Why Your FHA Buyer's Maximum Price Just Dropped

Let's face it, not everyone was taught how to handle debt well in their youth.  Because of that, many of us get to our adult years with several collections scattered across our credit reports.

Those collections typically got in the way of someone using Conventional financing for a home purchase but FHA would normally give them a break on it.  If the overall credit picture was ok, FHA would ignore the collections and let the buyer purchase a home as if they didn't even exist.

NOT ANYMORE

Effective October 15, FHA is going to start requiring lenders to assume a monthly payment on those collections.  If non-medical collections total more than $2,000 combined, the buyer will have to pay them off, set up a payment plan with the creditor, or be held liable for a monthly payment equal to 5% of the balance as part of their approval.

What does this mean to you?

It means that the maximum price for your FHA buyer with open collections just dropped.  If they have $2,000 in open non-medical collections, they will now qualify for $100 less in monthly mortgage payments.  That's about a $14,000 drop in maximum home price at today's interest rate.  For every $1,000 more they have in collections, that maximum price would drop around $7,000.

So what should you do?

If you have active buyers who are using FHA financing, forward this to them.  Have them ask their lender if this is going to impact them.  If their lender doesn't know what they're talking about, get them to a lender who does, and feel free to make that lender me!  I'm always happy to help your buyers make informed financing decisions. 




Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here.