2017 FHA Guidelines
The 2017 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 that was 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 last 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. This quite frankly has become a large sticking point for potential borrowers that I saw personally in 2016 and it is showing no signs of stopping. If you are a professional who has gone on to higher education and are saddled with thousands of dollars in debt, there is no way you are going to be owning a home after graduation unless your income is extremely high, or there is some way to pay off a large chunk of your student loans owed. This might not be a fair guideline put in play by FHA, but it is something we must adhere to in order to keep pushing FHA Loans to closing.
2017 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, conventional 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 2017 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%. This is just one of the many reasons why FHA Loans are so popular among borrowers these days and will continue to be the most popular option. Gone are the days of FHA Loans having a stigma associated with them as this is the only way for a lot of borrowers to have access to purchasing a home.
2017 FHA Guidelines: Debt To Income Ratios
The 2017 FHA Guidelines also lay out all the different debt to income ratios for different borrower situations:
- If the borrower has FICO credit score lower than 620, the maximum debt to income ratio is 43% with no exceptions.
- 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.
- 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.
- If you have a high debt to income ratio, be advised that per 2017 FHA Guidelines borrowers can always add non-occupant co-borrowers to qualify for an FHA loan. This can mean you are able to bring a co-borrower onto the loan application and use their income in order for you to qualify for the loan. Yes, this co-borrower will need to have their credit pulled and get approved just like you will, but their income can be used to facilitate the purchase of your home under FHA Guidelines.
2017 FHA Guidelines: Sellers Concessions
The 2017 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 at 888-900-1020. We will use every possible avenue to use these funds that you have negotiated with the seller about and if for any reason the seller isn’t comfortable issuing a seller’s concession there are definite ways around this to get the seller’s concession you prefer.
2017 FHA Guidelines: Bankruptcy, Foreclosure, Deed In Lieu of Foreclosure, Short Sale
If you have recently gone through a derogatory credit event, 2017 FHA Guidelines will allow you to obtain a loan but there are some mandatory waiting procedures in place:
- Chapter 7 Bankruptcy: Mandatory waiting period of 2 years after discharge date.
- Chapter 13 Bankruptcy: Approved for a loan just 12 months into your repayment plan with trustee approval, or the day after your discharge date. With both bankruptcy cases, a manual underwrite will be needed and payments must be made timely for the time after the bankruptcy was filed.
- Foreclosure or Deed-in-Lieu of Foreclosure: 3 year waiting period that is needed after sheriff’s sale or the date the deed is taken out of your name.
- Short Sale: Mandatory waiting period is also 3 years.
2017 FHA Guidelines: Collection Accounts
You can qualify for an FHA loan with prior bad credit including collection accounts, charge offs, and judgments. The good thing about FHA is that they do not require you to pay off collection accounts in order to be approved for a loan. Where the unpaid collection accounts affect your purchasing power is that on debts greater than $1,000, 5% of the outstanding balance will be used against your debt to income ratio. If you have unpaid Medical Collections, the FHA does not count these against you as well for loan approval. Since Medical Collections are not counted per the FHA Guidelines, you are also allowed to dispute these collections. Now what disputing this debt can do is increase your credit score because as long as a dispute is on a debt, it takes the negative effects away. If you are unsure about going through with this, you need to talk to a professional today.
2017 FHA Guidelines: Non-Occupant Co-Borrowers
Yet another advantage of an FHA Loan is that if the borrower has little income or credit and would otherwise not qualify for a loan, they can add-on a non-occupant co-borrower for income qualification purposes of the loan. The non-occupant co-borrower needs to be related to the primary borrower by blood, marriage, or law. There may be some special exceptions, but this isn’t always the case.
2017 FHA Guidelines: Conclusions
As you can see, there is a lot going on in the 2017 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 2017 FHA Guidelines please reach out to me at 888-900-1020, email contact@loanconsultants.