FHA Credit Guidelines

Posted on January 2, 2009
Filed Under FHA Home Loans, Home Loans | Leave a Comment

FHA Credit Guidelines which borrowers and lenders must follow in order to obtain FHA financing for purchase and refinance loans.

Purchase Loans, Cash Out Refinance Loans, Rate Term Refinance Loans

A credit blemish here and there are not always a flat out reason for credit denial. There are many factors that come into play in underwriting credit and the best policy is to work with your lender who understands the credit qualifying criteria. He / She will be able to advise you about corrective actions that can be taken to improve your credit if the underwrite determines that at the present time you do not qualify for fha insured financing due to credit.

Many factors are taken into consideration such as: type of blemish, how old is the derogatory credit, what caused the late payment or collection & alternative credit sources. Many borrowers think they have bad credit when in fact they may have credit that is acceptable to the fha lender.

The underwriter will pay special attention to the following while determining creditworthiness:

Previous Mortgage or Rental Payment History: Provide the most recent 12 month rental or mortgage history. Verification of Mortgage, Verification of Rent from landlord or Canceled checks front and bank side. The lender might accept bank statements showing the amount of rent or mortgage being automatically deducted each and every month for the exact amount shown on the payment coupon from lender or rental agreement.

Recent or Undisclosed Debts:

The lender will look at any recent debt to find out if is being used toward the cash required for the down payment. Also, any inquiries in the last 90 days will be examined. An explanation will be required for any significant debt that shows on the credit report but is stated on the loan application.

Collections and Judgments:

To qualify for an FHA insured loan judgments do not have to be paid off if you have an agreement with the creditor for monthly payments and can provide documentation showing the payments have been made? The same is true with collections.

Past Foreclosures:

A borrower who has foreclosed or given a deed in lieu of foreclosure during the last 3 years generally will not qualify for an FHA insured loan. However, the lender will consider exceptions due to extenuating circumstances which will require a letter of explanation and complete documentation as well as re-established credit since the foreclosure or deed in lieu. Not being able to sell the home due to a job transfer or relocation do not qualify as reasons.

Bankruptcy:

Can I purchase a home if I’ve had a bankruptcy or am currently in Chapter 13?
Chapter 7: 2 years must have elapsed, re-established credit and or chosen to not incur new debt and document financial responsibility If 12 months has elapsed but less than 2 years and it can be documented that the bankruptcy was due to extenuating circumstances. Lender must document that needs to document that the events that led to the bankruptcy are not likely to occur again based on the borrowers current situation.

Chapter 13:

At least 12 months must have elapsed since the chapter 13 bankruptcy payout period began and the borrower has made each payment on time. The borrower also must receive permission from the court to enter into a home loan transaction.

Consumer Credit Counseling Payment Plans:

This is treated much like a Chapter 13 Bankruptcy. 12 months of the payout period must expire and all payments to have been made on time. Permission from the counseling agency to enter into a home loan mortgage transaction must be received in writing.

Streamline Refinance Loans

To obtain an FHA Streamline Refinance (with or without an appraisal) credit qualifying is not required by HUD. However, the lender may add restrictions. The current mortgage should not be delinquent. The borrower needs to be current on any federal debt and not be late, delinquent or in default.

2009 FHA Loan Limits – Washington State

Posted on December 17, 2008
Filed Under FHA Home Loans, Homebuyers | 7 Comments

FHA Loan Limits – 2009 – Washington State Counties

Beginning in 2009 there are new FHA loan limits that loan agents and real estate agents need to be aware of.  This will affect borrowers you are currently working with.   If they are searching for a home with 2008 loan limits you will need to advise them of the new lower fha loan limits for 2009 as this will have a bearing on their purchase price.  Remember, the loan limit is not the purchase price.      When you factor in the 3.5% down payment you can adjust your purchase price upward so that you end up within the loan limit guidelines.

