FHA mortgages, with their low down payments and recently reduced insurance rates, continue to be the choice of many, especially first-time home buyers.
But the Federal Housing Administration makes changes periodically in the rules.
For example, effective Sept. 14, the U.S. Department of Housing and Urban Development requires mortgage lenders "at first contact" to advise borrowers to get home inspections.
On Sept. 15 came changes that can affect borrower eligibility. Because large numbers of buyers use FHA, I thought I would talk about some of those new rules:
A buyer with a prior short sale may now purchase right away, rather than wait three years, as previously required. The buyer must be current on the existing mortgage and on all installment debt for 12 months before the date of the short sale and for 12 months before applying for a loan for the new house.
A two-year history of overtime and bonus income may now be considered for qualification for an FHA loan. In addition, you will be able to use a one- to two-year history if you have earned overtime or bonus income consistently during that time and are likely to continue doing so, as verified by your employer.
You can obtain a second FHA loan for your primary residence if you are relocating for work, if your workplace is more than 100 miles from your current home. The change does not account for high-traffic areas in which commutes can be exceptionally long.
There are also some things mortgage brokers and real estate agents consider negative changes:
Two years of uninterrupted part-time income now will be required. Your average over that two-year period will be used in calculations. If you received a pay increase, however, you can calculate your average over the last 12 months.
If you are self-employed, you cannot use your income if it has had more than a 20 percent decline except in extenuating circumstances and it has been either stable or increasing during the last 12 months. You will, however, need to qualify for the loan using your lower income.
If you have moved more than three times in the last 12 months for work, FHA requires that you show proof that the moves either advanced your income or benefits, or that you needed the training.
Borrowers must have 3.5 percent of their own funds in the deal. There are no exceptions. In the past, borrowers could get a second mortgage from a HUD-approved nonprofit to cover closing costs and down payment. This, agents say, will have a negative impact in low- and moderate-income areas that depend on such second mortgages.
All deferred loan payments, such as student loans, must be calculated and included in debt-to-income ratios regardless of their status, as is currently required for conventional loans. You must use the actual monthly payment. If the payment is zero dollars, your outstanding balance is your monthly payment. In the past, student loans deferred for at least 12 months were not counted in the debt-to-income ratio, agents said.
When buying a property that has two to four units, you can add the rental income from the other units to your qualifying income. Specifically, you can use 75 percent of either the appraiser's estimate of fair market rent or the rent based on the rental agreement. But that lowers the amount you can specify when qualifying for the purchase of a multifamily property.
If you are unsure how any of these changes might apply to you, ask your real estate agent or the mortgage broker.