FHA guidelines changes on collections and self employed borrowers
In a Mortgagee letter issued on February 28, HUD announced new FHA Loan guidelines pertaining to open collections as well as requirements for Self Employed borrowers.
All of these FHA loan guideline changes are effective with case numbers assigned on or after April 1, 2012.
A Profit and Loss statement and Balance sheet will be required if more than a calendar quarter has elapsed since the filing of the borrower’s most recent tax return. In addition, if the income being used to qualify the borrower exceeds a two year average of the tax returns, then an audited P&L or signed quarterly return will be required ……….. What this means: if a client files his/her tax returns on Feb 15, then a P&L will be required beginning on July 1st. If the tax return is filed on April 15, then the requirement would apply as of October 1st. This could be an issue for anyone whose business cash flow is seasonal and tends to be heavier in the later part of the year.
The new FHA Loan guidelines require that if the total balance of all collection accounts is equal to or greater than $1000, the borrower must resolve the accounts. This means that providing proof that the account is paid in full or the account must be paid in full at closing OR borrower may provide proof of a repayment agreement with the creditor with verification of timely payments for a minimum of three months
If the total balance of all collection accounts is less than $1000, the borrower is not required to pay off the collection account.
FHA will continue to require judgments to be paid off in order for the borrower to be eligible for an FHA loan regardless of the balance of the judgment.
If you have a client who knows they have outstanding collections, have them work with an experienced lender who can help them deal with their credit issues to prepare them to become a homeowner.
If your client is self-employed and looking at purchasing a home late in 2012, be sure to have them discuss their income flow with an experienced lender to make sure there is no qualifying issues.
Whether your client has a credit, asset or income issue… or no issue at all, it is always a good idea to put your client in touch with an experienced, reliable lender to guide them and ensure their journey to homeowership is as smooth as possible