money Received as Gofts – Gifted funds for a home purchase must come from a family member, which excludes cousins, nephews, and friends. Transfer of funds must be verified through bank statements.
- Multiple FHA Loans – A second FHA loan is now permitted when relocating more than 100 miles due to employment reasons.
- FHA Streamline Refinancing – Streamline refinancing is allowed in cases where the monthly payment (principal, interest, and PMI) increases less than fifty dollars monthly.
More On FHA Loan Criteria Changes On September 15, 2015
The FHA loan criteria changes on September 15, 2015 listed above apply to FHA case numbers generated on or after September 15, 2015. If you currently have a loan in process, then these changes will not apply to you. If you have not yet applied, then you may want to do so before the changes take effect. Failure to do so might reduce your loan amount or make approval more difficult.