FHA Loan Guidelines
08 Jan

2017 FHA Loan Guidelines

If you are new to the mortgage process or an experienced borrower you should know that FHA Loans are some of the best loans out there and knowing the 2017 FHA Loan Guidelines are vital in your path to home ownership. While a lot of the guidelines are the same in 2017, it is wise to know what changes have taken place so that you don’t get caught up on anything.  Here at Mortgage Scenarios we always stay ahead of the game so that we are prepared for all guideline changes and updates so that we can be the best resource for your home loan needs.  It is vital we know every and all guidelines associated with home mortgages so that our borrowers can get into the best loan possible without any problems that a lot of other lenders will put you through.  Before we get into the changes seen in 2017, it is wise to know what the existing guidelines are so that you are aware of what you’re up against.

FHA Guidelines: Credit Scores

One of the most important items with a home mortgage or any time you are trying to obtain debt is your credit score and your FICO score has a lot of determining factors to what guidelines you will be held to throughout the loan process.  As mentioned in the FHA Credit Score article you will know that there are 3 different tiers of credit scores and what they do in determining which guidelines you need to follow:

  • FICO 500-579: If you fall into this category it isn’t impossible to get a loan but it will be more difficult that’s for certain.  You are going to need at least a 10% down payment as well as other compensating factors that prove credit worthiness.
  • FICO 580-619: You are able to get an FHA Loan with a 3.5% down payment but your debt-to-income or DTI ratio will be capped at 43%.  This means that you can only have monthly debt of 43% of your gross monthly income with your new mortgage payment.
  • FICO 620+: You are able to get a 3.5% down payment FHA Loan with a DTI ratio of 56.9%.

As you can see, it is beneficial to have a higher credit score, but it is not a deal breaker if you do not.  Here at Mortgage Scenarios we are able to get a wide variety of borrowers approved for home loans where other lenders may have troubles due to Lender Overlays.  Lender Overlays are additional guidelines that lenders make you qualify with on top of the minimum 2017 FHA Loan Guidelines.  Mortgage Scenarios does not have Lender Overlays and we can make loans happen given these minimum guidelines.

FHA Guidelines: Debt-To-Income Ratio (DTI)

As was previously touched on in the previous section, DTI ratio is a very important when seeing if you will be able to qualify for a mortgage.  2017 FHA Loan Guidelines have some very generous guidelines with regards to DTI ratio, especially if you have a 620+ FICO credit score.  If you are over a 620 FICO you will be able to have a 56.9% DTI ratio.  This means you new mortgage payment and your monthly debt can amount to 56.9% of your gross monthly income or your pre-tax income.  However, if you are under a 620 FICO you will only be able to have a 43% DTI ratio which could impacy your purchasing power and ability to obtain a loan.

Detrimental Items In Credit History

Let’s be honest, for a lot of us and a lot of our borrowers, there has been a rough patch in our credit history.  Whether this be a bankruptcy, foreclosure, or short sale, this is not a deal breaker when it comes to getting an FHA Loan and per the 2017 FHA Loan Guidelines there are some mandatory waiting periods before you are able to get a loan, but rest assured you can and will be a borrower again.

  • Chapter 7 Bankruptcy: Mandatory waiting period of 2 years after discharge date.
  • Chapter 13 Bankruptcy: Approved for a loan just 12 months into your repayment plan with all payments made on-time and trustee approval, or the day after your discharge date.
  • Foreclosure or Deed-in-Lieu of Foreclosure: 3 year waiting period needed after sheriff’s sale or the date the deed is taken out of your name.
  • Short Sale: Mandatory waiting period is also 3 years.

When it comes to charge-offs, collection accounts, and judgments there are also ways to get a mortgage and if you thought otherwise you’d be mistaken.  Yes, these aren’t the best things to have on your credit report but it doesn’t have to be a deal breaker and we can work within the 2017 FHA Loan Guidelines here at Mortgage Scenarios to get you a loan approval.  First of all, if you have collection accounts, there isn’t a need to try and pay these off, you can leave them as is for the time now as the 2017 FHA Loan Guidelines do not require that these items be paid off.  However, the negative impact of these can be seen is how they will be treated in your DTI ratio.  For all debts over $1,000 a 5% of debt amount is calculated into your DTI ratio so if you have $4,000 in collections $200 will be applied to your DTI ratio.  When it comes to medical collections you should know that FHA does not count these at all towards your DTI ratio so there isn’t a need to pay them and you can even dispute them if necessary.  A credit dispute temporarily removes the negative effects that item has on your FICO score until it is resolved.  Collections, charge-offs, and judgments can be tricky to deal with so working with a professional at Mortgage Scenarios is vital to ensuring you get a loan approval.

Student Loan Debt

If there was a major change between the 2016 and 2017 FHA Loan Guidelines it has to deal with how student loan debt is calculated by the new guidelines.  Under previous guidelines if you had deferred your student loans for longer than 12 months, this debt was not used when calculating your DTI ratio.  However, with the 2017 FHA Loan Guidelines you are going to be responsible for 1% of your outstanding student loan debt if they are not on a fully-amortized repayment plan.  What this means is if you are on an income based repayment plan this is not sufficient to calculate towards your DTI ratio.  This is going to force a lot of borrowers with student loan debt to try and consolidate these loans into the longest repayment term possible.  For example a $40,000 student loan on a 30 year repayment at 6% is a monthly payment of $240 where as 1% of this loan would be $400.  The difference here is $160 which is huge in the grand scheme of getting your loan approved.  Even though the 2017 FHA Loan Guidelines have changed how they treat student loans, if you know how to treat them, it doesn’t need to be a sticking point of your loan approval.

Use A Professional

Even though this may seem like a lot of guidelines there are even more that aren’t discussed here and in order to get a full understanding of the 2017 FHA Loan Guidelines then a professional at Mortgage Scenarios is your best bet when purchasing a new home.  We will make sure your home buying experience is as stress-free as possible so reach out to us today and let’s get started!

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