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FHA Guideline Changes
While FHA has made many changes to provide more opportunities to alleviate the mortgage crisis, at the same time they have implemented some new guidelines to insure homeowners can afford and realistically finance their new homes. A lot of focus has been on the borderline borrowers; particularly those that have not established any traditional credit (car loans, credit cards, etc) and thus have not generated any credit scores.
Staring in June, for these borrowers, they will need 3 non-traditional forms of credit with no 30-day late payments in the last 12 months. One of theses credit references has to be a verification of rent or a utility bill. If this borrower is renting from a family member they will have to provide 12 months of canceled checks to prove their rental history.
The remaining 2 credit references can be any other account that is paid on a monthly basis, but not set up as an Auto-deduct. In addition to no credit score, the borrower may not have any collection accounts in the last 12 months.
While credit is very important, FHA is also concerned that these borrowers have the ability to absorb minor financial stresses. In doing so they are now requiring the borrowers to have 2 months of reserves (mortgage payments) in their savings at the time of closing. Unlike traditional FHA, these funds must prove to be the borrowers; they cannot be a gift from a family member.
The underlining goal of these FHA changes is to provide the greatest opportunity for home ownership, but in a responsible way.
