FHA changed the Hud Handbook 4000.1 in July with effective dates from immediate to case numbers assigned on or after September 9th.
There were many changes and below are some major ones that impact you. Please remember that these changes may be subject to additional investor overlays.
FHA CASH OUT LOANS
NEW RULE – Effective for case #’s assigned after 9/1 maximum cash out LTV is 80%.
OLD RULE – Previously it was 85%.
INTERESTED PARTIES NOW INCLUDE MORTGAGEES AND TPO’S
NEW RULE – Any credits from Mtgees or TPO’s goes against the 6% interested party contribution limit. EXCEPTION – Closing costs or pre-paids paid via premium pricing is allowed IF they are not the Seller, RE Agent, Builder or Developer. All contributions must be listed on the Purchase Agreement.
OLD RULE – Mtgees and TPO’s were not classified as interested party.
PROPERTIES EXISTING LESS THAN ONE YEAR
NEW RULE – Only need copy of CO OR a Final Inspection.
OLD RULE – Needed Building Permit and CO OR Final Inspection and Appraisal evidencing 100% complete.
OVERTIME, BONUS OR TIP INCOME
NEW RULE – When calculating this type income, it is automatic worst case scenario. If current year is lower than previous year use current year only. If current year they have made more than previous year then average for 2 years.
OLD RULE – The current year had to be 20% less income than the previous year before using worst case scenario.
COMMISSIONED BORROWERS AND TAX RETURNS
NEW RULE – You do not need tax returns when borrower is >25% commission. They are matching the same rules as conventional due to new IRS tax rules.
NEW RULE – If auto allowance received for two years you can use the full amount of auto allowance towards effective income.
OLD RULE – Required for 2 years but had to deduct IRS form 2106 auto expenses.
INDUCEMENTS TO PURCHASE – RENTING HOME FROM CURRENT SELLER
NEW RULE – If borrower is paying 10% less in rent to seller the difference between the actual rent and the appraisers fair market rent must be deducted from the purchase price. The months to include are from signing of the purchase agreement to the closing date.
OLD RULE – It was underwriter discretion and stated must be considerably below market rent.