FHA guidelines mini presentation

1. FHA
Relic of the Past
or
Tool of the Future?

2. Why learn FHA?
• Reason # 1: Close more loans.
Many borrowers who don’t qualify for FNMA
or FHLMC products can be approved and
closed, instead of being a crumpled up credit
report at the bottom of a shredding bin. FHA
underwriting uses common sense to make a
decision, not a matrix.

3. Why Learn FHA?
• Reason # 2: Ability to close more loans
FHA loans have aggressive underwriting criteria
that allows you to close more deals, coupled
with lower interest rate and a higher YSP
premiums it’s a winning combination.

4. Why Learn FHA?
• Reason # 3: Survive Market Changes.
FHA is re-emerging as the loan of choice for the
“non-creampuff” borrower. Whenever an
environment changes radically, failure to adapt
results in a failure to survive.

5. FHA Basics
• Owner Occupied Only
Second homes and investment properties are not
permitted under any circumstances.
Owner-Occupied transactions have typically accounted
for over 80% of all originations. As the allowable
LTVs for NOO properties return to normal, mortgages
on primary residences will again dominate pipelines.

6. FHA Basics
• Full Doc Only
Income documentation: VOE + Last 30 days paystubs.
Self-employed borrowers: 2 years tax returns and YTD
P&L (bank statements cannot be used to verify
income)
Asset documentation: VOD + one month statement,
or two months statements (no VOD only option
available)

7. FHA Basics
• Full Doc Only
FHA was not in high demand when 100% SISA
financing was available for borrowers with little or no
credit. However, now that the industry is beginning to
return to normal, and with very few stated
documentation products available or, the requirement
of higher scores, more trade lines, and larger down
payments put them out of reach. Stated Loans are no
longer an option, FHA is often the best alternative.

8. Maximum LTVs
• For those of you who are used to using a
program matrix, we have prepared a simple grid
detailing the maximum LTVs available, grouped
by credit score and property type:

9. Max LTV Matrix
Purchases and Rate/Term Refinances
Score 1 unit 2 unit 3 unit 4 unit
500-580 96.5% 96.5% 96.5% 96.5%
on exception
580-600 96.5% 96.5% 96.5% 96.5%
601-700 96.5% 96.5% 96.5% 96.5%
701-800 96.5% 96.5% 96.5% 96.5%

10. FHA Max LTVs
If you don’t prefer a matrix, here is the max LTV
for purchases and rate/term refinances:
1-4 Units, all scores:
96.5%

11. UFMIP
• Up Front Mortgage Insurance Premium
Every loan will have an Insurance premium added
to of 1.75% It will look like this.
Sales Price $100,000
Base Loan Amount $ 96,500 (SP x 96.5%)
UFMIP (1.75% of BLA) $ 1,691
Total Loan Amount $ 98,191

12. Monthly MIP
In addition to the funded UFMIP you will also
have a monthly premium.
.55% times the Base Loan Amount
$96,500 x .55% = $530.75 per year
divided by 12 = $44.23 per Month
Monthly premium

13. FHA Max LTVs
Max LTVs for FHA cash-out refinances:
1-2 Units
95%*
*must own property for at least one year with no lates, or limited to 85%
3-4 Units
85%

14. Minimum Credit Scores
• No Minimum Credit Score
Our credit decision is based on an actual analysis
of the borrower’s credit. Many borrowers with
scores in the low 500s have been approved, and
many with scores in the 600s have been denied.

15. Minimum Tradelines
• No Credit OK, No Credit Score OK.
No credit is better than bad credit. Use of alt-
trades is permitted based on guidelines provided
by HUD and specific rules of the Lender you
are using.

16. Credit Analysis
• Common Sense
FHA looks at credit differently than FNMA or
FHLMC and approves loans based upon the
circumstances surrounding the credit history.
Common sense prevails. All judgments must be
paid prior to closing and collections may be left
open at the discretion of the Lender.

17. Bankruptcy Guidelines
• Chapter 7 Bankruptcy
Must be discharged two years. Exceptions for
periods between 12 and 24 months are available,
but only if the reason for the BK was “out of
the control” of the borrower (a difficult
exception to qualify for).