County 1 Unit 2 Units 3 Units 4 Units

Adams County $368,000.00 $471,100.00 $569,450.00 $707,700.00
Chelan County $342,700.00 $438,700.00 $530,300.00 $659,050.00
Clallam County $296,700.00 $379,800.00 $459,100.00 $570,550.00
Clark County $362,250.00 $463,750.00 $560,550.00 $696,650.00
Douglas County $342,700.00 $438,700.00 $530,300.00 $659,050.00
Island County $316,250.00 $404,850.00 $489,350.00 $608,150.00
Jefferson County $322,000.00 $412,200.00 $498,250.00 $619,250.00
King County $506,000.00 $647,750.00 $783,000.00 $973,100.00
Kitsap County $307,050.00 $393,050.00 $475,150.00 $590,500.00
Pierce County $506,000.00 $647,750.00 $783,000.00 $931,100.00
San Juan County $483,000.00 $618,300.00 $747,400.00 $928,850.00
Skagit County $295,550.00 $378,350.00 $457,350.00 $568,350.00
Skamania County $362,250.00 $463,750.00 $560,550.00 $696,650.00
Snohomish County $506,000.00 $647,750.00 $783,000.00 $931,100.00
Thurston County $293,250.00 $375,400.00 $453,750.00 $563,950.00
Whatcom County $304,750.00 $390,100.00 $471,550.00 $586,050.00

Do you have a home loan finance scenario or real estate related question you would like to get an answer for? Just fill in our contact form below to receive a free and timely answer to your question.

FHA Loans & Bankruptcy

Posted on December 11, 2008
Filed Under Bankruptcy, FHA Home Loans | 1 Comment

Will FHA allow me to purchase a home while in Bankruptcy?

Yes, but certain conditions have to be met.  We have outlined the conditions in detail about FHA guidelines for obtaining an home with a recent or current bankruptcy. The long and short of it is that you will need to establish financial responsibility and depending on what type of bankruptcy certain time frames need to happen.  For instance a Chapter 7 would require 2 years since the bankruptcy discharge and re-established credit or choice to not incur any more debt. It will also require the lender to document that the situation that led to bankruptcy no longer exists.  If the bankruptcy discharge has been more than 12 months but less than 24 months than the borrower would need to show extenuating circumstances.    Not being able to sell a home due to a job transfer or relocation would not qualify.

A Chapter 13 bankruptcy would require that 12 months of payout has occured and that the payments have been made on time and also the court would have to give permission to enter into a mortgage transaction.


Loan Modification – Don’t Wait!

Posted on December 11, 2008
Filed Under Loan Modification, Refinance | 4 Comments

Don’t wait to begin your home loan modification program.   If you do not qualify for a refinance and you don’t want to sell your home with a short sale or loose it to foreclosure or give it back to the lender with a deed in lieu of foreclosure than you should consider a loan modification with your current lender.   Don’t wait!

You do not want too much time to go by and get behind on payments and end up with a foreclosure.  You do not want to see a form called:  “Notice to Vacate”.  Prepare for this way in advance.   Suppose you are having a hard time making your house payments right now but you are managing.  Consider the loan modification program right now. Get ahold of your lender and begin the discussion and even start the process.

Consider what will happen if you wait too long “hoping” things will get better.  That you will find a new job or the real estate market will quit slumping and there will be a turnaround and you won’t have to sell or loose your home to foreclosure.  What if those things don’t happen before it’s too late.  Better to prepare now.

If a “Notice to Vacate”  arrives at your doorstep – where will your family and children move to?   Have you found a rental agency or landlord that will rent if your fico score gets hammered during the notice of default period?   Is your income sufficient to qualify for a rental?

Don’t Wait.  Prepare Now.  Get started on your loan modification program today.

FHA Underwriting Guidelines

Posted on December 11, 2008
Filed Under FHA Home Loans, Home Loans | 1 Comment

FHA Underwriting Guidelines

Mortgage Credit Analysis

The 4 C’s of Credit:

Credit History

Cash to Close

Capacity to Repay

Collateral

All of these topics will be discussed in this post.   There will be revisions to these policies over time so pay attention to the FHA website they will affect a borrowers ability to qualify. These guidelines are extrapolated from the 4155.1 published in 2004.

The underwriter needs to evaluate the credit history and determine that the borrower has sufficient cash to close, a debt to income ratio that meets the FHA guidelines.

