This year, homebuyers are much more likely to see their loan applications approved. Recent FHA changes led to new guidelines regarding the lending process.
If you’ve been looking to purchase a home, it may now be easier than you imagined. Keep reading to find out the top three FHA changes that’ll affect the loan process for 2017.
It’ll be Easier to Get Credit
Although limits may have been set lower, many applicants have traditionally found it difficult to secure funding if their credit score was lower than a 620.
Those whose credit score fell above 500 should have been able to secure funding if they put down at least ten percent of the home’s cost as a down payment. However, many of these people’s applications were rejected.
The reason for this was that individual lenders were being punished for having bad loans on their books. This created a comparison ratio that led to a blanket policy where if a company had more than one and a half times the average defaulted mortgages, then they may have found their lender status withdrawn.
Now that ratio has been refined with policies that make it possible for lenders to begin considering those with scores between five and six hundred.
The laws behind these changes are written with very complex language. The Washington Post said, “Some analysts say the revised approach could create a pathway for as many as 75,000 to 100,000 new loans a year to borrowers who are now frozen out of consideration.”
Higher Lending Limits
Based on the circumstances surrounding your purchase, the limits on these types of loans may not affect you. It’s still very important to know the limits available before you start looking for your home.
The FHA calculates the average cost of housing in your area and sets a cap for the ability to use an FHA loan to purchase the property. They’re aimed at helping struggling locals to become homeowners, often for the first time.
You’ll need to look up the most current cap for your geographical area.
FHA Changes are Tougher on Non-Mortgage Debt
Although it shouldn’t affect most borrowers, the FHA changes on non-mortgage debt can have a huge impact for some.
Small things like being an authorized user of another person’s credit card will now be considered in your debt-to-income ratio.
Student loans are another place where an application can get stopped. If any of them have been in deferment for more than a year before your application, it’ll be included in the ratio as well.
If this is the case for you, you’ll want to prove with documentation that you have the means to make your loan payments in the future. The government provides a tool to help with this on the Federal Financial Aid web page.
Installment loans are the final hurdle for potential homeowners. These have fixed end dates with equal payments made throughout the duration of the term. If you had ten or fewer payments left to make on something like this, it used to not count towards your ratio.
Today, you’ll have to account for these payments.
Looking for Advice?
If you’re considering an FHA loan for your home in New Jersey, Pennsylvania, Delaware, New York, Maryland, or Florida, then 7th Level Mortgage, LLC is here to help you understand how these changes will affect you.
Whether you’re a first-time homebuyer or just looking to refinance, we can offer an expert opinion on what financing package can suit your needs. Contact us today.