All Forum Posts by: Jerry Padilla

This is by no means all of the guidelines..... Just some basics. This past month FHA has gotten much more strict and fine tuned their guidelines.

Single Family Residence or The rental units are an owner-occupied two (2), three (3) or four (4) unit property

Maximum Financed Properties

• The maximum of four financed properties includes the subject property.

Inducements to Purchase

• Certain expenses, paid by the seller and/or another interested third party, on behalf of the borrower, are considered "inducements to purchase" and result in a dollar for dollar reduction to the lesser of the sales price or appraised value of the property before applying the appropriate LTV factor. These expenses include:
• Contributions up to 6% of the sales price
• Decorating allowances
• Repair allowances
• Moving costs
• Note—a dollar for dollar sales price reduction is also required for - Excess rent credit and gift funds not meeting FHA requirements Contributions exceeding the actual cost of prepaid expenses, discount points and other financing concessions

Credit Requirements

• Required is 600. FICOs below 620 have maximum DTI of 43% regardless of AUS approve/accept
• Minimum of 2 trade lines are required
• No more than $1,000 in disputed collections
• Must be all on time payments in the past 12 months of mortgage history
• No more than $2,000 in collections ........ Medical bills are excluded.
• Minimum of 2 years from Chapter 7 or 13 bankruptcy discharge
• Minimum of 3 years from Preforeclosure, short sale, deed in lieu, foreclosure from discharge date or release date.

Down Payment Requirements

• The borrower is required to make a minimum down payment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price. The borrower must have sufficient funds to cover borrower-paid closing costs and fees at the time of settlement. Gift funds are considered part of borrower’s own funds.
• 60 day history is required to verify the source of the down payment. Down payment can not be borrowed, from any source.
• Gifts may be funded by a family member....... But must be verified by 60 day history, and must be a gift with no requirement to pay back.

Reserve Requirements

• 3-4 Unit owner occupied properties must have 3 months PITI

Three (3)- and Four (4)-Unit Property

The maximum mortgage amount for the three (3) - and four (4)-unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status.

Livable Conditions

1. The property must demonstrate the following characteristics:

A continuing and sufficient supply of safe and potable water under adequate pressure and of

appropriate quality for household uses.

Sanitary facilities and a safe method of sewage disposal. Every living unit must have at least one (1)

bathroom which includes a flushing toilet, lavatory/sink and a bathtub/shower.

A source of heat adequate for healthful living conditions.

Domestic hot water, and;

Electricity adequate for lighting and any mechanical equipment within the home.

Provide safe pedestrian and vehicular access from a public or private street. Streets must either be

devoted to public use and maintenance, or private streets protected by permanent recorded

Easements.

The remaining economic life, as determined by the appraisal, must be greater than or equal to the term

of the proposed mortgage.

Be free of any encroachments.

Utility Service must be permanently dedicated to the local municipality or appropriate public utility entity

as evidenced by recorded easements.

Up Front Mortgage Insurance Premium - For most of its mortgage insurance programs, FHA collects an:

• Upfront mortgage insurance premium (UFMIP), and
• Annual insurance premium which is collected in monthly installments

Mortgage Insurance Premium - For 15 year and greater than 15 years.

• 1.75% of purchase price

Annual Insurance Premium

• Greater than 15 years & greater than or = 95% LTV - 0.8%
• Greater than 15 years & less than 95% LTV - 0.85%
• Less than or = 15 years & Grester than 90% LTV - 0.7%
• Less than or = 15 years & less than 90% LTV - 0.45%

High Balance Loan Amounts

• Less than or = to $625,000 & less than or = to 95% LTV - 0.8%
• Less than or = to $625,000 & greater than 95% LTV - 0.85%
• Greater than $625,000 & less than or = to 95% LTV - 0.1%
• Greater than $625,000 & greater than 95% LTV - 0.105%

INCOME—RENTAL

Rental income from a borrower’s primary single family residence (boarder income) is not acceptable for qualifying.

Rental Income from the subject property may be considered effective income if the subject property is a 2-4 unit dwelling. Required documentation is dependent upon the length of time the borrower has owned the property.

Rental Income – Subject Property For FHA Mortgage

Limited or No History of Rental Income

Defined as when the borrower is purchasing or does not have a history of rental income from the subject property since the previous tax year.

If rental income is from other property owned other than subject, must show 25% equity in property by appraisal.

In order to calculate Rental Income from a 2-4 unit subject property, the following documentation must be provided:

�Fair Market Rent must be calculated using FNMA 1025/FHLMC 72 – Small Residential Income Property Appraisal Report; and Copies of existing or proposed leases, if available.

Calculating Effective Rental Income

� Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income by applying 75% of the lesser of;

o Fair Market Rent reported by the appraiser; or

oThe rent reflected on the existing or proposed lease agreement.

History of Rental Income.

