One of the most used types of home loans is FHA. Home buyers must stay up to date on the criteria updates for FHA home loans effective September 15, 2015. The following is a summary of those updates.
Employment History Requirements
Frequent job moves or gaps in employment status are scrutinized. If you have changed employment more than 3 times over the past year, then you must furnish documentation that the moves were for training reasons or that you earned better wages and benefits every time. If there is a gap of 6+ months in your employment, you must document that you have had consistent employment during the past 6 months and some type of employment during the previous 2-years (not including training).
Interpretation of Debt
Debts are being handled much differently than in the past. For loans with 10 months or less left, your remaining monthly payments must be below five percent of gross monthly wages to be excluded as debt. For deferred loans, the entire loan balance is counted as the monthly payment. Accounts where you pay off the entire balance each month are only excluded from debt if you have actually paid it in full for the last 12-months and were never late. If any payments were late, then 5% of the current balance will be included in monthly debt analysis. Lastly, credit cards where you are only an authorized user are excluded only if timely payments were remitted for that account during the previous 12 months.
Property Specific Changes
Changes based on property type cover rental and mixed-use real estate. For multi-family properties, only 75% of rental income can be counted as qualifying income. Figures are obtained from either signed leases or on appraisal opinions of possible rents. FHA home loans can only be issued for homes with at least 51% maintained for residential use.
Changes to Income Categories
- Part-time Work
Applicants working part-time must document a two year history, the average of which may be used for qualification purposes. For applicants with recently improved wages, an average from the most recent year can be used.
- Overtime and Bonus Home Loan
If you can document a 2-year pattern of overtime or bonus wages, then it can included as additional wages.
- Reduced Self Employment Home Loan
If you are self-employed and your earnings dropped by more than twenty percent, your earnings will not be used as qualifying income. Exceptions are given for extenuating circumstances if you can prove re-stabilized or elevated earnings for the last 12 months.
- Other Sources of Income
Non-taxable income such as social security or disability will be considered but only up to 15 percent.
- Money Received as Gofts – Any home purchase funds that were obtained as gifts must originate from a family member. Nieces, newphews, cousins, and close friends are specifically excluded as family. Funds gifted must be documented with bank statements.
- Two FHA Home Loans – Multiple FHA home loans are now permitted if you are relocating 100+ miles due to a job.
- Streamline Refinancing – A streamline refinance is permitted in cases where the monthly payment (principal, interest, and PMI) increases less than fifty dollars per month.
Additional Information On Criteria Updates For FHA Home Loans Effective September 15, 2015
The criteria updates for FHA home loans effective September 15, 2015 described above impact FHA case numbers issued home loan or later. If you are already qualified and have a case number, then these updates should not impact you. If you are not yet in-process, then you might want to do so before this deadline. Delaying could lower the home loan for which you qualify or make it more difficult for you get approved for a home loan.