New FHA Changes To Borrower Income

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149
https://activerain.com/droplet/4Jpt

This past Monday I wrote a blog titled New FHA Changes In Calculating Borrower Debt which covered the recent FHA guideline changes implemented on September 14, 2015 on calculating borrower debt.   I followed that blog up on Friday with a second blog which covered the New FHA Changes To Borrower Assets.  Today I will finish up the FHA changes implemented on September 14, 2015 with the New FHA Changes To Borrower Income which I feel will impact usable Borrower income the most.

The new FHA Changes implemented on September 14, 2015 which will have the most impact on usable Borrower Income are extensive, so I will try to keep each one simple and short.  I plan on writing future blogs on some of the changes below with a more detailed explanation, but for now I feel it is best to keep each one short and simple in order to make everyone aware of the changes quickly.   The New FHA Changes To Borrower Income which will impact usable Borrower income the most are:


Hourly Wage Earners:

  • If the Borrower's hours do not vary from week to week, the Borrower’s current hourly rate will be used to calculate the Borrower's monthly average Income. 
  • If Hours vary from week to week, the Borrower's income will be averaged  over the previous two years. 
  • If an increase in pay rate can be documented, the most recent 12-month average of hours at the current pay rate may be used.

Non Taxable Income: 

  • Income which is not Taxable such as Social Security Income can be grossed up.  The percentage Non Taxable Income use to be able to be grossed up to was 25%.  With the new FHA changes Non-Taxable Income cannot EXCEED THE GREATER of 15% or the appropriate tax rate for the income amount, based on the Borrower’s tax rate for the previous year.

Employment Gaps: 

  • Regardless of how long a Borrower had been out of work, Lenders use to be able to use the Borrower's income once they could produce a 30 paystub for their new job, and show 2 year job history prior to the gap in employment.
  • With the new changes Borrowers with gaps in employment of six months or more, will now have to be on their current job for at least six months at the time the FHA case number is assigned, and a two year work history prior to the gap in employment must be verified.

Job Changes: 

  • If a Borrower has changed jobs more than three times in the previous 12-month period, OR has changed lines of work, additional steps to verify and document the stability of the Borrower’s Employment Income is
    required.  Prior to the new FHA change it did not matter how many jobs a Borrower had in the last 12-months or how many times they had changed lines of work.

Temporary Leave: 

For short-term disability or similar, temporary leave income may be used to qualify the Borrower if: 

  • The Borrower intends to return to work;
  • The Borrower has the right to return to work; and
  • The Borrower qualifies for the Mortgage taking into account any reduction of income due to the circumstance.
  • For Borrowers returning to work before or at the time of the first Mortgage Payment due date, the Lender may use the Borrower’s pre-leave income.
  • For Borrowers returning to work after the first Mortgage Payment due date:
    • The Lender can use the current documented disability income; or
    • May supplement with reserves in excess of required cash to close and loan reserve requirements.
    • The amount of the monthly income reserve supplement is the total amount of surplus Reserves divided by the number of months between the first payment due date and the Borrower’s intended date of return to work.
  • Required Documentation For Use Of Temporary Leave Income:
    • A Written statement from the Borrower confirming the Borrower’s intent to return to work, and the intended date of return;
    • Documentation provided by current employer confirming the Borrower’s eligibility to return to current employer after temporary leave; and
    • Documentation the Borrower has sufficient liquid assets, in accordance with Sources of Funds, used to supplement the Borrower’s
      income through the Borrower's intended date of return to work with the current employer.

This concludes the New FHA Changes To Borrower Income which I feel will have the most impact on the income FHA will allow Borrowers to use.  This blog also concludes all of the new FHA changes which were implemented on Monday, September 14, 2015.  Some of these new changes may require a more in debt explanation.  So as I stated before I plan on writing future blogs on some of the changes above with a more detailed explanation.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Ritu Desai 09/20/2015 11:07 PM
  2. Dinah Stallworth-Lewis 09/24/2015 02:46 PM
  3. 1~Judi Barrett 10/12/2015 11:38 PM
Topic:
Mortgage / Finance
Location:
Connecticut
Groups:
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Tags:
fha changes

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Rainmaker
4,479,972
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, nice to know the new changes, and did hear about the new rules with gaps in employment. 

