Highlights from the new HUD Handbook 4000.1
HUD has a new 809 page handbook that will apply to all FHA cases assigned on or after September 14, 2015. If you are like most people then you don’t have the time or the desire to dig into this huge document. What I have done here is highlight a few changes that I think will be the most likely to have an affect on my business, and the most common ones people will encounter when applying for FHA loans.
You’ve made it to the second paragraph without falling asleep so I promise to make the rest of this article easy to read and understand. Here it goes…
This is HUGE as I know a TON of people that have student loan debt.
OLD RULE: If the debt is deferred for more than 12 months we DON’T have to include it in debt ratios.
NEW RULE: ALL deferred obligations, regardless of when they will begin, must be included in the qualifying ratios. If no payment is available you will have to take 2% of outstanding balance on student loans and 5% of outstanding balance on installment debt.
Scenario: You have a borrower who is in graduate school with $80,000 in undergrad debt that is deferred until 2017 when they finish grad school. You now have to include a $1600/mo payment in their debt ratios! Ouch
NEW RULE: Not considered debt.
GAPS IN EMPLOYMENT:
OLD RULE: Borrower must explain any gap in employment of one month or more
NEW RULE: Borrower must explain any gap in employment of six months or more
HOURLY WAGE INCOME CALCULATIONS
OLD RULE: No specific guidance provided
● If hours do not vary, use hourly rate
● If hours vary, use the average of the last 2 years
● If hours vary and there was in increase in pay, use the most recent 12 month average at the current rate
OLD RULE: Defined as a person who receives over 25% of annual income from commissions
Must be earned for 2 years
NEW RULE: Defined as being paid contingent upon the conducting of a business transaction or the performance of a service
Earned income for at least one year in the same/similar line of work and likely to continue
The changes listed here are just a few of the ones I found interesting and that I felt would be the most common for borrowers to encounter. If you have any specific scenario questions it is a good idea to seek advice from a mortgage professional who can get clarification from HUD directly and also advise on whether or not the lender they work for has additional guidelines.
Here is a link to the new handbook if you would like some leisurely reading:
As always I am more than happy to answer any mortgage related questions from future clients or real estate industry friends. I hope to hear from you soon, Please feel free to reach out anytime!
Connecting people and homes, one loan at a time…
NMLS # 1088993
Thanks again Matt for your guest blog post.