FHA Loans Unaffected by New Mortgage Underwriting Rules
These are loans where the lender uses the borrower’s bank statements as a source of income for the borrower. Bank statement mortgage loans are, according to the publication National Mortgage News, offered to about 100 thousand borrowers per year to the tune of $25 billion in loans per year.
In October of 2022, CFPB revised its regulations, and now lenders are required by the CFPB to confirm the data on bank statements used to verify income.
Specifically, the lender is required to determine that the money in the borrower’s accounts as represented by the bank statements show actual income rather than gifts, loans, or “non-income” type deposits.
FHA mortgages do not typically involve this practice, so why are we discussing it here?
Because in the last two years there have been moves like the one mentioned above to tighten scrutiny on certain aspects of the mortgage lending process, and such scrutiny is likely to be reflected in more areas of the mortgage industry over time.
And the “gift funds” scrutiny mentioned above? That’s a practice already used in FHA loan transactions, but in that context it’s more about the source of down payment funds and closing cost money.
Those funds must come from approved sources, are subject to similar scrutiny by the lender, and the rules are just as strict in the realm of down payments when it comes to gift funds.
Basically, in both cases (the CFPB requirements and FHA loan requirements) are after the same end result. And that result is basically that the lender has ensured that down payment funds or borrower income is from approved sources and NOT from credit card cash advances, non-collateralized loans, pink slip loans, etc.
It also helps ensure the borrower does not accept money from someone with a financial stake in the outcome of the mortgage transaction.
Reviewing the sources of income and down payment funds? These are not new practices. But the reasons why this scrutiny exists has expanded over time. Today, you should not be surprised by more requirements to show the sourcing of your income or down payment. There are many examples of how the mortgage process can go wrong without this type of added attention on sources for funds.
If you are worried about a source of gift funds or income, it helps to put something in writing that can help support your loan application. A letter from someone gifting you your down payment is typically required but in cases where your income is in question a letter from an employer could be of similar help. Ask your lender what you may need to provide in order to properly verify both your income and the sources of your down payment.
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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