FHA Mortgage Lenders Lenders Approve Manual Underwrite. But there are certain circumstances that can shock an application to a Refer/Eligible that requires manual underwriting. Examples include: 
FHA Mortgage Lenders Lenders Approve Manual Underwrite
Hot Topics Include:
- Multiple 30, 50, 90 day late payments.
- Foreclosure, short sale or deed-in-lieu of foreclosure
- A lack of credit depth or No credit history or No Credit score.
- A Chapter 7 or Chapter 13 bankruptcy in the last 24 months
- Judgment Defaults or delinquency on a federal debt
FHA Mortgage Lenders Overview
FHA Mortgage Lenders qualifying for manual underwrite for all credit qualifying FHA Mortgage Lenders purchases and/or FHA Mortgage Lenders refinances including FHA-to-FHA transactions where automated underwriting issues a result of “Refer” scoring recommendation is FHA Mortgage Lenders manually downgraded by the FHA Mortgage Lenders underwriter. This policy also applies if the FHA Mortgage Lenders was not scored through computer automated underwriting. FHA no credit score and Non-credit qualifying FHA Mortgage Lenders applicants.
Credit Qualifying For FHA Manual Underwriting Requirements
All of the following bullet points are required.
- FHA Mortgage Lenders Lenders Minimum Credit Score 580 FICO
- FHA Mortgage Lenders reserves of at least 1 month’s Principal Interest Taxes Insurance + MIP required for 1 and 2 unit properties. Reserves of a least 3 month’s Principal Interest Taxes Insurance + MIP required for 3 and 4 unit properties.
- A TOTAL Scorecard Refer recommendation requires the FHA Mortgage Lenders applicants to provide an explanation for major indications of derogatory credit, such as judgments and collections, and any minor indications within the past 24 months / two years.
- The benchmark DTI FHA Mortgage Lenders Maximums are 31/43. Loan still must meet the reserves requirement as defined in the bullet point above. Exceeding these DTI FHA Mortgage Lenders Maximums are allowed with acceptable compensating factors for the following situations:
o FHA Mortgage Lenders Max DTI 31/43 with no compensating factors required
o FHA Mortgage Lenders Max DTI 37/47 with one of the following compensating factors:
- Verified and Documented Cash Reserves: 3 months Principal Interest Taxes Insurance + MIP in reserves for 1-2 unit properties, or 6 months Principal Interest Taxes Insurance + MIP in reserves for 3-4 units.
- Minimal Increase in housing payment: New Principal Interest Taxes Insurance + MIP is not > $100 or 5% higher than the previous monthly housing payment, whichever is less; and 12 month housing payment history is <= 1X30. Cash out transactions require 0x30. If the FHA Mortgage Applicants has no current housing payment, DE UW may not cite this compensating factor.
- Residual Income: Sufficient Residual Income as calculated per VA requirements. (See FHA Handbook 4000.1 II.A.5.(F) and VA Lenders Handbook- VA Pamphlet 26-7 for details.)
o FHA Mortgage Lenders Max DTI 40/40 with no discretionary debt as a compensating factor subject to the following requirements:
The FHA Mortgage Applicants housing payment must be the only open account with a balance and payment that is not paid off monthly;
The FHA Mortgage Applicant’s credit report shows established credit lines in their own name open for at least 6 months; and
The FHA Mortgage Applicants must document that these credit accounts have been paid off in full monthly for at least the past 6 months.
Note: FHA Mortgage Applicants who have no established credit other than their housing payment, no other credit lines in their own name open for at least 6 months, or who cannot document that all other accounts are paid off in full monthly for at least the past 6 months, do not qualify under this criterion. Credit lines not in the FHA Mortgage Applicants’s name, but for which he or she is an authorized user do not qualify under this criterion.
o FHA Mortgage Lenders Max DTI 40/50 with two of the following compensating factors:
- Verified and Documented Cash Reserves:3 months Principal Interest Taxes Insurance + MIP in reserves for 1-2 unit properties, or 6 months Principal Interest Taxes Insurance + MIP in reserves for 3-4 units.
- Minimal Increase in housing payment: New Principal Interest Taxes Insurance + MIP is not > $100 or 5% higher than the previous monthly housing payment, whichever is less; and 12 month housing payment history is <= 1X30. Cash out transactions require 0X30.§ If the FHA Mortgage Applicants has no current housing payment, DE UW may not use this compensating factor.