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) years

Calculating Effective Rental Income

� Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income after averaging the reported net rental income/loss reflected on Schedule E of the tax returns.

� When calculating the average net rental income/loss, any depreciation, mortgage interest, taxes, insurance, and HOA dues reflected for the subject property may be added back to the net income/loss.

� If the borrower has owned the subject property for less than 2 years, rental income/loss must be annualized for the length of time the property has been owned.

This information is accurate as of the time of posting. Please also verify the accuracy of this information at the time you are considering these options as guidelines change.

FHA Rate and Term Refinance -

Maximum LTV is 97.75%

FHA Cash Out Refinance -

Maximum LTV is 85% of appraised value if property has been owned 12 months or greater, and if less than 12 months from purchase than the lesser of purchase price or appraised value is used.

https://www.biggerpockets.com/blogs/5110/blog_post...

Some crucial guidelines that sometimes go unnoticed ......... But will make or break your FHA deal with a 3-4 unit......

Reserve Requirements

• 3-4 Unit owner occupied properties must have 3 months PITI

Three (3)- and Four (4)-Unit Property

The maximum mortgage amount for the three (3) - and four (4)-unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status.

• This market rent is determined by the appraiser. Basically this is stating that what the market rents are need to equal the mortgage payment or exceed. The FHA house needs to pay for itself as if the property was fully rented out, even though the buyer will be living in one of the units.

Please see my other post for more information on FHA financing.

https://www.biggerpockets.com/blogs/5110/blog_post...

https://www.biggerpockets.com/blogs/5110/blog_post...

The only circumstances in which a borrower with an existing FHA insured loan for a principal residence may obtain another FHA insured mortgage on a new principal residence.

Relocation -A borrower may be eligible to obtain another FHA-insured mortgage without being required to sell an existing property covered by an FHA-insured mortgage if the borrower is:

Relocating or has relocated for an employment related reason, and

Establishing or has established a new principal residence in an area more like than 100 miles from the borrower’s current primary residence.

If the borrower moves back to the original area, the borrower is not required to live in the original house and may obtain a new FHA-insured mortgage on a new principal residence. As long as the relocation meets the two requirements above.

Increase in Family Size - A borrower may be eligible for another house with an FHA-insured mortgage if the borrower provides satisfactory evidence that

The has had in increase in legal dependents and the property now fails to meet the family’s needs; and

The loan-to-value (LTV) ratio on the current principal residence is equal to or less than 75% or is paid down to that amount, determined by comparing the outstanding mortgage balance to a current residential appraisal.

Vacating a jointly-owned Property - A borrower may be eligible for another FHA-insured mortgage if the borrower is vacating (with no intent to return such as divorce, legal separation, etc...) the principal residence which will remain occupied by the existing co-borrower.

Non-occupying Co-borrower - A non-occupying co-borrower on an existing FHA-insured mortgage may qualify for an FHA-insured mortgage on a new property to be their own primary residence.

Please see my other post for more information on obtaining an FHA Mortgage.

https://www.biggerpockets.com/blogs/5110/blog_post...

@Wayne Brooks

@Charlie Fitzgerald

You are both right. It is a minimum of 3 days for an electronic delivery of the closing disclosure. It is a minimum of 7 days if sent through mail....... This is with the assumption that everything is correct from the beginning. It is going to take 45-60 days for closings now, realistically speaking. Cash buyers are going to have a great advantage. I am sure we are going to see a lot more investors taking advantage of delayed financing. With these new regulations, it is a good idea to start the process of delayed financing as soon as possible after closing.

@Michelle Nelson

Regulations have recently changed for lenders and now can take 45-60 days. We do cash out refinancing and delayed financing on properties purchased with all cash. 

@David Stott

Absolutely. Feel free to contact me and we can set up a time to meet up. Thank you for reaching out. 

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No need for face to face...... I work with clients nationally via phone, fax and email

Apply anytime via my website below

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Experienced loan officer with investment properties as well as an 8 year history in the financing industry.

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Fannie Mae doesn't require a two year history on investment property IF you have your own primary residence mortgage with a two year history.

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@Doug McLeod 

Thank you for the mention! 

@Elizabeth Colegrove 

A second home does have to be just one unit. Financing property 5-10 the guidelines are much more strict as well.

@Brandon G.

@Doug McLeod

Guidelines have changed recently....... 

If you have no mortgage history, (your primary residence counts) than you need a rental history  of two years on your tax returns to count any rental income. 

If you have a two year mortgage history, than 75% of rental income is counted if not reflected on your tax returns. If the properties are reflected on your tax returns, than net rental income is used. Depreciation is put back in...... But if you show negative cash flow, this will hurt your DTI's.

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• 6 - 12 months reserve requirement - depending on loan amount
• Primary Purchase and Rate and Term Refinance
  • Maximum Loan Amount / LTV / Minimum Credit Score - 1 Unit
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