FHA follows suit on tightening underwriting guidelines

A few weeks ago I blogged about tighter underwriting guidelines pertaining to conventional loans for home-buyers who are seeking to close on a new home prior to selling their existing home.

Today we got notification from HUD indicating that FHA loans would also adopt similar guidelines (click this link to view the announcement for yourself).

Essentially, the new guidelines make it harder for home-buyers who have yet to sell their existing home to take out a new mortgage to buy a new home.

What does this mean for home-buyers?

It means that home-buyers who want to buy a new home without selling their existing home either must show enough income to reasonably afford both mortgage payments or plan on selling their existing home before or concurrently with their existing home.

Are there any exceptions?

Yes, if a home-buyer is being relocated for their job and can provide a legitimate rental contract they may use rental income to offset the mortgage payment on the existing home.

Or, if the home that is being vacated has a loan that is no more than 75% of the value of that home then the home-buyer may also use a legitimate source of rental income.

Fannie Mae continues to tighten their guidelines….

Fannie Mae released an announcement yesterday which indicated they are tightening some of their guidelines to qualify for a new mortgage. The reason this is important is because Fannie Mae dictates underwriting guidelines for virtually all mortgage lenders.

There is one guideline change within this announcement that we feel will be impactful and thought we should share it with you.

It involves a buyer who is buying a new primary residence but has yet to sell and close on their existing residence. In this circumstance the buyer is required to qualify for BOTH mortgage payments (BOTH= the proposed mortgage payment on the new house & the existing mortgage payment). However, currently we are able to offset a portion of their existing mortgage payment by giving them a credit for the market rent that their home would earn if they chose to rent it out (even if this is not their intention). This helps them qualify for the new house. However, Fannie Mae has changed that guideline to the following (bold and italicized copy represent the changes):

1) If current home is being retained as a 2nd home (basically no rental income needed to qualify, but home is not being sold) – qualify with the full PITI payment on both properties plus borrowers must have 6 months mortgage payments in reserves for both homes!

2) If the home is being retained for an investment property & rental income is needed to qualify, you need the following: a) Evidence that the borrower’s have at least 30% equity in their current home, b) a copy of the fully executed lease agreement & c) evidence of receipt of the security deposit & deposit into the borrower’s account. If the borrower’s lack 30% equity (as verified by appraisal, AVM or BPO (Broker Price Opinion), you will also need 6 months’ mortgage payments in reserve on both properties*!

With average market times increasing (Washington County currently around 70-80 days) this will delay buyer’s ability to purchase a new home.

What you need to do?
Be sure your client gets pre-approved EARLY AND OFTEN
!

FHA increases loan limits to help housing market

Last week the Federal Housing Administration (FHA) increased the loan limits for FHA loan products. It’s important to understand that this only applies to FHA loans and does not apply to conforming loan limits although the methodology for increasing FHA loan limits is the same. In either case the maximum loan limit is 125% of the area’s median home price.

To find out what the new FHA loan limits are in your area FHA has provided the following website:
http://www.fhaoutreach.com/

For the Portland-Metro area the new maximum FHA loan for a single family residence is now $418,750 which is up about $100,000 from the previous limits.

Here is a link to the announcement on HUD’s website:
http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL