New FHA Change In Calculating Borrower Debt

Today, September 14, 2015 FHA's new Handbook 4000.1 goes into effect, and with it significant guideline changes.  There are to many significant change to include in one blog, so over the next couple of weeks I will be posting several blog covering these guideline changes by category.  The first significant change I will cover is the New FHA Change In Calculating Borrower Debt.

The New FHA Change In Calculating Borrower Debt is going to have a major impact on:

• Deferred Debt
• Authorized Users
• Debts With Less Than 10 Months Of Monthly Payments
• 30 Day Accounts

Deferred Debt:

As of today, September 14, 2015 ALL Deferred Debt must be included in the Borrowers Debt-To-Income (DTI) Ratios.  For example:

For installment debts which a monthly payment has not been established for yet, or the monthly payment is not available, the monthly payment must be calculated as 5 % of the outstanding balance.  On smaller debts this will not have much of an impact, but on large debts, 5% can amount to a huge monthly payment, and easily put a Borrower over the DTI limits.

As big of an impact as the above DTI change will have on a Borrower's  ability to qualify, the next Deferred Debt change will have even a bigger impact.  Presently the FHA Guideline on deferred Student Loans is, if the loan is not going to go into repayment within 12 months of the Mortgage Closing, the payments have to be listed, but they are not calculated into the Total DTI Ratio.  As of today, regardless of when the deferred Student Loan will go into repayment it will be calculated into the Borrowers Total DTI Ratio.  This is the same guideline as presently exsits for Fannie Mae backed loans, however, FHA is going above and beyond the Fannie Mae DTI calculation.

Fannie Mae will calculate 1% of the outstand deterred Student Loan as the monthly payment.  BUT with the new FHA Guideline Change 2% of the outstand deferred Student Loan will be used as the monthly payment, if a payment has not been established by the creditor.  That is a huge change, and 2% is in most cases twice as much as the monthly Student Loan payment will be when the Student Loan goes into repayment.  This change will disqualiy a huge number of young Borrowers who have Deferred Student Loans from obtaining an FHA Mortgage.

Authorized User:

An Authorize User Account is an account the Borrower is not the Primary Account Holder, but has the permission of the Primary Account Holder to charge up against the account.  As of today, the accounts for which the Borrower is an authorized user on must be included in a Borrower’s Total DTI ratio.

Debts With Less Than 10 Months Of Monthly Payments:

Closed-end debts do not have to be included if they will be paid off within 10 months, and the cumulative payments of all such debts are less than or equal to 5 percent of the borrower’s gross monthly income.  However, the Borrower may not pay down the balance in order to meet the 10-month requirement.

30-Day Accounts:

30-Day Accounts that are paid monthly are not included in the Borrower’s DTI. However, if the credit report reflects any late payments in the last 12 months, 5% of the outstanding balance must be used as the Borrower’s monthly debt to be included in the DTI.

These are ALL FHA Guideline change which will have major impact on a Borrower's ability to qualify for an FHA Mortgage on or after today, September 14, 2015.  With the New FHA Change In Calculating Borrower Debt, it is almost as if FHA is saying they do not want to make loans for a while.  Fannie Mae also recently made several guideline change.  The Fannie Mae change were changes which were very encouraging, and will have a significant impact on MORE Borrowers being able to qualify for Fannie Mae backed Mortgage.  However, as you can already begin to see from the above New FHA Change In Calculating Borrower Debt changes, FHA is going completely in the other direction.