Every loan program changes from time to time as underwriters see issues that consistently come up when underwriting files. The FHA, Fannie Mae, Freddie Mac, and individual lenders tend to change what they will and will not allow along the way. FHA loans saw some slight changes late last year that might be worth discussing to ensure that you know whether or not your conditions will allow you to obtain this type of loan. The changes were not drastic but were changed in an effort to make any loans less risky and more productive for banks and their subsequent entities.
Verifying Gift Funds
FHA loans have always allowed gift funds, that is part of what makes it such a flexible program. However, now in order to use the funds, not only do you have to be able to source the funds as the borrower, but the donor must also source them. This is done in several ways:
- Provide the bank statement showing the account and date of the withdrawal
- Provide an explanation of any large deposits that were made in the few months preceding the gift
This is just a bit more stringent than what the original FHA guidelines were as prior to September 2015, all that donors had to provide was the canceled check showing that they provided the funds to the borrower. Providing a bit more information allows the lender to trace where the funds come from just to ensure that they are not a loan somewhere down the line that the borrower may end up owing, putting them in a financial bind once the mortgage payments begin.
Using Part-Time Work
Part-time work has always been a fine line to walk for any loan program. FHA loans, however, were typically left up to the discretion of the lender. The FHA did not have any cut and dry answers as to what the lender should and should not allow. This meant if a borrower had less than a 2-year history of the part-time income, the lender could use their evaluation skills to determine if the income was likely to continue. If they felt it would continue, they would be allowed to accept it. Today, the FHA requires that you provide 2-years’ worth of history for the income or you cannot use it – plain and simple. Two years has been determined as the time frame that is the most lucrative to continue in the near future.
Deferred loan payments are not uncommon, especially for borrowers that have student loans. In the past, the FHA allowed any loan that was deferred for at least 12 months to be excluded from the debt ratio calculation. Today, it is a different story – all loans must be included in the debt ratio in order to get an accurate calculation of what the borrower can or cannot afford. If there is a deferred payment reporting on the credit report but it does not have any dollar amounts associated with it at this point, the lender must calculate 2 percent of the loan balance as the minimum payment and use that to calculate how much they can afford. In some cases, this may lower what a borrower is able to afford regarding a new mortgage.
The good news is that FHA loans are still among the most popular loan program out there and they are still fairly easy to qualify for as these new rules are not for very common circumstances and are still pretty flexible in the grand scheme of things. Every lender has their own requirements when it comes to providing an FHA loan, so make sure to shop around with various lenders to see who offers different terms and guidelines to allow you to get the loan you need to purchase the home you desire.