FHA Underwriting Changes

FHA made a number of key underwriting changes this week, some good, some bad.  Below is a brief summary of the most important changes made:

  • For self-employed borrowers, a year-to-date Profit & Loss Statement (P&L) and Balance Sheet are required if three months have elapsed since date of most recent filed and submitted tax returns.  In addition, if income from the P&L is being used to increase the amount of qualifying income for the borrower, then the P&L must be audited by a CPA.  These are much stricter requirements for self-employed borrowers.
  • “Disputed” items showing on a borrower’s credit report will not be as much of an issue as in the past and don’t have to be addressed if they are less than $1000 and more than two years old.
  • Collections showing on a borrower’s credit report also won’t be too much of an issue up to a certain degree.  If the total outstanding balance of all collection accounts is < $1,000, the borrower is not required to pay these off.  However, if the total outstanding balance of all collection accounts is > $1,000, the borrower must either pay off the collection accounts in full or show a payment arrangement with at least three months of timely payments having been made (this payment would have to be counted in debt ratio as well).  Paying down collection balances to reduce the balance under $1,000 is not allowed.   
  • Judgments showing on a borrower’s credit report have to be paid in full unless a payment arrangement is in place with at least three months of timely payments can be documented.  Also, tax liens always have to be paid in full.

April 5, 2012 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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