FHA Manual Underwriting
Note: this is just a reference guide and the actual guidelines should be reviewed when underwriting and/or processing a FHA refer loan.
Effective for case numbers assigned on or after September 15, 2015.
Credit History requirements: The underwriter must evaluate the Borrower's payment histories in the following order:
(1) Previous housing expenses and related expenses, including utilities;
(2) installment debts
(3) revolving accounts
The following are listed in the 4000.1 for satisfactory history per HUD. 0x30 on all housing and installment debt payments for the previous 12 months with no more than 2X30 in previous 24 months No major derogatory credit on revolving in the previous 12 months. Major derogatory is defined as any payment 1x90 days late or 3 x 60 days late. No non‐medical collections in the last 12 months A File that fails the above guides may only be approved by a DE underwriter if the file is documented that it was the result of extenuating circumstances. Credit Approval requirements for manual underwriting: 12 months cancelled checks must be obtained for rental history IF the borrower is renting from a relative Rent free files must contain a letter from the property owner where the borrower has been residing rent free Mortgage Modification payment histories must utilize the time period in the modification to determine housing lates. Collections or charge offs of a loan or debt in the borrowers name must be documented with a LOX and supporting documentation that is consistent with the file for each account Disputed accounts that are charge offs, collection accounts or have lates in the prior 12 months must be documented with a LOX and documentation supporting the dispute (medical are excluded from guidance) Non‐Medical collections totally $2,000 or more aggregate must utilize a 5% payment of all outstanding balances in qualifying if not paid or in current payment arrangement Charge offs are written off debt and not considered The following wait periods must have elapsed prior to case number assignment o Foreclosure, Short sale or a Deed in Lieu must be outside 3 years (the date the property is transferred is the date utilized) o Chapter 7 discharge must be at least 2 years from discharge date o Chapter 13 or CCC must have at least 12 months elapsed under payment plan terms Non‐traditional Credit: Three credit references should be obtained to establish a credit history with at least one being from the following if not all three: Rent, telephone, utilities Secondary trade lines may include: insurance, child care, tuition, store cards, rent to own, medical bills, auto lease, personal loan payments, saving deposits made on a regular basis Employment: 1003 must reflect a total of 2 years of work and or schooling history. A shorter period is ineligible for FHA insurance Gaps in employment of 6 months or more require an LOX and the borrower must be on their current job for at least 6 months in order for income to be considered AND a 2 year history prior to job gap must be provided Reserves (must be own funds, cannot be a gift): 1‐2 unit properties require a minimum of one month’s PITI in reserves 3‐4 unit properties require a minimum of 3 months PITI in reserves Debt to income Ratios: No Score ‐DTI may not exceed 31/43 500‐579 credit score ‐DTI may not exceed 31/43 580 and above max DTI is 31/43 with no comp factors 580 and above max DTI is 37/47 with one comp factor‐one of the following o Verified and documented cash reserves; o Minimal increase in housing expense; or o Residual income 580 and above max DTI is 40/40 with no discretionary debt 580 and above max DTI is 40/50 with two comp factors ‐two of the following o Verified and documented cash reserves; o Minimal increase in housing expense; o Significant additional income no reflected in effective income; and/or o Residual income Documented cash reserves for comp factors: 1‐2 units requires 3 months PITI, 3‐4 units requires 6 months PITI Loan to Values: Credit scores equal to or greater than 580 are eligible for maximum financing of 96.5% Credit scores between 500‐579 are limited