Important New Changes to FHA Qualifications

September 1st brought some major changes to the lending industry with both FHA Loan Qualifications as well as some changes to Fannie and Freddie Mac guidelines. These changes are sure to effect a LOT of buyers out there. Agents and Buyers alike: pay attention!

With the demise of yet another major lending institution, Taylor Bean and Whitaker, it’s now highly likely that lenders are going to raise the minimum score required to qualify for an FHA loan. Previously, the minimum score required was 620. It is now likely to be raised to 640. Why, you ask? Well, Taylor Bean and Whitaker held a very large percentage of those 620-score FHA loans, and with them going under, other servicers don’t want those loans. They don’t want to put themselves at risk and potentially get into the same situation as TBW. Taylor Bean and Whitaker has been around for a long time! My own preferred lender has done a lot of business with TBW over the years. In fact, for a while he used them almost exclusively.

My personal opinion is that raising the minimum credit score required is a good thing. We can’t risk our banking system sinking further and further into the toilet. We can’t continue to risk major companies like TBW going under. Things have to change in order to do this.

In Fannie and Freddie news, the guidelines have changed in regards to how the lender counts your assets. Previously, the lender could count 70% of your retirement savings (401K) towards your assets – for example, $100K in 401K savings could be counted as $70,000 in assets. Now that percentage has dropped to 60%. The biggest change comes on the stocks and mutual funds. Previously, the lender could count 100% of your stocks and funds. They are now dropping that to 70%! So, for example, $10,000 in stock will now only count as $7,000.

These amounts are very important when a lender is reviewing your assets to count as your reserves. Lenders require 6-months worth of PITI reserves for each home that you own. More assets meant easier qualifying; now the same assets will count as less and potentially harm your ability to qualify for your loan.

Our industry is ever-changing and it is so important to keep up with what’s going on. If you or your buyer have a loan currently in process, you may want to check in with your lender and make sure these changes are not going to effect your qualification. Remember, we have financing contingencies and earnest money on the line. Double check and protect that earnest money! And always stay informed and in tune with what’s going on. This is how we learn and grow and help our industry recover.
 

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