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FHA Updates that Impact Your Ability to Borrow

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The Federal Housing Authority (FHA) occasionally updates lending rules in an effort to help current and future home owners purchase and refinance homes. While many changes occur without notice, there are some lending changes that may impact you directly.

In Guaranteed Rate’s effort to keep consumers informed about changes in lending, here are FHA’s most recent changes along with FHA’s former lending rule.

Student Loans

Student debt has been a topic of much controversy as of late. Understanding how your student debt impacts your ability to purchase or refinance a home is important. Those with student debt know there is no payment calculated if the loans are in deferment or forbearance; this can make things a little confusing when trying to determine how much house you can afford. Here are the old, and new, FHA rules regarding student loan payments:

  • Formerly, if there was no payment listed FHA would calculate the payment using 5 percent of either the original student loan balance or outstanding balance, whichever was higher.
  • Currently, if there is not payment listed FHA will use 2 percent of the outstanding balance to establish the monthly payment.

If there is an available payment listed on the credit report, the listed payment will be used.

Late Mortgage Payments

If you currently own and want to take advantage of better rates, you’ll need to refinance your current loan. If you’ve had a tough month and run behind on a payment all hope is not lost. FHA understands and has shifted the rules:

  • Formerly, FHA permitted no mortgage late payment within the past 12 months
  • Currently, FHA will allow a refinance or Streamline refinance for those who don’t have any late payments within the most recent 6 months. Fortunately, they will forgive a one-time 30-day late payment if it’s older than 6 months but still within the last 12 months.

If you’re not sure whether or not you’ll qualify, contact your chosen mortgage professional today to discuss your options.

Self Employed Income

Self-employed income can be tricky with all of the tax implications and fluctuating income. FHA understands that a two year commission history is not a reflection of current reality and have changed the rules regarding commission income:

  • Formerly, when using commission income, a 2-year history of receiving commission in the same line of work was required.
  • Currently, when using commission income, a 1-year history of receiving commission with the same employer is required.

There are many options for self-employed consumers. If you have questions about available programs it’s best to speak with your mortgage professional.

Well Water

While wells are not common in urban areas, if you’re in a suburban or rural area you’ll need to be aware of this FHA change.  Whether you’re purchasing or refinancing, FHA will now require a well certification.

  • Formerly, FHA allowed an appraiser to determine the need for a well inspection.
  • Currently, FHA requires that all properties with wells require a well certification.

When purchasing, your real estate agent will manage the scheduling of the well inspection. However, if you’re refinancing, your mortgage team will manage obtaining the required certification.

While FHA financing is not for everyone, it does offer more flexible lending options for those in unique financial situations. If you would like to learn more about FHA and other mortgage programs, contact your chosen mortgage professional today.

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