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FHA Loans Now Have Tighter Collections Guidelines

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FHA Collections Guidelines ChangeThe Federal Housing Administration (FHA) insures loans enabling lenders to offer finance to those wishing to purchase homes that would not otherwise be able to afford them. However, the FHA has been tightening its lending criteria lately, and the latest policy introduced on April 1st is that applications from potential borrowers with an account of more than $1,000 in collection or under dispute will be rejected.

Any collection accounts of more than $1,000 must be resolved before any loan will be allocated, although collections of less than this will be ignored in the loan decision.

Borrowers should either pay the sum in full, or come to a monthly payment agreement and show proof of at least three months payments having been made. The monthly sum due in any repayment agreement will be included in the debt-to-income ratio of monthly debts to monthly income.

FHA Loans Pricing Out Some Borrowers?

Due to its small deposit requirement, many people are able to buy homes using an FHA insured loan that they would not otherwise be able to afford. By applying the above rule, some may no longer be able to afford that down payment, so would no longer be able to buy. This appears contrary to the original intention of such loans.

Additionally, FHA mortgages have also seen an increase in the mortgage insurance payable on FHA loans (from 1.15% to 1.25% of the outstanding balance) and in the mortgage insurance fee that is paid in advance (1% to 1.75% of the outstanding balance). These increases were applied April 19th, and there might be more increases shortly.

Is an FHA Loan Right For Me?

In spite of recent changes to FHA pricing and policies, an FHA loan may still make the most sense for you. To find out if an FHA loan fits your needs or whether or not there is a better alternative loan program, please request a rate quote using the form above or call us directly. We can also answer any mortgage related questions you might have!

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