When the FHA Loan Guidelines change on October 15, it will be good news for thousands of would-be homeowners who fell into financial difficulties in the recent downturn.
Under the new guidelines set forth in Mortgage Letter 2013–25, it will no longer be necessary to pay off collection accounts prior to receiving a FHA approved mortgage. If the cumulative outstanding balance of all collections is less than $2,000, the lender is not even required to consider or evaluate those accounts.
If the cumulative outstanding balance is $2,000 or more, the lender must include monthly payments when evaluating the borrower’s debt-to-income ratio for all accounts that will remain open after closing.
In community property states, this guideline applies to collection accounts of both spouses, even if only one will be listed on the purchase and sale documents.
Court-ordered judgments will not disqualify a borrower, but must be paid off prior to eligibility for FHA insurance endorsement. However, there is an exception. If the borrower has made an agreement with the creditor to make regular and timely payments and can show documentation that he or she has been making said payments as agreed, the loan can be approved.
Disputed credit accounts are generally not shown on credit reports (get more information from Credit Check Kansas City), but will be considered in underwriting. If a borrower has derogatory disputed accounts (excluding medical) for a cumulative balance of $1,000 or more, his or her file will be downgraded to a manual underwrite. Total balances of less than $1,000 will not require manual underwriting.
Before obtaining a FHA insured mortgage, a borrower must generally wait 3 years after a foreclosure or deed-in-lieu transfer. However, the lender may grant an exception to the three-year requirement under certain documented extenuating circumstances such as a serious illness or the death of a wage earner.
Divorce is not usually considered to be an extenuating circumstance, but here too is the possibility of an exception. If the previous loan was current at the time of the divorce and the borrower’s spouse received the property and later let it fall into foreclosure, the 3 year rule can be waived.
Bankruptcy is not a disqualifying factor…
Neither Chapter 7 nor Chapter 13 bankruptcy is an automatic disqualification. A borrow may obtain a new FHA loan 2 years after a discharge of a Chapter 7 bankruptcy, provided the borrower has re-established good credit and has not incurred new credit obligations. The time period may be shortened to 12 months if the borrower can prove that extenuating circumstances led to the bankruptcy.
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining a FHA-insured mortgage, provided that the lender is able to document that:
- at least one year of the pay-out period under the bankruptcy has elapsed
- the borrower has made all required payments on time
- the bankruptcy court has issued written permission for the borrower to enter into the mortgage transaction
If you’ve run into trouble and have been thinking you can never again own a home, call us at Homewood Mortgage, LLC, the Mike Clover Group: 1-800-223-7409. We’ll help you evaluate your situation and let you know where you stand – and how soon you can apply for that new mortgage loan.
We’re always glad to talk with you – with no obligation, of course.
Texas Mortgage Banker