Mortgage Eligibility:

Borrowers, Co-Borrowers, Co-Signers:

The borrowers must plan to live in the property.   A non-occupant co-borrower must have a residence in the United States  (see exemptions).  A c0-borrower or co-signer may not have a financial interest in the property (see  exemptions).

Borrower and co-borrower’s income, assets, credit and liabilities are considered when determining creditworthiness.   The borrower and co-borrower are both obligated to the mortgage note and they sign the security instrument.

Co-signers do not own the property but they are obligated for the mortgage and must sign the loan application and other documents. They don’t sign the security instruments.  Their income, assets, liabilities and credit are considered to determine creditworthiness.

Citizenship and Immigration Status:

A borrower does not have to be a citizen of the United States of America but the lender does have to determine residency status.

Lawful Permanent Resident Aliens:  (see guide)

Non-Permanent Resident Aliens: (see guide)

Minimum Age: When a mortgage note can be legally enforced in jurisdiction where the property is located.

Non-Purchasing Spouses: (see guide)

Credit report is used to determine debt to income ratio but is not to be used for credit for credit denial.  If the borrower or property are in community property state the debts of a non purchasing spouse are used to determine debt to income ratio.

Military Personnel:  If an immediate family member occupies the property as a principal residence than a military family member may be an occupant owner even though stationed elsewhere.

Living Trusts: (see guide)

Credit Analysis:

A credit blemish here and there are not always a flat out reason for credit denial.  There are many factors that come into play in underwriting credit and the best policy is to work with your lender who understands the credit qualifying criteria.   He / She will be able to advise you about corrective actions that can be taken to improve your credit if the underwrite determines that at the present time you do not qualify for fha insured financing due to credit.

Many factors are taken into consideration such as:  type of blemish, how old is the derogatory credit, what caused the late payment or collection & alternative credit sources.  Many borrowers think they have bad credit when in fact they may have credit that is acceptable to the fha lender.

The underwriter will pay special attention to the following while determining creditworthiness:

Previous Mortgage or Rental Payment History:  Provide the most recent 12 month rental or mortgage history.  Verification of Mortgage, Verification of Rent from landlord or Canceled checks front and bank side.   The lender might accept bank statements showing the amount of rent or mortgage being automatically deducted each and every month for the exact amount shown on the payment coupon from lender or rental agreement.

Recent or Undisclosed Debts:

The lender will look at any recent debt to find out if is being used toward the cash required for the down payment.  Also, any inquiries in the last 90 days will be examined.  An explanation will be required for any significant debt that shows on the credit report but is stated on the loan application.

Collections and Judgments:

To qualify for an FHA insured loan judgments do not have to be paid off if you have an agreement with the creditor for monthly payments and can provide documentation showing the payments have been made? The same is true with collections.

Past Foreclosures:

A borrower who has foreclosed or given a deed in lieu of foreclosure during the last 3  years generally will not qualify for an FHA insured loan. However, the lender will consider exceptions due to extenuating circumstances which will require a letter of explanation and complete documentation as well as re-established credit since the foreclosure or deed in lieu.    Not being able to sell the home due to a job transfer or relocation do not qualify as reasons.

Bankruptcy:

Can I purchase a home if I’ve had a bankruptcy or am currently in Chapter 13?
Chapter 7:  2 years must have elapsed, re-established credit and or chosen to not incur new debt and document financial responsibility  If 12 months has elapsed but less than 2 years and it can be documented that the bankruptcy was due to extenuating circumstances.  Lender must document that needs to document that the events that led to the bankruptcy are not likely to occur again based on the borrowers current situation.

Chapter 13:

At least 12 months must have elapsed since the chapter 13 bankruptcy payout period began and the borrower has made each payment on time.   The borrower also must receive permission from the court to enter into a home loan transaction.

Consumer Credit Counseling Payment Plans:

This is treated much like a Chapter 13 Bankruptcy.  12 months of the payout period must expire and all payments to have been made on time.   Permission from the counseling agency to enter into a home loan mortgage transaction must be received in writing.

« go back — keep looking »