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ehm3
979 Posts |
 Posted - 04/03/2008 : 1:32:57 PM
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OK there are a ton of questions popping up about "will this fly FHA" and so I figured I'd contribute a little something that I have used for a long time. I call it my "condensed 4155", its a word doc that I copy pasted straight from the manual (I did add some breaks, spaces and bold text, not sure if that will show up here though). It covers credit, collections, bankruptcy, foreclosure, and compensating factors. I have found it invaluable and hopefully all of you will too.
I will simply copy-paste it below, and all of you can copy-paste it to a word doc and save it for future reference. Hope it helps.
2-3 ANALYZING THE BORROWER’S CREDIT. Past credit performance serves as the most useful guide in determining a borrower’s attitude toward credit obligations and predicting a borrower’s future actions. A borrower who has made payments on previous and current obligations in a timely manner represents reduced risk.
Conversely
if the credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, strong compensating factors will be necessary to approve the loan.
When analyzing a borrower's credit history,
examine the overall pattern of credit behavior, rather than isolated occurrences of unsatisfactory or slow payments.
A period of financial difficulty in the past does not necessarily make the risk unacceptable if the borrower has maintained a good payment record for a considerable time period since the difficulty.
When delinquent accounts are revealed, the lender must document their analysis as to whether the late payments were based on a disregard for financial obligations, an inability to manage debt, or factors beyond the control of the borrower, including delayed mail delivery or disputes with creditors.
C. Collections and Judgments. Court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement.
(An exception may be made if the borrower has agreed with the creditor to make regular and timely payments on the judgment and documentation is provided that the payments have been made in accordance with the agreement.)
FHA does not require that collection accounts be paid off as a condition of mortgage approval. Collections and judgments indicate a borrower’s regard for credit obligations and must be considered in the analysis of creditworthiness with the lender documenting its reasons for approving a mortgage where the borrower has collection accounts or judgments. The borrower must explain in writing all collections and judgments.
D. Previous Mortgage Foreclosure. A borrower whose previous principal residence or other real property was foreclosed or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for a new FHA-insured mortgage.
However, if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit since the foreclosure, the lender may grant an exception to the three-year requirement.
Extenuating circumstances include serious illness or death of a wage earner, but do not include the inability to sell the house because of a job transfer or relocation to another area.
E. Bankruptcy. A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs.
An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. Additionally, the lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage provided the lender documents that
one year of the payout period under the bankruptcy has elapsed
and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time).
In addition, the borrower must receive permission from the court to enter into the mortgage transaction.
F. Consumer Credit Counseling Payment Plans. Participation in a consumer credit counseling payment program does not disqualify a borrower from obtaining an FHA-insured mortgage provided the lender documents that
one year of the pay-out period has elapsed under the plan and
the borrower’s payment performance has been satisfactory (i.e., all required payments made on time).
In addition, the borrower must receive written permission from the counseling agency to enter into the mortgage transaction.
2-13 COMPENSATING FACTORS. Compensating factors that may be used to justify approval of mortgage loans with ratios exceeding our benchmark guidelines are those listed below. Underwriters must record on the "remarks" section of the HUD 92900-WS/HUD 92900-PUR the compensating factor(s) used to support loan approval. Any compensating factor used to justify mortgage approval must be supported by documentation.
A. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months.
B. The borrower makes a large downpayment (ten percent or more) toward the purchase of the property.
C. The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.
D. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses.
E. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.
F. There is only a minimal increase in the borrower's housing expense.
G. The borrower has substantial documented cash reserves (at least three months’ worth) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination. Also see paragraph 2-10K.
Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. “Assets” such as equity in other properties and the proceeds from a cash-out refinance are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves.
H. The borrower has substantial non-taxable income (if no adjustment was made previously in the ratio computations).
I. The borrower has a potential for increased earnings, as indicated by job training or education in the borrower's profession.
J. The home is being purchased as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.
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keckpas
1169 Posts |
Posted - 04/03/2008 : 1:42:21 PM
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| Thanks - I am going to pass this on to a few people who are FHA challenged. I am used to looking through the 4155 but so many people won't take the time. |
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velecico
4204 Posts |
Posted - 04/03/2008 : 1:59:12 PM
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its called common sense underwriiting which many UW have lost touch with since AU and credit scores became the norm |
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lunarhamster
4436 Posts |
Posted - 04/03/2008 : 2:34:57 PM
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| I saved it. Thanks. |
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Travis Du Bois
590 Posts |
Posted - 04/03/2008 : 2:46:33 PM
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Thanks that should help out the reading impared. I called it 4155 cliff notes. ~`; }
I have been sending this to help educate some of my brokers to pre-qualifying borrowers for FHA.
FHA quick check for qualifying
Following is the basic FHA loan qualification guidelines:
• Two Years of steady employment, preferably with same employer.
• Last two years Income should be the same or increasing.
• Credit report should typically have less than two thirty day lates in last two years.
• Bankruptcies must be at least two years old, with good credit since.
• Foreclosures must be at least three years old, with good credit since.
• Your new mortgage payment should be approximately 30% of your gross income.
These are some of the most basic of FHA guidelines for qualifying for a FHA loan. If you have answered yes to most of these statements, your borrower is probably qualified for a FHA mortgage loan.
More information on documentation and requirements can be found here: http://www.fha-home-loans.com/loan_qualifying_fha_loans.htm
Some more of the basics:
• DTI = 29/41- Exceptions can be made with strong compensating factors
• New housing payment: FHA allows 29% of your income for your new total house payment.
o (Exceptions can be made up to 35% with strong compensating factors.) http://www.ginniemae.gov/2_prequal/intro_questions.asp?Section=YPTH
• LTV: Up to 97% of the property appraisal value.
• Down Payment/Closing Costs: Gifts allowed from Family, DPAP, or Non-profits
• No outside MI needed
o (FHA MI is 1.5% of the loan amount up front, financed, and 0.5% of the loan amount annually, paid 1/12 each month if applicable)
• No declining market issues
• Up to 6% sellers concession allowed
I hope that it helps some one else as well. |
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