Posts Tagged “FHA compensating factors”

Homebuyers and Real Estate Agents often don’t realize that FHA allows a Borrower to co-sign as the **Non Occupant** Co-Borrower on an unlimited number of FHA loans.

Really? Yes Really.

Even though, unless there are special circumstances,  (like a forced job relocation or sudden and dramatic increase in family size) a homebuyer can really only have one FHA loan at any given time, someone who doesn’t intend to occupy the property can cosign/co-borrow with the buyer(s) that *do* intend to occupy the property without such a limitation.

Better still, FHA allows the total incomes and debts of all the borrowers to be blended together to arrive at one (overall) debt ratio.

This feature has enabled many a homebuyer who couldn’t properly document all of their income for example, to qualify for a home loan when their income alone wasn’t sufficient for qualifying purposes.

 

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Often an FHA loan application hang in the balance because the Borrower has marginal credit or income history. Often the debt to income ratio is out of line and an FHA Underwriter may be forced to look for other factors in approving the loan.
This is when compensating factors become critical and can tip the loan in the applicant’s favor.

What are some common compensating factors?

The borrower has proven he/she can make a housing payment equal to or greater than the proposed new PITI mortgage payment by means of a rent verification obtained by the Lender. This gives the Underwriter some measure of assurance that default is unlikely, as long as the rent has been paid in a timely manner. 12 mos Canceled checks would be the ultimate proof of this, and a private-landlord’s rent verification may not cut it.

The borrower makes a large downpayment, at least more than the standard 3.5% down required.

The borrower has demonstrated a conservative attitude towards the use of credit. This can be evidenced by low relative credit card balances compared to credit limits, or a an absence of multiple credit accounts.

The borrower receives compensation or income that’s not being used by the Underwriter for qualifying income for one reason or another . . eg. child support income that’s not fully documented, or cash /tip income that can’t be used in qualifying.

The borrower has healthy cash reserves after closing figures are accounted for. This may mean a well-funded retirement account, checking or savings balances, etc etc or cash surrender value of a Life insurance policy for example.

The borrower has potential for pay increase as proven by specific job training or education in his/her profession. An example would be an LVN (Licensed Vocational Nurse) about to become an RN (Registered Nurse).

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