FHA Guidelines
FHA Programs
FHA loan programs were created to help people in the United States obtain homeownership, an integral component to the American Dream. This remains the goal of FHA today.
Credit History
The FHA first time home buyer loan, FHA purchase loan, FHA refinance loan or FHA loan or FHA loans approval process is based on the philosophy that past credit history demonstrates most effectively a borrower’s attitude towards paying their bills and credit obligations. With that said, FHA guidelines do allow for more tolerance regarding past derogatory credit history, but previous poor credit performance must be accompanied by reasonable, thorough letters of explanation from the borrower.
Capacity to Repay
When an FHA underwriter cites Capacity to repay, he or she is referring to a borrower’s anticipated amount of income and the likelihood that it will continue. As such, FHA loan guidelines call for the evaluation of the source of a borrower’s income to ensure that it can be verified, that it is stable and that it has a high likelihood to continue.
Salaries, Wages and Other Forms of Effective Income
Salary and Hourly Wages: When analyzing the stability of the current income for a salaried or wage earning employee, FHA underwriters examine the prior two years to assess the stability of the current income. If earnings are similar or increasing at a normal rate, they will most likely use the current base income.
Cash to close
Cash for Down Payment and Closing Costs: Beginning January 1, 2009 The Housing and Economic Recovery Act of 2008 revised the National Housing Act to: Require that the FHA borrower “shall have paid, in cash or its equivalent.
Collateral
Collateral is referred to the value of your home. A licensed FHA appraiser must appraiser the property and the appraisal must be no older than 90 days from the date of closing. The value that the appraiser asses’ to your property will determine the loan amount and the loan to value of your new loan. A second appraisal is required on any loan amount over 417k, at 95%, and is in a declining market (all of the United States is presently in a declining market). On a 1 family home a drive by is required on any other property type a full appraisal is required as second appraisal.
