If you have been looking to buy a home recently and were planning to use a FHA loan, you may have noticed there are now more stringent requirements. Why were these FHA loan requirements added and what will it mean for you when you are ready to buy a home?
FHA loans are backed by the government which allows lenders to offer several advantages to prospective buyers including lower down payments, lower closing costs, and less strict credit requirements. These loans can also be a viable alternative for those who do not qualify for a conventional loan.
The FHA decided to tighten up some loan requirements for a couple reasons. For one the FHA program took a hit during the recession affecting their reserves. Besides bolstering the current reserves the FHA also wants to protect from future losses. The concern is avoiding giving out loans to those who won’t be able to afford them.
So what are some of the changes?
Previously, any student loans which were deferred 12 months or more beyond closing, would not affect the borrower’s debt to income ratio. Now any deferred student loans must be counted as debt and may change the borrower’s debt to income ratio. If you have student loans, and are preparing to buy a home, talking to a mortgage broker can be helpful to see how this change will affect the amount of loan you will qualify for. While this change restricts some from being able to purchase a home, in the end it protects a prospective buyer from getting into mortgage loan debt that they can’t afford once their deferred student loan becomes due.
Another change is regarding the stability of your employment. For example, you must be employed for 6 months or more after a gap in employment longer than 6 months in order to qualify for a loan. Again, the intent is to make sure prospective buyers have stable employment and will thus be less likely to default on their mortgage loan.