This is very important news about the recent changes to FHA loans, the new FHA guidelines. Especially since 95% of new financing is being originated as FHA loans. The changes in mortgage insurance really wont impact borrowers as much. For example, on a $150,000 purchase, the monthly insurance payment will increase by $18.00 a month.
However, the following notice to the FHA loan requirements is going to knock out a lot people from the market. This is FHA’s solution to motivate borrowers to clean up their credit and negotiate payment plans.
Collection Accounts and Judgments:
Open collection accounts and judgments must be addressed in following ways:
If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with a minimum of three months verified payments made as agreed in payment plan) or paid in full prior to closing. Documentation must be provided to show that each account was resolved or paid in full. Any payments arranged for the collections must be included in the calculation of the borrower’s debt-to-income ratios.
If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval.
Note: Paying “down” of balances on collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts