Recent changes to FHA financing just made it more difficult to get a mortgage... FHA has been a consistent choice for borrowers with low credit scores and/or low income, to get mortgage financing for their new home, but because of the guideline changes which went into effect October 15, 2013, it's even harder than ever..

Under the old guidelines, if a borrower applied and there were non-medical collections on the credit report, then they would be ignored so long as all other guidelines were met.. But the new guidelines change all that.. Now, if the total of all non-medical collections for all borrowers is greater than $2000, the lender must now calculate a payment based on the outstanding balance of those collections.. For example: If a borrower has $5500 in non-medical collections, then the lender has to add a payment of $275 ($5000 x 5%=$275) to the debt of the borrowers for qualifying purposes only. This increase in debt could raise the debt to income ratios outside of the allowable maximums and force the borrower to select a lower priced home.

The reason FHA changed this rule is that if for some reason, the lenders holding the bad debt were to ever come after the borrowers for repayment, FHA wants to be sure that in this scenario, the borrower would be able to support both the new mortgage payment and any possible payments to outstanding collections.

This rule also applies to "Non-Borrowing Spouses" who reside in community property states. If you reside in a community property state, then FHA requires a credit report on the non borrowing spouse, and any outstanding non-medical collections will be added to the outstanding non-medical collections for the borrower and if the total is greater than $2000, then a payment will be added to the borrowers debt and the debt to income ratio will be recalculated. If the new ratio falls outside of the allowable range, the loan is denied or the borrower would need to put more money down or find a lower priced home.

Because of these changes, it's even more important that when you decide to purchase or refinance, you should contact a local mortgage broker and let him look at your complete scenario before submission. If there are issues, then these things can be fixed or dealt with prior to submission to the lender.

William Acres is a Mortgage Broker in Scottsdale AZ and he only lends in Arizona. If you or someone you know is looking for financing options, feel free to contact him or pass along his information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com