Great news friends – homebuyers in the DFW metro (and surrounding areas) will see increased purchasing power thanks to FHA’s decision to increase loan limits beginning January 2015. Currently the max loan amount for DFW area is $287,500 which means buyers may buy a $297,900 home by putting the very minimum down. However, as of January 2015 the max loan amount increases to $310,500! This means buyers can buy a $321,750 home with the minimum 3% down payment – an increase of $23,850 in purchasing power!! This is GREAT news!
To find out the max loan amount in your specific county follow this link FHA Max Loan Amount Search!
I’ve had several FHA questions lately so I thought I’d shoot over some tips and rules of thumb for you to use as a reference guide. With FHA’s max loan amount increasing and conventional loan credit guidelines still a little tight FHA is becoming more and more popular.
31/43 qualifying ratios – this means that your client’s total monthly payments (those that report to the credit bureaus) + their house payment (PITI) should not exceed 43% of their GROSS monthly income. The first number (31) represents the percentage of their income that the house payment (PITI) alone should not exceed. These guidelines can sometimes be exceeded with an automated-underwriting decision (computer generated approval): Example, the Holmes’s earn $5000 p/mo (total farce) before any taxes are withheld. In this case the Holmes’s should keep their total house payment close to $1550 and their total monthly payments (credit cards, auto & boat loans, student loans, etc.) + the total house payment close to $2150. Again, with automated underwriting lenders can typically get outside these ratios….but these are good rules of thumb.
$310,500 – this is the max loan amount in the DFW area. Can the sales price be higher than this loan amount?
Yes, absolutely! As long as your client has money to put towards a down payment so that the loan amount is not exceeding the max in your county, the sales price can exceed the max loan amount.
Assuming they are putting the very minimum down of 3.5% they’d be able to purchase a home with a sales price of $321,750 with an FHA Loan.
Example – purchase price = $321,750….3.5% down payment = $11,261…..loan amount = $310,488 ($22 under the max loan amount J)
PLUS, the seller is allowed to pay their closing costs!
Go HERE to search your specific county FHA Max Loan Amount Search!
Yes! The entire 3.5% can be a gift!
What are the non-allowables? – What dollar amount should you put in the contract for FHA non-allowables? NONE, ZERO! Those were the old days! The only non-allowable is the tax service fee which is typically less than $80. This can easily be absorbed by a lender.
Is there a minimum credit score? – Most lenders have gone to a 640 credit score requirement. Although FHA does not have a published minimum credit score lenders have noticed a pattern of poor performance with credit scores lower than 580. We will allow for as low as a 600 credit score on our in-house product.
What are turn times? How quickly can we close? – I would NOT write in a contract close date less than 30 days out. FURTHERMORE, I would make sure there are plenty of days from the end of the option period to the closing date. Most lenders will NOT order an appraisal until the option period is over and the buyers are still moving forward. It does not do any good to have a 30 day close, with a 15 day option period. You will probably need 15 business days from option period ending to the close date to be on the safe side. Again, this is a general rule of thumb….for stress free home purchases, that is!
Can my client use a co-signer? – Yes, Absolutely! Keep in mind that a co-signer/co-borrower will be treated just like the actual borrower and will need to provide all their income & asset documents. The lender will configure a joint debt-to-income ratio based on a combination of ALL income and ALL debt. Generally a co-signer needs to have great credit, good income, and minimal debt.
Can my client purchase without their spouse on the loan due to credit? – Yes, Absolutely! However, FHA requires that lenders consider the non-purchasing spouse’s individual debt. For example, if your client’s spouse has an auto loan and a few credit cards in his/her name alone, then these monthly payments will be factored into your client’s debt-ratio. Lenders MUST pull a credit history on non-purchasing spouses.
Is FHA only for first time homebuyers? – NO! This is a common misconception. You can use an FHA loan on your 2nd, 3rd, 4th, 5th, or 20th home. Under most circumstances you can only have 1 (one) FHA loan at a time.
Can I refinance a conventional loan to an FHA loan? – Yes, Absolutely! Since FHA is more forgiving (in my opinion) with its underwriting guidelines we have successfully moved families out of a high interest rate and/or adjustable rate (ARM) loan and into a low fixed rate FHA loan.