Important FHA Credit Policy Changes...Effective October 1, 2007
HUD/FHA establishes the minimum standards for insuring an eligible mortgage application. These standards are described in several handbooks published by HUD/FHA and are amended from time-to-time by Mortgagee Letters. The handbooks provide direction to lenders and lenders are expected to exercise both sound judgment and due diligence in the underwriting of loans to be insured by FHA. Lenders may choose to underwrite FHA applications based upon their risk standards and experience. Therefore, it is not uncommon that certain flexibilities of the FHA program(s) are not permitted by some lenders. At this time, National City Mortgage has made a decision to tighten our underwriting policies for FHA loans registered effective October 1, 2007, in order to facilitate getting better quality FHA loans from all our customers.
FHA Credit Policy Changes:
- For FHA loans that have a Refer through automated underwriting or are manually underwritten with a debt-to-income ratio over 43%, we will no longer be able to approve these loans.
- The only exceptions to this policy are if the borrower has a FICO score of 620 or greater with a 90% or less LTV on a purchase transaction and the borrower has demonstrated the ability to make the equivalent housing payment over the past 12 months.
- For a cash-out transaction with over 43% DTI, the maximum LTV required is 85%.
- If the loan is a Credit Qualifying Refinance, the borrower must have at least a 620 credit score and must have demonstrated the ability to make the equivalent housing payment over the past 12 months. For NCM to NCM refinances, the minimum credit score requirement does not have to be met if the borrower's payment is reduced as a result of the refinance.
- In addition, any FHA loan with a FICO score below 585 must be declined. This includes AU approved and Alt credit loans, where no FICO is available.
WHY GO FHA NOW?!?!?
WITH A 585 OR LESS, I CAN GO CONFORMING?!?!?
Kris Krajecki Mortgage Broker Huntley, IL
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OK, I am confused - I just had the mortgage broker of a new home developer tell me she could get my clients an FHA regardless of FICO scores as long as they have paid on time during the last year - is that not correct????