Did you kow this??? now you do....
Get Your FHA Buyers RE-Pre-Approved
Have you heard the latest fashion trend in the mortgage industry? Re-Pre-Approval? No? Well, that's OK, because it's not really a thing.
BUT, FHA recently changed the way they score mortgage loans, and this month, the new rules/algorithms are in full swing. What does that mean?
It means a buyer who was previously pre-approved through automated underwriting may no longer receive that preapproval, and since FHA dates adhere to timelines based on case # assignment (and if there's no property identified, there's no case #), your buyer's previous preapproval may be worthless today.
HUD has expressed some concern about the quality of FHA loans being insured, and specifically noted "layered risk" to be a top priority to address - layered risk is when there are multiple factors on a loan application that could result in a high likelihood of foreclosure or delinquency. For example, if a buyer has both a high debt-to-income ratio AND a questionable credit history, this would be layered risk. Or a very low down payment, poor credit, and no asset reserves - more layered risk.
Over the past few years, getting approval through automated underwriting was a fairly simple and predictable task. That has changed this month. Automated underwriting now may reject files with layered risk, resulting in more strict 'manual underwriting'. Unlike automated underwriting (DU/LP), manual underwriting comes with strict criteria that an underwriter is not allowed to override, including debt-to-income maximums nearly 10% lower than automated underwriting allows for. Manual underwriting also has restrictions on rental lates that automated underwriting could not factor in - since rents are typically not a part of the credit report, if automated underwriting issued an approval and a note that "rental history documentation is not required", it didn't matter if a client had been 30 days late on their rent 10 times in the past year. With manual underwriting, there is a hard stop on rental/housing late payments.
What does this mean to you as a real estate agent? Well, if you have an FHA pre-approved buyer, it's a good idea to get them re-pre-approved. Especially for buyers with questionable credit or high debt-income ratios, you'll need some reassurance to prevent a potential nightmare of getting a contract accepted only to find out in underwriting that your client is no longer approved.
This should be a really simple thing for a lender to do - just a couple of buttons pushed and a fresh approval should be available, but is VERY important to do for all FHA buyers that were preapproved before the start of this month.
Want to work with a lender with NO FHA, VA, USDA, or any other government loan overlays? Give me a call at 484.680.4852. Questions about the FHA changes? Ask an expert here!
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