18. Bankruptcy Guidelines
• Chapter 13 Bankruptcy
A borrower can currently be in a Chapter 13 repayment
plan and still be approved for an FHA loan. The
repayment plan must be at least 12 months old, and all
credit (especially the mortgage) must have been paid
with no lates since the inception of the plan.
Additionally, there must be no lates on the plan itself,
and the trustee must give written permission for the
transaction and a payoff.

19. Seller Contributions
Maximum Seller Contribution
6%
All LTVs, 1-4 Units

20. Minimum Investment
Minimum Investment Requirement
3.5%
All LTVs, 1-4 Units

21. Minimum Investment
• The borrower must contribute at least 3.5% of
their own funds. The borrower’s own funds are
defined as either savings, gift or grant. There is
no requirement for any borrower savings; the
entire 3.5% requirement can be a gift or grant.

22. Gifts
• No Donor’s Ability
There is no requirement to source the “donor’s
ability” to give the gift, only to show that it is
coming from the Donor’s account.

23. Gifts
• Gift Documentation
The simplest gift to document is a gift directly into the
settlement agent’s escrow account. If done this way,
and if the gift is large enough, no bank statements are
required from the borrower:
(1) FHA Gift Letter (available on our website)
(2) Copy of bank check payable to escrow account
(3) Evidence that the bank check was drawn on donor’s
account
(4) Escrow Letter from settlement agent confirming
receipt of the gift check into escrow account

24. Ratios
Standard Income Ratios
31/43*
*These ratios can be exceeded with a
compensating factor.
In some cases, much higher.

25. Ratios
• Compensating Factors
Some examples of compensating factors are:
- 3 months PITI reserves
- Less than maximum financing
- 10% down payment
- housing payment increasing by less than 10%
Once again, if the loan makes sense, the loan can be
approved.

26. FHA Appraisals
• Appraiser must be on the FHA Approved List.
• Repair requirements are the same as a
conventional appraisal.
• No appraisal reviews, drive-bys, AVMs, BPOs,
or any other additional appraisal items.*
*unless property has transferred in the last six months with a large increase in sales price.

27. Streamline Refinances
• Once a borrower has an FHA loan, they can be
refinanced into another lower-rate FHA with very little
documentation:
- no employment, income or asset documentation
- no credit report, just a mortgage history
- no appraisal option
Check with your Lender for Loan seasoning requirements.

28. Basic FHA Loan limits
• FHA Mortgage Limits List - FHA Forward
• The current basic standard mortgage limits for FHA insured loans are:
– One-
One-family Two-
Two-family Three-family
Three- Four-family
Four-
• FHA Forward $271,050.00 $347,000.00 $419,400.00 $521,250.00
• HECM $200,160.00
• Fannie/Freddie $417,000.00 $533,850.00 $645,300.00 $801,950.00
• High cost area limits are subject to a ceiling based on a percent of the Freddie
percent
• Mac Loan limits
• The ceilings are currently:
– One-family
One- Two-
Two-family Three-family
Three- Four-family
Four-
• FHA Forward $729,750.00 $934,200.00 $1,129,250.00 $1,403,400.00
• HECM $362,790.00
• Fannie/Freddie $729,750.00 $934,200.00 $1,129,250.00 $1,403,400.00
• Section 214 of the National Housing Act provides that mortgage limits for Alaska,
limits
• Guam, Hawaii, and the Virgin Islands may be adjusted up to 150 percent of the
percent
• new ceilings. This results in new ceilings for these areas of:
– One-family
One- Two-
Two-family Three-family
Three- Four-family
Four-
• FHA Forward $1,094,625.00 $1,401,300.00 $1,693,875.00 $2,105,100.00
• HECM $544,185.00
• Fannie/Freddie $1,094,625.00 $1,401,300.00 $1,693,875.00 $2,105,100.00
• https://entp.hud.gov/idapp/html/hicostlook.cfm

29. Recap: Why FHA?
Close more
loans.

30. Recap: Why FHA?
Make more
money.

31. Recap: Why FHA?
Survive market
changes.