2016 FHA Guidelines

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2016 FHA Guidelines

2016 FHA Guidelines: Changes

The 2016 FHA Guidelines have some changes that may considerably affect the ability for potential homeowners to get qualified for mortgage loans.  One of the biggest and most prominent changes that came through on the 2016 FHA Guidelines is how student loan debt is treated.  The change put into place is that deferred student loan debt is now counted in the borrower’s debt to income ratio even if student loans have been deferred for 12 months or more.  Up until this year, if you had deferred student loan debt of 12 months or more, it was exempt from debt to income calculations but not anymore.  In order to calculate the amount used for your debt to income ratio you need to obtain what the monthly loan payment will be after the deferment period if not, 2% of the loan balance will be used in your debt to income calculation.  For example, if you have $50,000 of deferred student loan debt and you don’t have a monthly payment amount, 2% or $1,000 will be used for debt to income ratio.

2016 FHA Guidelines: Credit Scores

One of the most important factors used when trying to obtain a home mortgage loan is your credit score.  Across all the different mortgage loan programs, there will be minimum credit scores needed in order to qualify for a loan.  For example, convention loans overseen by Fannie Mae and Freddie Mac require a minimum of a 620 FICO credit score in order to qualify.  Jumbo mortgage lenders will require a minimum FICO credit score of 680 given the size of the mortgage.  Where FHA blows all other loan programs away is how lenient their minimum credit scores are.  Per the 2016 FHA Guidelines if you are a borrower who is looking to qualify for a 3.5% down payment loan, the minimum credit score requirement is 580.  Borrowers can even get approved with FICO scores of 500-579 but they will be required to put down 10%.

2016 FHA Guidelines: Debt To Income Ratios

The 2016 FHA Guidelines also lay out all the different debt to income ratios for different borrower situations:

  1. If the borrower has FICO credit score lower than 620, the maximum debt to income ratio is 43% with no exceptions.
  2. If the borrower has FICO credit score greater than 620 then the maximum frontend ratio is 46.9% with a maximum backend ratio of 56.9%.  Frontend ratio is the % of your gross monthly income that can go to your mortgage payment while the backend is the % of your gross monthly income that can go to all your monthly debt obligations including your new mortgage.
  3. With regards to manually underwritten loans, normally the debt to income ratio cannot exceed 50%, but there are exceptions if the borrower has compensating factors.
  4. If you have a high debt to income ratio, be advised that per 2016 FHA Guidelines borrowers can always add non-occupant co-borrowers to qualify for an FHA loan.

2016 FHA Guidelines: Sellers Concessions

The 2016 FHA Guidelines lays out the amount of seller’s concessions you can have and exactly what these funds can be used for.  The maximum amount of seller’s concessions that can be offered is 6% of the sale price of the home.  Seller’s concessions cannot be used for your down payment, but can be used for other third-party fees such as appraisals, hazard insurance, and even to buy down your mortgage rate.  Make sure when closing on your home loan you use every bit of the seller’s concession because if you don’t use it, it will go back to the seller.  An experienced loan officer like myself can make sure not a penny is wasted, and you can reach me at888-900-1020 or contact@loanconsultants.org.

2016 FHA Guidelines: Bankruptcy, Foreclosure, Deed In Lieu of Foreclosure, Short Sale

If you have recently gone through a bankruptcy, 2016 FHA Guidelines will allow you to obtain a loan but there are some mandatory procedures in place.  For a Chapter 7 Bankruptcy there is a mandatory waiting period of 2 years after discharge date.  For a Chapter 13 Bankruptcy, you can get approved for a loan just 12 months into your repayment plan with trustee approval, or the day after your discharge date.  With both cases, a manual underwrite will be needed and payments must be made timely for the time after the bankruptcy was filed.  In terms of foreclosure, there is a 3 year waiting period that is needed after sheriff’s sale or the date the deed is taken out of your name.  With a short sale the mandatory waiting period is also 3 years as well.

2016 FHA Guidelines: Conclusion

As you can see, there is a lot going on in the 2016 FHA Guidelines and having an experienced professional on your side is vital in getting you a pre-approval and a loan closed on your new home.  If you are in the market for an FHA Loan and need an experienced professional dealing with 2016 FHA Guidelines please reach out to me at 888-900-1020 or email me at contact@loanconsultants.org.

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