FHA Loan Program Changes Affecting Pre-Approved Buyers
|Craig Garcia, President|
Capital Partners Mortgage
Today, we’re going to discuss FHA loans. Specifically, we need to look at two recent changes by the FHA that are having an effect on some homebuyers. For a quick overview of the distinctions that make FHA loans appealing to many first-time homebuyers, check out our FHA Loan Page.
The first change they may affect a group of buyers who have already received pre-approval for an FHA loan and make approval harder for similar buyers in the future. If your credit score is less than 620 and you have greater than a 43% debt-to-income ratio, your loan now needs to be manually underwritten.
When you have a DU (desktop underwriter program) approval, which most of the time is the starting point for the loan, that’s usually good enough to get financing. Now, it isn’t for this lower credit score and higher DTI group. If you fall into this group, a live underwriter has to justify making the loan for you. It’s going to be difficult for them considering the reason for which they have to give justification. This is going to result in some people not qualifying for an FHA loan. It’s impactful.
The good news is that most of the borrowers out there pre-approved for FHA loans don’t fall in that group. Those that do may have to work on their credit or pay off some debt to qualify. It doesn’t mean they’re out of the market, but it may delay their purchase.
Also, last week the FHA said that for down payment assistance loans where a government agency is providing down payment assistance on an FHA First Mortgage, they will need more documentation from that government agency. The reaction across the industry is that now some lenders won’t provide loans in this circumstance. We still do, but we’re monitoring the situation.
In the case where your buyers, who may already be pre-approved, are affected – give us a call! We will see what assistance we can provide.