The FHA has always been an important resource for individuals who are purchasing their first home or who do not have the credit history or scored to qualify for traditional loans.
By allowing individuals with less than perfect credit to purchase a home with a relatively low-down payment and still qualify for competitive FHA rates, the Federal Housing Administration has played an important role in home ownership. Unfortunately, that could change as soon as next year as new requirements are put into place.
What Home Buyers Can Do with FHA Mortgages?
New homebuyers should carefully take a look at their current credit score and history and make an effort to pay off any existing debt that they have before applying for a loan in order to give themselves the best possible chance of qualifying.
The less open accounts an individual has on their loan application, the lower their debt to income ratio will be.
The Federal Housing Administration has been a fixture for house financing in the United States for nearly nine decades. In recent months, Congress has worked with HUD in an effort to ease credit standards and requirements for many FHA mortgage programs. Find out if these changes to FHA loan requirements benefit you.
FHA Loan Guideline Changes Put Forth By HUD
Of primary concern when it comes to these new requirements is a letter sent out by the Department of Housing and Urban Development which required lenders to add judgments and collections to the debt to income ratio on an individual’s application. This ratio is crucial when it comes to qualifying for a loan from the FHA.
For example, if an individual has over $2000 in collections, the lender will now be required to add that to the debt to income ratio which will then count against the borrower and could possibly prevent them from qualifying for a new FHA home loan. Lenders could, in the past, look beyond these types of issues as being events from a person’s past and not necessarily relevant to their current loan application. Once these types of things become part of the mathematical equation, there is little that a lender can do.
Additionally, an FHA loan is available to individuals with a debt to income ratio that is as high as 55%. Beginning in January of 2024, however, that could change to as low as 43%.
Another thing to keep in mind is that certain states require an individual to include the debt to income ratio of their spouse even if that spouse is not going to be included in the home buying process.
The stricter restrictions are put in place to prevent a flood of foreclosures and defaulted loans, but they have the adverse effect of preventing many people who would otherwise be qualified for a new home loan from being able to put the FHA to use.