Fha Qualifying Requirements

FHA Qualifying with Rental Income

First off, it’s important to remember that you can not use FHA financing to purchase Investment property. FHA loans are for PRIMARY residents only… but time being what they are, we are finding folks who are renting their existing home, and moving to this area with some savings.

If you relocate to a new area, and rent your existing home, you can use FHA (which requires a 3.5% downpayment) to purchase your new home… however, there were some changes made last year to the guidelines, and you will likely be required to qualify for your new home with your ENTIRE mortgage payment from your “old home” too!

“If the borrower vacates one principle residence for another principle residence the mortgage payments will be included as a debt unless the LTV on the vacated property is less than 75%. This is new as of September 2008 according to mortgagee letter 2008-25. You can download the letter from this link: Mortgagee Letter 2008-25

Rent received for qualifying properties owned by the Borrower may be used subject to proper verification on tax returns and/or leases. For properties owned by the Borrower, the most recent 2 years tax returns must be obtained and an average of the Schedule E income must be documented. (NOTE: If the most recent tax return shows a greater loss than the 2 year average, the lesser income is to be used.)

Depreciation may be added back into income and the positive income is to be added to Borrower’s wage income, but any negative income is to be treated as a recurring debt.

The application must list each property owned by Borrower and the tax returns must match the 1003 information. The Lender must verify the total number of properties that are currently owned by the Borrower and verify the total number of FHA LOANS (if any). If six (6) or more units (not properties) are owned by the Borrower in the same general 2 block area, a map disclosing the locations of the properties must be submitted to evidence the compliance with HUD’s limitation of 7 units rule.Any properties recently sold must be verified as sold by obtaining the HUD-1 closing statement from the Borrower. Properties recently purchased may not show on the tax return and current leases (of 1 year term or more) must be obtained from the Borrower to verify current income being received. The income from the lease must be reduced by a 25% vacancy factor before calculating final income to be used.

Rental income to be used on the purchase of a (new) Multi family (2-4) unit property will be determined by the FHA appraiser who will verify the current market rent applicable to the property. Lender is to use 85% of the appraiser’s rent forecast as the qualifying income.

If you are considering purchasing a home in NC, please call Steve and Eleanor Thorne, 919-649-5057… we have the LOWEST FHA RATES!

Government Loan Update to Guidelines

And in the blink of an eye – while I was checking my Blackberry – there it was. More guideline changes! Holy Cow Batman!

Many of that Nation’s Banks changed guidelines to show that FHA, VA and USDA minimum credit scores (some people call them FICO scores) are going to 620. What does this mean – since FHA has an underwriting “guideline” that allows for scores even below the traditional 580, and VA doesn’t have a minimum credit score? Well, just because FHA and VA might accept and insure borrowers with lower scores – Wells Fargo, Suntrust, Countrywide, Security National Mortgage Corporation and OTHERS are not.

We do have companies that we work with that will make Government Loans to folks with scores under 620… that’s the good news. Here’s the BAD news. The rates are higher – and because we have a rate spread LAW in North Carolina – not all of those loans will be available!

Additionally – the PMI companies listed Wake County as a “Distressed” area effective February 2, 2009. This means that the minimum credit score needed for a loan that requires PMI here is now 700. That’s STIFF!

If you are considering a purchase later this year – go ahead and talk to your lender. Let us begin the work of getting your scores “tight…” especially if you think you have a low credit score! We need to start this process EARLY! Especially in view of the fact that Government Underwriting Guidelines are changing so quickly! Call Steve and Eleanor Thorne, Corporate Investors Mortgage Group, 919-649-5058.