4000.1 FHA Loans – What You Should Know
In order to qualify for the Mortgage Income Tax Credit (MITC) the borrower must obtain a mortgage loan with a fair market value of at least four thousand dollars. The Mortgage Income Tax Credit is available to borrowers who have an income that is qualifying for the federal tax credit and does not fall into any of the specified income tax brackets. Borrowers who are self-employed or hold other types of tax-free accounts can also qualify for the Mortgage Income Tax Credit. To be eligible for the Credit, the borrower must also have a tax form that is completed and submitted to the lender along with relevant financial and other information required by the lender.
Borrowers may want to know what is required to be considered for the Mortgage Income Tax Credit. There are many documents that borrowers need to compile and submit to qualify for the Credit. These documents include an application, a state application, a mortgage loan statement, and the federal form called the “old handbook”. The old handbook is the booklet that you receive from the U.S. Department of Housing and Urban Development (HUD). The booklet provides all the details necessary to qualify for the Credit.
A borrower must calculate their gross income ratio to determine whether they will qualify for the Mortgage Income Tax Credit. This includes details about their work history and current job in order to calculate the monthly gross income ratio. All income figures are inclusive of overtime income and commissions if applicable. The borrower should also include information about any pension or retirement accounts held by the borrower that is related to their mortgage loan or second home.
After the borrower calculates their gross income ratio the income tax calculation is completed. This requires the use of one of the following documents: The Mortgage Interest Rate Statement (interest rate statement), Mortgage Operating Agreement, Mortgage Refinance Agreement, or Mortgage Operating Manual underwriting. Once all documents are received from the lender must send a certified letter of determination to the borrower notifying them that they have met all the necessary qualifications for credit. In order to receive the credits, the borrower must sign a new Mortgage Operating Manual underwriting or Mortgage Refinance Agreement. The borrower must also provide documentation that certifies that the borrower was employed throughout the year in which the Mortgage Interest Rate Statement was issued.
If the borrower has met all the credit criteria then they are approved for Mortgage Credit and the Mortgage Loan Guidelines will be used to approve the new mortgage loan. There are a number of things that can slow down or stop the approval process including: Bankruptcy, Foreclosure, Income Taxes, Divorce, and Federal Regulations. These guidelines do not allow for adjustments due to circumstances beyond the control of the borrower. If an adjustment is made, it will need to be submitted to the loss mitigation department. The guidelines outline what areas the loss mitigation department will consider before approving or denying a mortgage loan request.
Many homeowners are unaware that the FHA does not approve Adjustable Rate Mortgages. Although the FHA does not approve these loans, they are still very helpful to homeowners as they do offer the borrower’s more flexible lending guidelines. Although many home buyers are initially turned off by the prospect of mortgage loans with increased risk, the 4000.1 handbook explains that these guidelines are designed to provide the borrower with greater protection. The handbook also explains that most borrowers who purchase their homes qualify for the loan as long as they meet the other FHA criteria including; a decent to good income, good to excellent credit, and a down payment.
Another guideline in the revised 4000.1 handbook is to only borrow amounts that can be paid back over the course of the borrower’s entire life. Borrowers who find that this option is not feasible should review their options including: deferring payments, paying back loan amounts in full, or obtaining other types of financing. The handbook also emphasizes to borrowers that the majority of people who obtain FHA loans are students. This is due to the availability of subsidized and unsubsidized student loans as well as the need to service the loan during the grace period between receiving employment and starting to receive money from their parents. Homeowners with low to moderate income will not have much choice in obtaining student loans but it is important that they understand all of the repayment options available to them and research the various repayment options prior to applying for an FHA loan.
The last major portion of the handbook is divided into two sections, one dealing with the calculation of the FHA income ratio and the second dealing with the guidelines for borrowers who have a lower than average income. Borrowers who fall within these categories will need to look carefully at the portion of the FHA income ratio that deals with deferred payments. The majority of lenders require borrowers to make monthly payments that are held for 90 days in order to calculate their FHA loan payments. If the loan amount being borrowed is greater than the holding period then the borrower will be required to pay the full amount after the holding period. The borrower can call or write the lender to find out if their payment will result in an increase in the amount due after the holding period has expired.