24 FHA Questions Answered for 2009 Homebuyers.
Check out # 3, 22, 23 &24
1. If someone has had a Chapter 7 Bankruptcy, what’s the timeframe needed before they are eligible for an FHA mortgage?
2 years. 1 year is possible on an exception basis only (circumstances beyond their
control…such as death of a spouse…divorce….cancer)
2. Chapter 13 timeframe?
Must be in it for a minimum of 1 year with no late payments. So a borrower currently in a Chapter 13 Bankcruptcy is eligible to buy a home, with Chapter 13 payments in debt ratios and court approval.
3. If someone has had a foreclosure, what’s the timeframe until they are eligible?
0-3 years. Normal is 3 years. Can be 2 years on an exception basis (circumstances beyond their control…same as above). Can be 0 years if foreclosure/lates were after a divorce was final and the property and debt was awarded to the other spouse. No lates or foreclosures until divorce was final.
4. If someone filed a Chapter 7 Bankcruptcy and included their mortgage in it, what’s the timeframe until they are eligible?
The clock begins on the date the mortgage was satisfied (3 years from then). What that means is that if the bank foreclosed and it took them a year to sell the property (well after the Chapter 7 discharge date), the borrower is not eligible for 3 years from the time the bank sold the property and had the mortgage satisfied.
5. Can you do a cash out refinance to pay off the remaining balance on a Chapter 13 Bankruptcy?
Yes. You can go up to 85% too, assuming there have been no lates on the Bankruptcy or the mortgage (conforming only, Jumbo cash outs are limited to 85% regardless of the Bankruptcy)
6. If you have an open tax lien and are currently in a payment plan with the IRS, do you have to pay it off at or prior to closing?
No, the IRS can subordinate their lien to the new mortgage and they do
routinely do so (purchase loans more common than refinance)
7. What’s the maximum number of months left on an installment loan that allows you to remove it from the DTI?
10 mos. However, if the payment exceeds $300/mo and will hinder the borrowers ability to make the mortgage payment in the first 10 mos, then it will need to be paid to zero. Underwriter’s discretion.
8. Do you have to pay off collection accounts and charge-off’s prior to closing?
No, FHA does not require it. The loan of course still has to qualify based on credit.
9. When do you need to build alternate non-traditional credit?
When the borrowers do not have 3 open active trade lines for 12 mos in their report.
10. How is alternate non-traditional credit built and evaluated?
Documented 12 months good payment history on rents, utility bills, cell phone, furniture rental, car or renters insurance, etc.
11. How long does a student loan need to be deferred for you to leave it out of the ratio’s?
12 months from the expected closing date.
12. If the middle FICO score is under 620, what are the ways we can try to get it up?
Lenders can run a 2nd Trans Union score, separate model that is Fannie Mae accepted. They can also run a Score Wizard that will show what can be done to get the scores up by allocating money to different creditors. Paying off old collection accounts may actually bring scores down, since they go from old collections, to current paid collections.
13. Can you gross up Child Support income? Military allowances?
Yes, it will depend on the borrowers tax bracket…either 15% or up to 25%. Same with Military housing allowances and other non taxable military allowances. (they word ‘pay’ usually makes it taxable). Military are generally better off with VA loans.
14. How long must you have been receiving child support (or alimony) to be able to use it as income?
12 mos, and it must be documented that it was received on time (i.e. cancelled checks front and back, last 12 mos bank deposits broken out on statement, county summary sheet). It also needs to continue for a minimum of 3 years (child over 15 may not qualify).
15. On a multi-family purchase, how do you establish the rent to be used for income?
Based on the appraisal. The appraiser will show the current fair market rents and you can use 85% of that. Non occupant co-borrowers income can only be used if LTV<75%. Occupant co-borrowers ok to 96.5% LTV. 3+ unit rental income most cover mortgage PITI payment.
16. On a multi-family refi, what needs to be provided if you are using rental income?
2 years of Schedule E’s from their tax returns.
17. What income documents are required for a self-employed borrower?
2 years of 1040’s and a current YTD P&L. The P&L does not need to be audited unless specifically called for by the underwriter. In cases where there has been a large increase in income over the past year, an audited P&L will likely be called for. Lines 13 and 31 of the schedule C are added up for the past 2 years and divided by 24 months. If income was lower in the past year, the lower of the past 12 months may be used.
18. What is considered alternate documentation when it comes to verifying income?
2 yrs W-2’s and 30 day’s of consecutive pay stubs. The standard way is a Verification of Employment (VOE) and 1 recent pay stub.
19. If someone has recently returned to the work force after an extended absence (possibly even for a number of years….for example: a woman returning to work after having children and decided to stay home and raise them) do they need to wait for 2 years to re-establish an employment history to allow you to use their income?
No. If they are back to work for a minimum of 6 mos and can document, prior to leaving the work force, that they had a complete 2 yr full-time history, the income can be used.
20. If someone is currently renting the home they are looking to purchase, can the seller/landlord give them a down payment credit for the rent they have paid?
Yes and No. The seller/landlord can give a credit but only for payments made in excess of the fair market rent. For example, if the fair market rent for the house is $1000/mo and the purchaser paid $1200/mo, then the $200 that was paid over and above the fair market rent could be used as a credit. Lease option, option credit may be used if documented.
21. Does FHA allow stated income loan programs?
No, all loans are fully documented with tax returns, W-2’s, paystubs, or awards letters. However we have seen “automated approval” ratios to 59%. Self employed borrowers who become W-2′ borrowers in the same field may only need 30 day’s paystubs to qualify. There’s also no limit to the number of non occupant co-signers to used their incomes to help qualify.
22. Can a buyer use their $8000 federal income tax credit toward their down payment?
This is a new program. We have certain investors who accept tax credit advance payments. Otherwise a borrower may get a gift from a relative and use the tax credit to “pay it back”. Tax credits may be claimed with an amended return for the 2008 tax year and received in 2009. See http://www.irs.gov/taxtopics/tc611.html
23. What is a short refinance?
FHA will finance up to 97% LTV based on today’s appraised value on a current loan (generally no 30+ day lates in the last 12 months) where the existing loan servicer is willing to write down the payoff, sort of like a short sale, except the borrower stays in the home. In this case the borrower gets a new 30 year fixed rate loan at 97% of today’s home value.
24. What is a concurrent short sale, move up?
Although most loan servicers won’t accept a short refinance loan, they are often willing to accept a short sale to a third party. As long as the borrower is not late on their current loan (generally no 30 + day lates in the past 12 months), and they qualify on their next home loan with 3.5% down, they can short sell their current home and concurrently close on their next home before any late payments or settled accounts are reported on their credit report.
Comments (0)