Staying Current with New FHA Guidelines & FHA Interest Rates
It is important in the mortgage industry to stay current with the new FHA guidelines. There is an Automated Underwriting System (AUS) that makes it easier when determining FHA home loan requirements. If you are looking for a better understanding on FHA home loan qualifications, they are published in the Single Family Housing Policy Handbook, but a licensed Loan Originator can go over your options.
Single Family Housing Policy Handbook 4000.1
The Single Family Housing Policy Handbook 4000.1 was recently superseded in full due to new FHA guidelines. Whether you are looking for a specific guideline or looking to get pre-approved for a loan, it has extensive information regarding FHA home loan qualifications.
FHA home loan requirements for borrowers are based on credit reputation, capacity, and collateral. The process is streamlined through an Automated Underwriting System (AUS) that takes a comprehensive credit risk assessment that determines eligibility.
3.5% Down Payment
The minimum down payment requirement for an FHA home loan is 3.5% for credit scores 580 FICO or higher and 10% for credit scores under 580 FICO. The minimum down payment requirement can be less when a borrower qualifies for a FHA grant.
The down payment assistance grant is intended to help when you demonstrate financial stability. There are benefits to this loan program, but you should go over your options to determine if the grant’s benefits outweigh other mortgage options. When using a grant, FHA interest rates are not the same as if you were to choose the regular 3.5% down payment option.
FHA Interest Rates
Requirements for an FHA home loan are often easier to qualify for when it comes to credit than conventional loans. FHA interest rates are often more favorable if your credit is less than perfect. The benefits can be outweighed depending on credit score and down payment.
Understanding FHA Interest Rates
Live pricing can be quoted by a licensed Loan Originator in minutes. It is important to understand that pricing changes throughout the day, there are different rate options, and lenders have pricing adjustments.
Examples of Pricing Adjustments
When shopping for a FHA interest rates, some lenders may have more competitive pricing for lower credit score borrowers or advantages when it comes to Loan-Level Price Adjustments.
Some common pricing adjustments include:
- Loan-to-value.
- Loan purpose.
- Appraised value.
- Type of loan.
- Refinance purpose.
- Occupancy type.
- Number of units.
- Property type.
- Property state.
- Credit score.
- Other types.
FHA home loan requirements are not always the same for every lender. Some lenders have tougher guidelines like setting higher standards on credit, debt-to-income, or not willing to manually underwrite a loan.
New FHA Guidelines
Recently, the guidelines changed and there are new FHA guidelines on debt-to-income ratios with a credit score below 620 FICO. The two factors that trigger a loan to be downgraded to a manual underwrite include:
- Debt-to income ratios exceeding 43%; and
- The decision credit score is under 620 FICO.
In some cases, a lender may dismiss borrowers because it is against their guidelines – not FHA guidelines. You would just have to work with a lender that is willing to manually underwrite the loan.
FHA Home Loan Reserve Requirements
Reserve requirements depend on the eligibility findings and the number of units. For 3 to 4 unit properties, a minimum of three months reserves are required to be verified. Reserves consist of your documented liquid assets minus the amount required to pay at closing.
FHA minimum reserve requirements are required when a loan is manually underwritten.
- 1 to 2 unit properties require one month in reserves.
- 3 to 4 units require three months in reserves.
One month of reserves is calculated by the total mortgage payment, which can include:
- Principal and interest (P&I).
- Monthly hazard insurance.
- Real estate taxes for the subject property.
- FHA mortgage insurance.
- Home owner’s association dues (if applicable).
They must also be an acceptable source of reserves. Rental income on the subject property can be used by obtaining an appraisal showing the fair market of rent.
Debt-to-Income Requirements
Debt-to-income ratios, income, and cash reserves depend on the Automated Underwriting System (AUS). A manual underwrite requires compensating factors with higher debt-income ratios.
Requirements can vary by mortgage company if they do not go by FHA home loan requirements, Automated Underwriting System (AUS) findings, and have internal guideline on top of FHA guidelines.
Seasoning for an FHA Loan
Foreclosure, deed-in-lieu, or short sale requires seasoning and is measured by the final property transfer or completed sale date.
- Must be three years from the FHA case # assignment.
At least 2 years of time must be elapsed since a Chapter 7 bankruptcy discharge date. A Chapter 13 does not disqualify a borrower from an FHA loan, but requires manual underwriting. FHA home loan requirements with a Chapter 13 bankruptcy include:
- One year payout period has to be elapsed under the Chapter 13 bankruptcy.
- Borrower payment performance must be satisfactory.
- The borrower must receive written permission from the court.
FHA Home Loan Qualifications
A borrower should start by talking to a Mortgage Loan Originator to obtain information on documentation required in order for them to determine if they are eligible for a pre-approval letter.
In order to properly pre-approve a borrower, a Mortgage Loan Originator should run the Automated Underwriting System (AUS) in order to determine if the loan is approved/eligible, requires manual underwriting, or a borrower needs to work on credit and capacity.