FHA is a popular loan program for many home buyers. Updates to FHA loans beginning the 15th of September 2015 incorporate some important updates. Here are the key details on those updates.
Employment History Requirements
Frequent job changes or gaps in employment status are reviewed. If you have changed jobs 3+ times over the last year, then you must provide verification that the moves were for training reasons or that you received higher income and benefits with each change. If you were unemployed for 6 or more months, you must show that you received consistent income over the past 6 months and some type of employment during the past two years (not counting training).
Interpretation of Debt
Debts are being handled much differently than in the past. Loans with less than 10 months left are only excluded if the sum of remaining payments are less than 5% of your gross monthly income. For deferred loans, the entire loan amount is considered as the monthly payment. Accounts where you pay off the entire balance each month are only excluded from debt if you have a 1 year history of complete and prompt payments. If any late payments were made, then 5% of the balance will be counted as debt. Finally, accounts where you are merely an authorized user may be disregarded if payments were remitted on-time for that account over the last 12 months.
Updates apply to rental and mixed-use real estate. For multi-family properties, only 75% of rental income may be considered as qualifying income. Calculations are obtained from either actual leases or on appraisal projections of possible rents. More than half of a property must be for residential use to qualify for an FHA loan.
Changes to Income Qualification
Your approved loan amount relates to your earnings. There are several updates that relate to income types.
- Part-time Work
Individuals working part-time must present documentation of income over the last 2 years, the average of which will be used for loan qualification. If your income recently improved, an average from the most recent 12 months can be considered.
- Overtime or Bonus Loan
If you can provide a two year pattern of bonus or overtime income, then it can considered as additional income.
- Reductions in Self Employment Loan
If you are self-employed and your income lowered by twenty percent or greater, self-employment income may not be used as qualifying income. Exceptions are given for extenuating circumstances if you can prove re-stabilized or increased income for the last 12 months.
- Other Sources of Income
Non-taxable income such as disability or social security will be considered but only up to 15 percent.
- Gift Funds from Family – Gifted funds for a home purchase must come from a family member, excluding cousins, nieces, and close friends. Transfer of funds must be documented with bank statements.
- Multiple FHA Loans – Multiple FHA loans are now allowed when relocating 100+ miles for employment reasons.
- Streamline Refinance – Streamline refinancing is permitted only if the monthly payment including principal, interest, and mortgage insurance does not increase more than fifty dollars per month.
Additional Information On The Updates To FHA Loans Beginning The 15th Of September 2015
The updates to FHA loans beginning the 15th of September 2015 above apply to FHA case numbers generated loan or later. If you currently have a loan in process, these updates should not apply to you. If you are not yet in-process, then you might want to do so before the updates take effect. Waiting could lower the loan for which you qualify or make it difficult to qualify for a loan.