HUD 4000.1 FHA Handbook
In this guide on HUD 4000.1 FHA Handbook Guidelines on FHA loans, we will cover the main bullet points on HUD agency mortgage guidelines and whether or not you meet the minimum guidelines from HUD to qualify for an FHA loan. We will discuss what you need to know about HUD 4000.1 FHA Handbook Guidelines for FHA loans so that if you get denied by other lenders, you will know exactly why you got denied.
With the most recently updated HUD 4000.1 FHA Handbook, you will be able to see whether you got denied due to the lender having overlays or because you did not meet the HUD 4000.1 FHA handbook guidelines. Many loan officers do not want to touch the actual HUD 4000.1 FHA Handbook due to its 1,000 pages. Many loan officers use our HUD 4000.1 FHA Handbook guide because it is straight to the point and easy to navigate. This is why we have created this shortened version of the HUD 4000.1 FHA Handbook for our viewers.
Just like traditional mortgages, FHA home loans have a set of guidelines and rules that all lenders issuing the loans need to follow to be insured by the U.S. government. Now all these rules are collected in a single reference book referred to as the HUD 4000.1, or the Single Family Housing Policy Handbook (SF Handbook). This article will tell you more about this handbook and the rules therein.
What Is The HUD 4000.1 FHA Handbook For FHA Loans
The SF handbook contains rules for FHA loans, which may include forward mortgages for borrowers looking to purchase a home, whether a house, a condo, a townhouse, or a manufactured home. It also covers rules guiding other mortgage products, such as FHA refinance loans and FHA reverse mortgages for borrowers over 62 years of age.
According to the rules, for a borrower to be eligible for an FHA-insured mortgage, the purchased property must be from the recorded owner. Also, the transaction may not involve any assignment or sale of the sales contract. But how can the lender establish that the seller of the property is the actual owner of record? This is what the job of the title agent is. Title needs to be secured and not damaged for the lender to issue the loan to the buyer.
The rules require the seller to obtain documentation, including the property sales history report and a copy of the deed (referred to as ‘other documentation’ on the HUD 4000.1 handbook) verifying the same.
HUD 4000.1 FHA Guidelines on Property Flipping
When it comes to property flipping, there are many restrictions, in that any property acquired and sold within 90 days or less will not be eligible for an FHA-insured mortgage. However, there are exceptions to this rule, including:
- A property that a relocation agency or an employer acquired to relocate an employee
- Any resale made by the HUD under its R5EO program
- Any sales that the U.S. Single-Family Properties agency makes under their programs
- Any sale made by a non-profit organization that has been approved to buy HUD-owned SF properties at a discount and with resale restrictions
There have been many changes in HUD guidelines under the revised HUD 4000.1 FHA handbook, including changes to the deferred student loans and documentation of gifted funds from loved ones aimed at being a down payment to a home purchase.
FHA Loans With Student Loans
With regards to student loans, the old handbook did allow the deferred student loan payments from the closing date not to be included when calculating the borrower’s debt-to-income ratio. Under the new HUD guidelines, FHA underwriters need to include monthly payments on student loans, even when the loan has been deferred for over 12 months.
HUD no longer exempts deferred student loans deferred longer than 112 months. All deferred student loans need to either get a fully amortized hypothetical monthly payment amortized over an extended term or use one-half of one percent of the student loan balance as a monthly debt.
HUD now accepts income-based repayment on student loans. If the borrower cannot get an IBR payment, this is how it works. At least one-half of one percent (0,50%) of the loan balance will be included as a monthly hypothetical debt in case of loan deferment. Other changes include borrowers needing to provide two years of income tax returns. However, if the self-employed borrower has had a 20% or more decline in their income from one year to the next, the lender will need to downgrade the file to manual underwriting guidelines.
The HUD 4000.1 FHA Handbook on Collections and Charged-off Accounts
Borrowers applying for FHA mortgages can avoid paying their outstanding collection accounts or charged-off accounts for them to be eligible for the loans, regardless of the outstanding amount.
Outstanding collection and charge-off accounts do not have to be paid to qualify for an FHA loan. However, if you have outstanding collection account higher than $2,000 on non-medical collections, HUD requires the mortgage underwriter to take 5% of the outstanding collection account balance and use it as a hypothetical debt in debt-to-income ratio calculations.
If a borrower has an aggregate of collections that surpasses $2000, excluding medical-related collections, 5% of the outstanding amount will be used as monthly debt and, therefore, will use when calculating the borrower’s DTI ratio. So, if you have collections totaling 5000$, 5% of the amount, which is about 250$, will be used as a hypothetical debt to calculate your DTI, and all this time, you won’t have to pay even a cent.
