On September 15, changes are being made to the FHA Single Family Housing Policy Handbook that will affect how FHA borrowers will qualify for their loans moving forward. While changes in the mortgage industry happen regularly, it's always good to stay up-to-date on any changes that might affect you if you're hoping to purchase a home within the next few months.
The handbook, which is more than 800 pages, is bringing small and large changes to FHA borrower guidelines that will both loosen qualification standards and tighten them. The policy was originally slated to go into effect in June of this year, but has since been pushed back to the middle of September.
Standards that are Loosening
If you're self-employed or receive commissions, it might be easier now for you to qualify for an FHA loan. For those that are receiving regular commissions, you'll now only need to report one year's worth of income verification instead of two. For self-employed borrowers, you'll no longer need to provide a year-to-date balance sheet, but you will still be required to show two years of self-employed tax returns.
Standards that are Tightening
One of the biggest changes to the FHA policy is how deferred student loans are handled. Currently, student loans that are deferred for one year or more are not included in the borrower's debt-to-income ratio. Under the new policy, the borrower must provide the lender with written documentation of the deferral, including the outstanding balance of the loan and the terms.
Also included in the debt-to-income ratio are charge accounts, unless the borrower can show a one-year history of full and on-time payments. If the borrower is an authorized user on an account but not the primary user, this will also now be included in the debt-to-income ratio, unless the primary user can show 12 full, on-time payments.
And finally, any installment loans with 10 or fewer remaining payments will be included in the borrower's debt-to-income ratio. The only exception is if the total of the remaining payments is less than 5 percent of the borrower's monthly income. Only then can it be excluded.
What this Means for Borrowers
Though debt-to-income standards are tightening, the reality is that few borrowers will actually be directly impacted by any of the changes. If you're hoping to purchase a home using an FHA loan, make sure to ask your lender questions on how and if the new policies will affect you. As always, comparison shop FHA lenders in order to save money and find the right lender for you individual home-buying needs.