FHA Guideline Changes for Self Employed Borrowers and Collection Accounts
FHA recently made underwriting guideline changes for Self Employed borrowers and borrowers who have disputed and/or collection accounts. The changes apply to residents of states of California, Washington, Oregon and rest of the country. These changes will be effective April 1, 2012 and will impact all FHA mortgages except non-credit qualifying Streamline Refinances and Reverse Mortgages.
New Guideline about Self Employed Borrowers:
Profit and Loss (P&L) and a Balance Sheet is required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal-year end tax return was filed by the borrower. Additionally, if income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax returns obtained from IRS are required.
New Guideline about Disputed/Collection Accounts:
- The total outstanding balances on all disputed credit accounts or collections needs to be under $1000, and
- Disputed credit accounts or collections need to be aged two years from date of last activity as indicated on the most recent credit report.
If you have multiple collection or disputed accounts with cumulative balance equal to or greater than $1000, the accounts must be resolved or paid in full prior to closing. By “resolved”, the guidelines specify payment arrangements must have been made and a verified 3 payments would have been made per the agreed terms.
If the total outstanding balance of all collection accounts is less that $1000, then you are not required to pay off the account(s) to get an FHA loan approved. Paying down of balances in disputed and collections accounts to reduce the balance(s) below $1000 is not permitted and is not considered a valid resolution.
Any Judgments need to be paid off
Any judgements need to be paid off to obtain an FHA mortgage. Exception to this rule may be made if the borrower has made an agreement with the creditor to payoff by making monthly payments. A proof is required that a minimum of 3 such payments have been made as agreed. And the monthly payments will be included in the debt-to-income ratio (DTI) calculations.
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