Things To Know About The HUD 4000.1 FHA Handbook
When you go to the official HUD website, the handbook is described as a consolidated, consistent and comprehensive source of the FHA Single Family Housing policies. What does that mean? Well, here is a look at the three ‘Cs.’ Here is the link to the HUD 4000.1 Agency Guidelines. The HUD 4000.1 handbook combines several hundred FHA handbooks, housing notices, mortgage letters, and other policy documents. This eliminates the need for a lender or anyone involved in FHA transactions to search through multiple stand-alone policy documents to find precise and current policy information.
Essentially, the Handbooks’ standard format, definition, and documentation support a far greater understanding, a better source, and easier use of mortgages to extend the wide range of FHA products and programs across the board, covering a spectrum of eligible borrowers.
Quite honestly, the HUD 4000.1 handbook is well on its way to becoming a super-comprehensive source of the Single Family Housing policy. The reason is that it contains everything any lender requires to become FHA-approved, receive an FHA insurance endorsement and service, and adhere to FHA’s quality control policies. And this is for almost all FHA mortgages.
How Can You Access the HUD 4000.1 FHA Handbook?
Anyone can get access to the HUD 4000.1 FHA Handbook. You do not need an NMLS MLO license or need to work for a mortgage company. Many loan officers who go to the HUD 4000.1 FHA Handbook are pros in navigating the many pages of guidelines. It is best recommended to have your loan officer get you the Mortgagee Letter on the guidelines you are looking up.
Many loan officers tell borrowers they do not qualify for an FHA loan because the borrower does not meet the individual lender’s guidelines which are overlays and not the actual minimum HUD agency guidelines. Make sure you understand the basic HUD guidelines before you take the denial as a matter of facts.
The book is fully electronic, meaning you can search for it online and go through everything detailed therein. Also, you will be able to access the new handbook in PDF format, which the FHA says is in a linear format similar to traditional FHA Handbooks. The handbook, however, comes with enhanced links, format, and structure to provide comprehensive coverage of the FHA policies.
Borrower Eligibility
- Minimum Credit Score: FHA loans generally require a minimum credit score 580 to qualify for the low down payment advantage of 3.5%. However, borrowers with credit scores between 500 and 579 may still qualify but must make a 10% down payment.
- Credit History: The FHA looks at the overall credit history, including the number of late payments, collections, and public records such as bankruptcies or foreclosures. Lenders will review borrowers’ credit reports to determine their ability to manage debt.
2. Income Verification
- Stable and Sufficient Income: Borrowers must demonstrate stable and sufficient earnings to cover the loan payments and other obligations. Lenders typically require at least two years of steady employment history.
- Acceptable Income Documentation: Pay stubs, W-2 forms, tax returns, and bank statements are acceptable income verification requirements. Self-employed borrowers must provide additional documentation, such as business tax returns and a year-to-date income and loss statement.
- Debt-to-Income (DTI) Ratio: The FHA uses two DTI ratios to evaluate a borrower’s ability to repay the loan:
- Front-End Ratio: This is the percentage of the borrower’s monthly gross income for housing expenses, including the mortgage payment, property taxes, homeowners insurance, and any applicable homeowners association (HOA) fees. The recommended maximum front-end ratio is 31%.
- Back-End Ratio: This is the portion of the borrower’s monthly gross income that goes toward all recurring debt obligations, including housing expenses, credit card obligations, car loans, student loans, and other debts. The recommended maximum back-end ratio is 43%.
3. Citizenship Status
- U.S. Citizens: U.S. citizens are eligible for FHA loans, provided they meet all other eligibility requirements.
- Permanent Residents: Non-U.S. citizens with lawful permanent resident status are eligible for FHA loans. They must provide documentation of their status, such as a Permanent Resident Card (Green Card).
- Non-Permanent Residents: Non-U.S. citizens legally permitted to work in the U.S. and have a valid SSN may be eligible for FHA loans. They must provide evidence of their legal residency status and employment authorization.
Property Eligibility
1. Types of Properties
- Single-Family Homes: The most common type of property eligible for FHA financing. This includes detached houses and townhouses.
- Multi-Family Units: FHA loans are available for properties with up to four units. Borrowers can live in one unit and rent out the others, which can help with mortgage payments.
- Condominiums: Condos must be part of an FHA-approved condominium project. The approval process ensures that the condo association meets specific FHA criteria.
- Manufactured Homes: Manufactured homes are qualified if they meet FHA guidelines, including being affixed to a permanent foundation and meeting specific size and construction standards.
2. Property Conditions
- Minimum Property Standards: Properties must meet minimum safety, security, and soundness standards. They must also be in good condition and free from serious structural issues or hazards.
