Friday, September 11, 2015

Kentucky FHA Mortgage Changes to take effect September 14, 2015

Kentucky FHA Mortgage Major Changes:

Effective September September 14, 2015 FHA has instituted new Kentucky FHA Mortgage Underwriting guidelines. I have highlighted the ones in yellow that are considered major and could adversely effect a FHA Mortgage loan approval in Kentucky  going forward with the new changes.

    • The Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts
    • The date of the Borrower's bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment (both Chapter 7 and Chapter 13)
    • The case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale), a foreclosure sale, or a Deed-in-Lieu of foreclosure (NOTE: these are only eligible under Manual Underwrite if the borrower meets previous FHA Back to Work standards)
    • The Mortgage Payment history within the last 12 months meets any of the following
      • 3 x 30 late payments
      • 1 x 60 and 1 x 30 late payments
      • 1 x 90 late payment
      • Any delinquency on a cash-out
    • Business income shows a greater than 20 percent decline over the analysis period

  • Student loans are now classified as either Deferred Obligations or Installment Loans. If deferred and the actual payment is $0 or not available, 2% of the outstanding balance will be used to calculate payment.
  • Borrower does not have to explain and reestablish employment after a Gap in Employment unless it was at least 6 months in length.
  • Expected income (i.e. new job, performance raise, retirement, etc.) can be used for qualifying if it is guaranteed in writing to begin within 60 days of closing.
  • Financing of unrecorded Land Contracts will be treated as a purchase transaction, whereas recorded Land Contracts can still be refinanced.
  • When grossing-up Non-Taxable Income, the amount added cannot exceed the greater of 15% or the appropriate tax rate based on the previous year's income. If no tax returns are filed for the previous year, 15% is used.
  • 30-Day Accounts, those where the borrower pays off the outstanding balance each month, do not have to be included in the DTI as long as the below requirements are met. Otherwise 5% of the outstanding balance must be used.
    • The account has a 12 month history of being paid off with no late payments; AND
    • The borrower has excess assets available to pay off the balance once all require loan funds and reserves are taken into account
  • Borrowers currently on short-term disability or other temporary leave will be able to use pre-leave income if they can document that they will return to work before the loan closes. Otherwise current income will be used, though it can be supplemented by surplus liquid assets.
  • Earnest money deposits must be sourced if they exceed 1% of the sales price or are deemed excessive by the underwriter based on the borrower's history of savings.
  • Appraisers will be required to note all appliances present in the home at the time of inspection and indicate whether each appliance is Personal or Real property. All conveyed appliances must be tested, with any inoperable appliances being reported as a deficiency.
  • Appraisers must verify that any existing sump pump is in working order

Overtime and Bonus Income

 A two year average using Federal Tax Returns/VOE/W2s must be used for qualifying unless
the income decreases by 20 percent or more from the previous year – then the mortgagee
must use current year’s income.

Commission Income

 Commission income may be considered effective income if received for at least one year in
the same or similar line of work (job) and it is documented that it is likely to continue. See
full guidelines for specific calculation and documentation requirements.
Part Time/Second Job Income
 Part-Time employment refers to employment that is NOT the borrower’s primary
employment and generally is less than 40 hours per week. It may be considered effective if
the borrower has worked a part-time job uninterrupted for the prior two years and
continuance is likely. Calculation: Income must be averaged over the previous 2 years. If an
increase in pay rate can be documented a 12 month average of hours at the current pay rate
may be used.

Seasonal Employment Income

 Seasonal employment refers to employment that is not year round and is not dependent on
the number of hours per week the borrower works on the job. In order to be considered
effective, the seasonal income must have been received for the prior 2 years and
continuance is likely. Calculation: Income must be averaged over the previous 2 full years. 

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