FHA Home Loan Rules Tighten, Making It Harder To Receive Help


The Federal Housing Administration has approved new mortgage loan rules that make it harder than ever to receive an FHA home loan. The new requirements put more restrictions on buyers with collections or judgements in their credit histories.

On August 15, 2013 the Department of Housing and Urban Development issues a letter which instructed lenders to add collections accounts and judgments to an applicant’s debt-to-income ratio. That ratio is used to help buyers qualify for an FHA loan.

Starting October 15, 2013 the new FHA loan standards went into action.

While charge-offs and medical collections are not directly affected, those bills can cause a buyers credit score to fall, making it even harder to receive a good interest rate on a home loan. If an applicant has more than $2,000 in collections accounts the lender is now required to reveal those debts and add them to the borrowers debt-to-income ratio.

In the past lenders could explain away some types of debt based on past events in a persons life. Those events have now become part of a mathematical equation that offers no change for recourse.

While collection accounts do not need to be fully paid-off to qualify for an FHA loan, judgments must be fully taken care of ahead of qualification. The FHA Loan policy change does allow a borrower to arrange a payment schedule for judgments in order to qualify.

Starting on Jan. 10, 2014 part of the Dodd-Frank Wall Street Reform and Consumer Protection Act will decrease the allowed debt-to-income ratio to 43 percent. Currently customers can receive an FHA loan under special circumstances if their debt-to-income ratio is as high as 55%.

After the collapse of the sub-prime mortgage we knew it was only a matter of time before at least some qualification standards were improved to weed out buyers who are likely to default.

In Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, a spouse’s debt-to-income ratio is also included even if the other spouse goes into the home buying process alone.

If you still want to move forward with the FHA loan process here is a tip. Pay off any loans you can take care of. Your debt-to-income ratio will be lowered if you show less open accounts at the time of your loan application.

Do you think a tightening of FHA Loan requirements is a smart decision for America’s future?

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