FHA Guideline Overview

Any borrower owning a home, either individually or jointly, which is financed by FHA, may not purchase another principle residence with an FHA insured mortgage, with the exception of the following:

•  Relocations
•  Divorce
•  Increase in family size (must pay down original mortgage to 75% LTV)
•  Non-occupying co-borrower (co-signing for a family member)+

Seller may contribute up to 6% towards borrower’s actual closing costs, prepaids and discount points.

Borrower must have most recent 12 months timely payments and must have permission from the trustee to enter into the mortgage transaction.

Must be > 2 years discharged with acceptable LOE and copy of discharge.

Must be paid > 3 years (exceptions can be made with acceptable LOE & documentation)

Any borrower who is presently delinquent on any other federal debt (student loans, VA mortgages, federal taxes etc.) is NOT ELIGIBLE for FHA financing until the debt is satisfied or a repayment plan is in place.

Income from the cost of living adjustments, performance raises, bonuses etc, which are both, verified by the employer in writing and are scheduled to begin within 60 days of closing may be used in qualifying.

• Seasoning < 90 days is not eligible for FHA financing.
• Seasoning > 90 days but < 12 months, a second appraisal may be required if the re-sale price is 5% or greater than the lowest sales price of the property within the past 12 months.

Property flipping is a practice where recently acquired property is re-sold for a considerable profit with an artificially inflated value, and is ineligible for FHA.

• 97.75% LTV of the lesser of the sales price and the appraised value. The borrower must have a minimum cash investment of 3%.
• 97% LTV max if the loan has a full seller concession where the seller pays all of the allowable closing costs. (borrower must meet 3% cash investment)

95% LTV with minimum 1 year title seasoning to use appraised value.

Borrower must meet the following to receive 95% LTV: (or max 85% LTV)

•  Owned property as principle residence for min. previous 12 months
•  0 x 30 on mortgage for last 12 months
•  1-2 family properties only
•  Any co-borrower or co-signor must occupy the property

 Must use the lesser of the appraised value or original purchase price if title seasoning is < 12 months.

97.75% of the appraised value or the sum of the existing first lien, closing costs, prepaid & discount points, whichever is less.

Owner occupied principle residences only.

No investment or second homes allowed.

31/43% DTI acceptable. These ratios can be exceeded (43/50 %) provided the borrower meets three of the following compensating factors:

•  No payment shock (new payment can’t be more than 3X current rental/mortgage payment)
•  Good equity position (LTV)
•  Cash reserves (minimum 3 months)
•  Potential for increased earnings
•  Good work history (5+ years on the job)
•  Substantial non taxable income (if no previous adjustment used)
•  Conservative use of credit

Borrower is qualified at the initial interest rate EXCEPT on a 1YR adjustable with an LTV’s > 95%, where borrower is qualified at 1% higher than the initial rate.

Premium (1.5% of the loan amount) is added to the base loan amount and financed over the term of the loan. The borrower can elect to pay it in full at closing or it can be paid by the seller concession.

Premium is added to the borrower’s monthly mortgage payment and remitted to HUD on an annual basis. The annual MIP is .500% for a mortgage with a term > 15 years and .250% for a mortgage with a term < 15 years. If the term of the loan is equal to or < than 15 years the borrower is not subject to an annual premium.

For mortgages with terms greater than 15 years, the annual MIP will be cancelled when the LTV reaches 78% provided the borrower has paid the annual premium for 5 years. For mortgages with terms equal to or less than 15 years and with LTV’s greater than 90%, it will be cancelled when the LTV reaches 78% regardless of the length of time the borrower has paid the annual MIP.