Do You Have a Gameplan to Navigate Recent FHA Changes?

FHA changes - understanding new fha guidelines

FHA Changes

FHA recently changed a lot of their guidelines on 9/14/2015.  So we will provide the game plan to navigate minor tweaks to big FHA changes.

Below are answers to FHA FAQ’s

Is a borrower eligible if they have a delinquent federal debt but have a clear CAIVRS?

If a delinquent federal debt is reflected in a public record, credit report or equivalent, or CAIVRS or an equivalent system, the lender must verify the validity and delinquency status of the debt by contacting the creditor agency to whom the debt is owed. If the creditor agency confirms that the debt is valid and in delinquent status as defined by the Debt Collection Improvement Act, then the borrower is ineligible for an FHA-insured mortgage until the borrower resolves the debt with the creditor agency. In order for a borrower with verified delinquent federal debt to become eligible, the borrower must resolve their federal non-tax debt in accordance with the Debt Collection Improvement Act. The creditor agency that is owed the debt can verify that the debt has been resolved in accordance with the Debt Collection Improvement Act.  The lender must include documentation from the creditor agency to support the verification and resolution of the debt.

Is there a minimum distance a borrower must relocated before a second FHA loan can be obtained?

This is one of the big FHA changes.  A borrower may be eligible to obtain another FHA insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is:

  1. Relocating or has relocated for an employment-related reason; and
  2. Establishing or has established a new principal residence in an area more than 100 miles from the borrower’s current principal residence.
  • If the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence, provided the relocation meets the two requirements above.

How does FHA define a principal residence?

Principal residence refers to a dwelling where the borrower maintains or will maintain their permanent place of abode and typically spends or will live in the house the majority of the calendar year. A person may have only one principal residence at any one time. At least one borrower must occupy the property within 60 days of signing the security instrument and intend to continue occupancy for at least one year. A person in military service must meet the requirements of 24 CFR 203.31.

Can I rent back the property to the seller after closing to accommodate scheduling issues?

At least one borrower must occupy the property within 60 days of signing the security instrument and intend to continue occupancy for at least one year.

What costs can a seller or other interested party pay on behalf of the borrower?

Interested parties refer to sellers, real estate agents, builders, developers or other parties with an interest in the transaction. Interested parties may contribute up to 6 percent of the sales price toward the borrower’s origination fees, other closing costs and discount points. The 6 percent limit also includes:

  • Payment for permanent and temporary interest rate buydowns, and other payment supplements;
  • Payments of mortgage interest for fixed rate mortgages; 
  • Mortgage payment protection insurance; and 
  • Payment of the Upfront Mortgage Insurance Premium (UFMIP).

Interested party contributions that exceed actual origination fees, other closing costs, and discount points and Interested party contributions exceeding 6 percent are considered inducements to purchase and result in a dollar-for dollar reduction to the adjusted value of the property before applying the appropriate LTV percentage.  Interested party contributions may not be used for the borrower’s Minimum Required Investment (MRI). Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an interested party contribution. The lender must document the total interested party contributions on form HUD-92900-LT, the Settlement Statement or similar legal document, and the sales contract.

How does the FHA Construction to Permanent Mortgage program work?

A Construction to Permanent mortgage combines the features of a construction loan (a short-term interim loan for financing the cost of construction) and the traditional long-term permanent residential mortgage with a single mortgage closing prior to the start of construction.

The borrower must have contracted with a builder (must be a licensed general contractor) to construct the improvements. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.

The borrower must be purchasing the land at the closing of the construction loan, or have owned the land for six months or less at the date of case number assignment.

At closing, after funds are disbursed to cover the purchase of the land, the balance of the mortgage proceeds must be placed in an escrow account to be disbursed as construction progresses.

Amortization of the permanent mortgage must begin no later than the first of the month following 60 Days from the date of the final inspection or issuance of the CO. For additional information see Handbook 4000.1 II.A.8.j.  Check out our FHA Construction Perm Loan

Where can I find the guidelines regarding gift funds?

These FHA changes provided more clarification to gifting rules.  Gifts refer to the contributions of cash or equity with no expectation of repayment. Gift funds may be provided by: 

  • the borrower’s family member; 
  • the borrower’s employer or labor union; 
  • a close friend with a clearly defined and documented interest in the borrower; 
  • a charitable organization; 
  • a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.

Cash on hand is not an acceptable source of donor gift funds.

Only family members may provide equity credit as a gift on property being sold to other family members

Can I receive a loan from a family member rather than a gift?

FHA will insure a first mortgage on a property that has a second mortgage or lien held by a Family Member, provided that all requirements in Handbook 4000.1 II.A.4.d.iii.(J)(3) or II.A.5.c.iii.(J)(3) are met.

Does HUD allow gifts of equity?

Only family members may provide equity credit as a gift on property being sold to other family members.  FHA changes also clarified the definition of family.  The lender must obtain a gift letter signed and dated by the donor and borrower that includes the following: 

  • the donor’s name, address, telephone number; 
  • the donor’s relationship to the borrower; 
  • the dollar amount of the gift; and 
  • a statement that no repayment is required.

Is it acceptable to get a loan for the down payment on a purchase when using an FHA loan?

A collateralized loan is a loan that is fully secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property. These assets may include stocks, bonds, and real estate other than the property being purchased. Loans secured against deposited funds, where repayment may be obtained through extinguishing the asset, do not require consideration of repayment for qualifying purposes. The lender must reduce the amount of the corresponding asset by the amount of the collateralized loan. Only an independent third party may provide the borrowed funds for collateralized loans. The seller, real estate agent or broker, lender, or other Interested party may not provide such funds. Unacceptable borrowed funds include: 

  • unsecured signature loans; 
  • cash advances on credit cards; 
  • borrowing against household goods and furniture; and
  • other similar unsecured financing. The lender must verify and document the existence of the borrower’s assets used to collateralize the loan, the promissory Note securing the asset, and the loan proceeds. Any loan of the borrower’s Minimum Required Investment (MRI) must also comply with the additional requirements set forth in “Source Requirements for the borrower’s MRI” (see 4000.1 II.A.4.d.ii and II.A.5.c.ii).

How do I document the value of personal property sold for funds to closing?

Borrowers may sell personal property to obtain cash for closing. Personal property refers to tangible property, other than real property, such as cars, recreational vehicles, stamps, coins or other collectibles. The lender must obtain a satisfactory estimate of the value of the item, a copy of the bill of sale, evidence of receipt, and deposit of proceeds. A value estimate may take the form of a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified appraiser with no financial interest in the mortgage transaction The lesser of the estimated value or actual sales price must be used when determining the sufficiency of assets to close

Does FHA allow unsecured loans to be used toward the down payment?

Funds obtained from unsecured loans cannot be used toward the down payment. Unacceptable borrowed funds include: 

  • unsecured signature loans;
  • cash advances on credit cards; 
  • borrowing against household goods and furniture; and 
  • other similar unsecured financing.

A collateralized loan that is fully secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property is acceptable. These assets may include stocks, bonds, and real estate other than the property being purchased.

Do I have to count a debt that is almost paid off?

The lender must determine the borrower’s monthly liabilities by reviewing all debts listed on the credit report, Uniform Residential Loan Application (URLA), and required documentation. All applicable monthly liabilities must be included in the qualifying ratio. Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the borrower’s gross monthly income. The borrower may not pay down the balance in order to meet the 10-month requirement.

Read more FHA articles with Tips and Knowledge here

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Written By: Russell Smith

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