Information pertaining to how to qualify for a mortgage and the latest information about mortgage guidelines.
FHA Manual Underwriting: The Rule of 3
Posted 10-30-2008 at 11:49 AM by ShanetheMortgageMan
Updated 10-31-2008 at 02:47 PM by ShanetheMortgageMan (reformatting)
Updated 10-31-2008 at 02:47 PM by ShanetheMortgageMan (reformatting)
If you can’t get approved for an FHA loan through automated underwriting, then your loan might need to be manually underwritten to get approved. Having 3 compensating factors is a good rule of thumb when going for a manual underwriting approval. Compensating factors are when you are better off than whatever the minimum requirement is. Compensating factors aren’t needed all of the time but if there is anything questionable or borderline about a person’s situation, they are better to have than not to have. A list of compensating factors is:
- More than the required down payment, in increments of 5% (95% LTV, 90% LTV, etc.)
- 3 or more months of reserves (PITI payment) in savings, checking, 401k, IRA, stocks, etc. (retirement accounts qualify at 60% of vested balance)
- Limited use of credit, such as low credit card balances, not a lot of accounts with balances
- The duration of time on the job/in the industry, there is no minimum required but 2 years work history is needed (except under special circumstances) and underwriters like it when you've been with the same employer for at least 2 years
- Down payment is your own rather than getting it as a gift or a loan
- Potential for increased earnings, such as an employer verifying you are in training or getting a raise in a few months, or you are in school getting a degree, certificate, or license that would make you a more valuable or skilled employee, or primary wage-earner is being relocated and secondary wage-earner has a history of stable employment, is seeking employment but has not found new employment yet
- Less than a 10% increase from your current housing payment to the new housing payment
- The new home is closer to work than your current home
- An energy efficient dwelling can allow expanded debt to income ratios (33 & 45%)
- Victim of a disaster
- There is income that can't be used as qualifying income, such as a non-borrowing spouses, or employment income that has been received for less than the required amount of time, food stamps or public benefits
- Lower debt to income ratios, under 28% for housing & 41% for total
- Strong credit & scores, underwriters are looking for at least 12 months of clean credit, the longer credit has been clean past 12 months the better
- More than the required down payment, in increments of 5% (95% LTV, 90% LTV, etc.)
- 3 or more months of reserves (PITI payment) in savings, checking, 401k, IRA, stocks, etc. (retirement accounts qualify at 60% of vested balance)
- Limited use of credit, such as low credit card balances, not a lot of accounts with balances
- The duration of time on the job/in the industry, there is no minimum required but 2 years work history is needed (except under special circumstances) and underwriters like it when you've been with the same employer for at least 2 years
- Down payment is your own rather than getting it as a gift or a loan
- Potential for increased earnings, such as an employer verifying you are in training or getting a raise in a few months, or you are in school getting a degree, certificate, or license that would make you a more valuable or skilled employee, or primary wage-earner is being relocated and secondary wage-earner has a history of stable employment, is seeking employment but has not found new employment yet
- Less than a 10% increase from your current housing payment to the new housing payment
- The new home is closer to work than your current home
- An energy efficient dwelling can allow expanded debt to income ratios (33 & 45%)
- Victim of a disaster
- There is income that can't be used as qualifying income, such as a non-borrowing spouses, or employment income that has been received for less than the required amount of time, food stamps or public benefits
- Lower debt to income ratios, under 28% for housing & 41% for total
- Strong credit & scores, underwriters are looking for at least 12 months of clean credit, the longer credit has been clean past 12 months the better
Total Comments 2
Comments
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GREAT informative post!Posted 10-31-2008 at 02:43 AM by 2goldens
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Thanks!Posted 10-31-2008 at 02:49 PM by ShanetheMortgageMan