- Residual Income:Sufficient Residual Income as calculated per VA requirements. (See FHA Handbook 4000.1 II.A.5.(F) and VA Lenders Handbook- VA Pamphlet 26-7 for details)
- Significant Additional Income Not Reflected in Effective Income: Additional income from overtime, bonuses, part-time income or seasonal employment can be used as a compensating factor if the DE UW verifies and documents the following:
The FHA Mortgage Applicants has received this income for at least one year, and it will likely continue and
The income, if it was to be included in gross effective income is sufficient to reduce the DTI to not more than 37/47.
Note: This compensating factor may be used only in conjunction with another compensating factor when qualifying ratios exceed 37/47 but are not more than 40/50. Income from non-borrowing spouses or other parties not obligated for the mortgage may not be counted upon under this criterion
Definition of Reserves
The sum of verified and documented FHA Mortgage Applicants funds;
minus
- The sum the FHA Mortgage Applicants is required to pay at closing, including the cash investment, closing costs, prepaid expenses, any payoffs that are a condition of loan approval, and any other expense required to close the loan;
but not including
- The amount of cash taken at settlement in cash-out transactions or incidental cash received at settlement in other loan transactions, gift funds in excess of the amount required for the cash investment and other expenses, equity in another property, and borrowed funds from any source.
Retirement accounts (IRA, Thrift Savings Plan, 401k, and Keogh accounts) can be used for cash reserves.
- To account for withdrawal penalties and taxes, only 60% of the vested amount of the account, less any outstanding loans, may be used.
- The most recent depository or brokerage account statement must be used to document the funds.
- In addition, evidence must be provided that the retirement account allows for withdrawals under the conditions other than in connection with the FHA Mortgage Applicant’s employment termination, retirement, or death. If withdrawals can be made only in connection with the FHA Mortgage Applicant’s employment termination, retirement, or death, the retirement account may not be used to calculate the FHA Mortgage Applicants cash reserves.
- If any of these funds are also to be used for loan settlement, that amount must be subtracted from the amount included as cash reserves.
Funds and/or assets that are NOT to be considered as cash reserves include:
- Gifts,
- Equity from another property,
- Borrowed funds, and
- Cash received at closing in a cash-out refinance transaction or incidental cash received at closing in the loan transaction.
Residual Income
FHA has modeled the calculation of residual income on underwriting guidance provided by the Department of Veterans Affairs (VA) in Chapter 4 of VA Pamphlet 26-7. FHA is also using the tables from the VA guidelines for the determination of whether residual income is sufficiently high to qualify as a compensating factor.
Calculating Residual Income:
- Calculate the total gross monthly income of all occupying FHA Mortgage Applicantss.
- Deduct from gross monthly income the following items:
o Estimated maintenance and utilities
o Job related expenses (e.g. child care) and
o The amount of the Gross Up of any Non-Taxable Income.o State income taxes
o Federal income taxes
o Municipal or other income taxes
o Retirement or Social Security
o Proposed total monthly fixed payment (i.e. Principal Interest Taxes Insurance + MIP)
- Subtract the sum of the deductions from the table above from the total gross monthly income of all members of the household of the occupying FHA Mortgage Applicants.
- The balance is residual income.
Calculating Gross Monthly Income:
- Gross monthly income should be calculated only for the occupying FHA Mortgage Applicants consistent with the requirements of FHA Mortgage Lenders .
- Do not include bonus, part-time or seasonal income that does not meet the requirements for effective income as stated in FHA Mortgage Lenders .
- Do not include income from non-occupying co-FHA Mortgage Applicants, co-signers, non-borrowing spouses, or other parties not obligated on the mortgage.
Calculating FHA Mortgage Lenders Monthly Expenses:
- If available, mortgagees must use Federal and state tax returns from the most recent tax year to document state and local taxes, retirement, Social Security and Medicare. If tax returns are not available, mortgagees may rely upon current pay stubs.
- For estimated maintenance and utilities in all states, mortgagees should multiply the living area of the property (square feet) by $0.14.
o Example: 1500 square feet X 0.14 = $210.00 per month
Using Residual Income as a Compensating Factor:
- To use residual income as a compensating factor, count all members of the household of the occupying FHA Mortgage Applicants without regard to the nature of their relationship and without regard to whether they are joining on title or the note.
- Exception: As stated in the VA Mortgage Lenders Guidelines, the mortgagee may omit any individuals from “family size” who are fully supported from a source of verified income which is not included in effective income in the loan analysis. These individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exception.
