Understanding the new FHA rules for home loans.

• FHA published a letter regarding their new guidelines for non-traditional credit to be effective with case numbers issued on or after 5-29-08. Prior to this time, FHA really didn't have rules regarding non-traditional credit; other then it all had to be re-verified. 
  

  
  

  Most lenders have quit taking borrowers with non-traditional credit altogether – and I believe that it is partially because there have been no rules. I hope this new Mortgagee Letter from HUD opens a few doors because there will now be some consistency. A brief synopsis of the new rules is:

   

  Guidelines

  • Minimum of three credit lines
  • Must cover the most previous 12 months (will be interpreted to mean must have 12 month history)
  • One line MUST be housing related, from rent or utilities which include land phone & cable
  • Other credit lines from non-traditional sources, and may include a personal loan or savings history (there are limitations on both)
  • Can't use payroll deductions
  • All of the credit must be reported through a credit bureau on a non-traditional credit report

   Acceptable Credit

  • Acceptable credit history can have no lates on housing, up to one 30 day delinquency on others; 
  • no collections in last 12 months (unless medical)

   

  Insufficient Credit Approvals

  • Borrowers may still qualify if they don't have a housing related credit line or insufficient credit lines if
  • they qualify using ONLY the occupants' income
  • they are within absolute maximum of 31/43 ratios
  • acceptable credit as per above
  • 2 months cash reserves from own funds, not gifted