FHA Tightens Loan Requirements & Revises Policies

The Federal Housing Administration (FHA) is preparing to tighten their loan requirements, which will make obtaining an FHA loan more difficult.

Beginning on September 14, 2015, the new, consolidated Single Family Housing Handbook 4000.1 will go into effect. The handbook covers nearly all aspects of the FHA mortgage-insurance program and will replace a few guides and policy letters.

Matt Hackett, operations and underwriting manager for Equity Now told Realtor.com that he “anticipates borrowers as a whole having a more difficult time qualifying for a FHA loan.”

These upcoming changes are part of the FHA’s plan to tighten up on loan requirements to favor stronger, more qualified borrowers.

Realtor.com noted that FHA loans require very low down payments, which start at 3.5 percent and have loose credit requirements. These loans are often used by home buyers who cannot qualify or afford a standard mortgage.

Brian Sullivan, supervisory public affairs specialist at HUD explained to Realtor.com that the department is “trying to promote access to mortgage finance—not to restrict it—but to do so in a responsible manner.”

Under the new FHA rules, deferred student debt will affect debt-to-income ratios, which may temporarily remove many consumers from the market, Realtor.com reported.

In addition, borrowers will need six months of employment under their belt following an extended absence, no matter what the reason for absence. The rules also require more documentation for gift funds and job changes.

FHA Single Family Housing Policy Handbook Frequently Asked Questions section provides a timeline for the policies’ effective dates.

The following previously published sections are effective on September 14, 2015:

• Doing Business with FHA—Lenders and Mortgagees
• Doing Business with FHA—Other Participants - Appraiser
• Quality Control, Oversight and Compliance—Lenders and Mortgagees (Except for Section V.A.3.c.i – Origination and Underwriting Loan File Compliance Review – Minimum Requirements which is effective for case numbers assigned on or after September 14, 2015)

The majority of the Origination through Post-Closing/Endorsement for Title II Forward Mortgages section of the SF Handbook is effective for case numbers assigned on or after September 14, 2015.

The following sections become effective for case numbers assigned on or after March 14, 2016:

• Doing Business with FHA—Other Participants – 203 (k) Consultant and Direct Endorsement (DE) Underwriter
• Quality Control, Oversight and Compliance—Other Participants - 203 (k) Consultant and Direct Endorsement (DE) Underwriter

Click here to view the FHA Single Family Housing Policy Handbook.