- Appraisal Requirements: The property must be appraised by an FHA-approved appraiser. It ensures that the property meets FHA requirements and provides an estimated market value.
- Occupancy Requirements: The property must be intended for the borrower’s primary address. Investment properties and vacation homes must qualify for FHA loans.
- Property Flipping Rule: Properties sold within the last 90 days may not be eligible for FHA financing, and properties sold between 91 and 180 days may be subject to additional documentation and appraisal requirements.
By meeting these eligibility requirements, borrowers can qualify for FHA loans, providing an accessible pathway to homeownership, especially for first-time homebuyers and those with less-than-perfect credit.
Getting To Navigate the HUD 4000.1 FHA Handbook
As we conclude, the HUD 4000.1 FHA Handbook is a significant upgrade of the old HUD agency guidelines. The hardest part of the latest version of the HUD ones that you, as a lender or a borrower, need to be conversant with it. When applying for an FHA loan, this handbook will enable you to understand all the rules and make a more informed decision.
Gustan Cho Associates, empowered by NEXA Mortgage, LLC are mortgage brokers licensed in 48 states including Puerto Rico, Washington, DC, and the U.S. Virgin Islands. We have 210 wholesale lending partners with every available mortgage loan options in today’s marketplace.
Frequently Asked Questions (FAQs)
1. What is the HUD 4000.1 FHA Handbook?
The HUD 4000.1 FHA Handbook is a comprehensive guide released by the U.S. Department of Housing and Urban Development that outlines the requirements, procedures, and standards for FHA (Federal Housing Administration) loans. It covers various aspects, including eligibility criteria, underwriting guidelines, and property requirements.
2. Who should use the HUD 4000.1 FHA Handbook?
The handbook is primarily used by mortgage lenders, underwriters, real estate professionals, and other stakeholders involved in the FHA loan process. Borrowers can also refer to it to understand the requirements and guidelines for obtaining an FHA loan.
3. How often is the HUD 4000.1 FHA Handbook updated?
The HUD 4000.1 FHA Handbook is periodically updated to reflect changes in regulations, policies, and market conditions. Users should check for the current version to ensure compliance with current guidelines.
4. What are the key sections of the HUD 4000.1 FHA Handbook?
The handbook is divided into many key sections, including:
- Origination through Post-Closing/Endorsement: This section covers the loan process from application to closing and endorsement.
- Underwriting the Borrower: Guidelines for assessing borrower eligibility, credit history, income, and employment.
- Underwriting the Property: Standards for property eligibility, appraisal requirements, and inspections.
- Servicing and Loss Mitigation: Procedures for loan servicing, default management, and loss mitigation options.
5. How does the HUD 4000.1 FHA Handbook address credit requirements for borrowers?
The handbook provides detailed guidelines on evaluating a borrower’s credit history, including acceptable credit scores, treatment of derogatory credit, and guidelines for borrowers with no credit history. It also outlines the use of compensating factors for borrowers with marginal credit.
6. What are the property eligibility criteria in the HUD 4000.1 FHA Handbook?
The handbook specifies the types of properties eligible for FHA financing, including single-family homes, multi-family homes, condominiums, and manufactured homes. It also outlines property condition requirements, appraisal standards, and necessary inspections.
7. What are the income and employment verification requirements in the HUD 4000.1 FHA Handbook?
The handbook details the documentation needed to verify a borrower’s income and employment, including pay stubs, tax returns, W-2 forms, and verification of employment forms. It also addresses different income types, such as salaried, hourly, self-employed, and seasonal.
8. How does the HUD 4000.1 FHA Handbook handle underwriting for borrowers with previous bankruptcies or foreclosures?
The handbook provides guidelines for underwriting borrowers with a history of bankruptcy or foreclosure, including required waiting periods, re-establishment of credit, and conditions under which exceptions can be made.
9. What are the guidelines for FHA loan limits and mortgage insurance premiums in the HUD 4000.1 FHA Handbook?
The handbook outlines the FHA loan limits, which vary by geographic area, and the mortgage insurance premiums (MIP) required for different loan types. It also explains how MIP is calculated and when it must be paid.
10. Where can I access the HUD 4000.1 FHA Handbook?
The HUD 4000.1 FHA Handbook is available on the official HUD website and can be downloaded in PDF format. It provides detailed guidance on FHA loan requirements and procedures for mortgage professionals and borrowers.
You can consult a mortgage broker or a financial expert to understand the FHA guidelines. They will guide you through anything you need to know before making your mortgage application. If you have any questions about the content on this guide or need to qualify for an FHA loan with a lender with no overlays, don’t hesitate to get in touch with us at Gustan Cho Associates at 262-716-8151. Text us for a faster response. Or you can email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
