How FHA financing changes will impact borrowers

altBy: Team J&J-FBC Mortgage LLC

Did you know?

HUD (U.S. Department of Housing & Urban Development) has made several announcements regarding upcoming changes to FHA financing starting April 1, 2012. 

Below are a few highlights and key dates for you to know and how these changes could impact you getting a loan. 

 

FHA Case Numbers Assigned after April 1, 2012:

1. Self Employed borrowers will be required in most cases to provide a current P&L (profit & loss) statement and a Balance Sheet for qualification

2.  More Borrowers will have to pay off collections in order to qualify for FHA loans – (current disputed/collection accounts in excess of $1000 must be ‘resolved’ (details in letter)

     a.  Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts.

3.  Clarification on Identity of Interest definition of family member – What defines and ‘arm’s length’ transaction

new home  loan new home builderWhat does this mean to you if you are a borrower? 

You and your lender will need to get together to go over the details of how these changes may affect your loan approval and process. 

 

Self-Employed Borrowers:

If you are self-employed, you’ll be required to provide a current profit & loss statement and balance sheet for your business. What your lender is looking for is that your business is stable and sustainable and the economic outlook is favorable enough to continue to generate sufficient income to support your personal needs.  Declining income and depletion of assets may be considered ‘red flags’ and could be items of concern for your lender.  It will not immediately disqualify you for a home loan; however, an acceptable explanation may be required to submit with your file for review. 

 

Borrowers with Collections/Disputed Accounts:

In the past, collections and disputed accounts may have been able to be left unaddressed for some borrowers.  Although FHA does not require collections to be paid off in full as a condition for loan approval, collections totaling over $1000 aggregate or more will have to be resolved, paid in full, paid at the time of closing, or a payment plan arranged prior to proceeding to closing and proof that 3 timely payments have been made.  In addition, disputed accounts used to be referred to an FHA underwriter for review, usually with an explanation by the borrower(s) as to what had transpired. Any disputed accounts in excess of $500 or less than 2 years since the date of last activity would have to be resolved to show as ‘paid in full’ or ‘resolved’ on your credit report.  This could potentially cause credit scores to decrease in some cases by removing a dispute from a derogatory account.  After the described changes, disputed accounts less than $1000 aggregate AND over 2 years will no longer be referred to an underwriter for review.  However, if disputed accounts to exceed $1,000 in aggregate OR are less than 2 years old, they will be required to be ‘resolved’ under the same requirements as collections above.  Identity theft and unauthorized use of accounts can be excluded from this $1,000; however, sufficient evidence to support the fraud/misuse will need to be submitted for review as well.  This could include but not be limited to proof of filing for identity theft or evidence of a police report to dispute the fraudulent charges.

 

Identity of Interest Redefined:

Identity of interest (conflict of interest) or what defines an ‘arm’s length transaction’ is now redefined to describe a ‘family member’ to include the following:  spouse, legally adopted son/daughter, foster child, step brother/sister, and aunt/uncle in addition to child, parent, grandparent, and spouse.  In instances where there is an Identity of Interest between buyer and seller, the maximum loan-to-value for FHA financing is lowered to 85% for owner occupied transactions.

 

FHA Case Numbers Assigned after April 9, 2012:

  1.       FHA’s Upfront Mortgage Insurance Premium (UFMIP) will be raised from 1% to 1.75%. 
  2.       Monthly mortgage insurance (MMI) goes from 1.15% to 1.25%

 

What does this mean to you if you are a borrower? 

Your overall payment for an FHA insured mortgage will increase slightly due to the changes coming after April 9, 2012.  The MMI annual premium increase will change approximately $.08/$1000 borrowed. This equates to about an $8 increase in the overall payment for $100,000 home.  The Upfront MIP increase will also increase the total financed amount of your loan by $7.50/$1000 and thus slightly increasing your total overall payment.  This will have less of an effect on the overall payment depending on your purchase price and amount financed and amortization term of 30 years. 


If you would like someone from Team J&J at FBC Mortgage to consult you on any of the above, feel free to contact us at 407.377.0326, email us at teamjandj@fbchomeloans.com, or visit us online at www.teamjandj.com

We are new home mortgage specialists and can help you decide which mortgage program is the best fit for your family.  We service many of the markets that Adams Homes builds new homes in and are happy to assist in any way possible.

Please feel free to call us with any questions you may have.

 

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