Sep 20, 2015 10:57 PM #15
Rainmaker
345,571
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

Good Morning George.  Nicely presented info on the changes.  Nothing is worse than a buyer surprised by last minute loan program information that the lender was not aware of.  A lot of changes to stay on top of by all lenders!

Sep 21, 2015 12:08 AM #16
Rainmaker
100,610
Patty Blackwelder
Twins Selling Real Estate - Woodbridge, VA
Top Producing Realtor-New Home Buyer Specialist

Good Morning George, Great Post and I agree with Conrad FHA is fixing problems that are not broke. 

Sep 21, 2015 12:22 AM #17
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Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

George Souto  Just when we thought all was solved -- wonderful series and well deserved Featured Post - will look forward to future explanations

Sep 21, 2015 12:41 AM #18
Rainmaker
680,255
Nicole Doty - Gilbert Real Estate Expert
Zion Realty - Gilbert, AZ
Broker/Owner of Zion Realty ZionRealtyAZ.com

I have been following these FHA blog posts and they are very extensive. Thanks so much for educating us on these changes George!

Sep 21, 2015 12:57 AM #19
Rainmaker
3,225,647
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Thank you for sharing, i sure learn more from your updates than the local loan officers which is kind of sad. Looks like FHA is closing loop holes that caused many of the foreclosures they faced. 

Sep 21, 2015 01:11 AM #20
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Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, some of the changes, especially the employment gap will have a big effect on people here in CT

Sep 21, 2015 01:45 AM #21
Rainmaker
304,414
Kate McQueen
CB&A Realtors - Cypress, TX
Tailored service for your real estate needs!

So it's a good idea to advise future buyers that changing jobs is a bad idea.  Unfortunately, sometimes it can't be helped.  George Souto if there are co-borrowers, does this apply to BOTH borrowers?  I'm guessing it does, that may be a silly question.

Sep 21, 2015 03:24 AM #22
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

So many details -- I used to keep up with changes in FHA but these days I'm finding it's too much. Good your clients have you for their mortgage resource, George Souto 

Sep 21, 2015 04:49 AM #23
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - Thanks for keeping us up to speed on what's going on with FHA loans - and there's certainly a lot of changes and even more impact. I'm guessing we'll be seeing less FHA business in the future.

Sep 21, 2015 05:36 AM #24
Rainmaker
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Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello George Souto 

Congratulations on the feature - well deserved...this is excellent information for consumers and agents alike!

Sep 21, 2015 09:48 AM #25
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Great job, George.  I haven't blogged about the FHA changes because I haven't had time to cover them all extensively enough in one blog post - smart move breaking them down.

Sep 21, 2015 11:49 AM #26
Rainmaker
553,714
Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

Interesting about the "job hopping". Seasonal workers or contract workers take heed.

Sep 21, 2015 12:05 PM #27
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Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

wait? does this mean that borrowers with ONLY disability income that is non taxable can no longer qualify for a loan?

Sep 21, 2015 01:40 PM #28
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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

This helps, George Souto . I learn a lot about new and upcoming changes from your posts - thanks for keeping us in loop.

Sep 21, 2015 03:35 PM #29
Rainmaker
1,646,919
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

Thanks for the information on the changes to borrower income. It sounds as though some buyers will need to delay their search a while.

Sep 22, 2015 03:09 AM #30
Rainmaker
61,616
Scott Thompson
Columbia Mortgage Plus - Blue Springs, MO
Commerical Finance - Blue Springs, MO

850 pages of caveats folks and that is for FHA Full Eagle, everybody else gets overlays too yay.  

Still all clear as mud and subject to a wide variety of opinions.

The more things change eh?

 

MAKE IT A GREAT DAY.

Sep 22, 2015 06:09 AM #31
Rainmaker
353,506
Wayne L. Brown
Franklin Advantage Inc. - Alpine, CA

Outstanding job George.

Thanks for the update.

 

Sep 22, 2015 07:54 AM #32
Rainmaker
256,560
Susan Jackson
America's Network Realty Group, Inc - Sandy Springs, GA

George, again thank you for keeping us informed.  Seems a lot of hte FHA changes are making it harder for the borrowers.

Sep 22, 2015 11:19 AM #33
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Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

This will impact the qualifying of many buyers. I know of several situations this year where my buyer may not qualify with this tightening.

Sep 22, 2015 11:42 AM #34
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