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FHA’s Galante Offers Alternatives to Rolling Back MI Premiums
The Department of Housing and Urban Development is pushing back against industry groups calling for the Federal Housing Administration to reduce or rebalance its mortgage insurance premiums. Three industry groups have urged FHA to rebalance its 1.35% annual MI premium and its 1.75% upfront MI premium to make FHA loans more affordable. But such a change would reduce FHA revenue. The commissioner stressed that it’s important to strengthen the FHA single-family mortgage insurance fund and find other ways to increase access to credit. “We must do both,” she told attendees at the Mortgage Bankers Association’s Washington Policy Conference. HUD is moving ahead with a housing counseling program called HAWK (Homeowners Armed with Knowledge) that will reward FHA borrowers that receive counseling.
via FHA’s Galante Offers Alternatives to Rolling Back MI Premiums.
Underwriting Rental Income for a Kentucky Mortgage Loan in 2014
Rental income can be used if all of the following conditions apply:
• The borrower has a two year history of managing rental properties as demonstrated by two years personal tax returns (1040’s) and schedule E.
• If the borrower wishes to qualify with rental income on the subject property in an investment transaction, they must provide evidence of rent loss insurance to cover six month’s rent in the event of a property vacancy.
• If the borrower owns a rental property that is not yet reflected on schedule E, they may use income from this property to qualify with a lease agreement. However, if the borrower does not have a two year demonstrated history of managing rental properties, this guideline is not valid. Also note, when a property is reflecting on the schedule E of the personal tax returns, lease agreements may not be used to determine qualifying income for any reason.
Once the gross rental income has been calculated from the schedule E of the tax returns OR using 75% of the monthly lease payment, you must deduct the monthly housing expense to determine net rental income. Net rental income is the final figure that is used to calculate the total debt ratio.
For example:
• Using a 24 month average of the calculated schedule E the underwriter has determined there is $300 monthly gross rental income.
• The underwriter then verifies the monthly PITI (principle, interest, taxes, and insurance) of $450 on the rental property. Note: If the rental property has a mortgage insurance or homeowners association dues expense, these amounts will be included in the PITI calculation.
• $300 gross rental income minus $450 monthly PITI nets a rental loss of $150. As a result, a $150 monthly liability is added to the total debt ratio.
This calculation is commonly referred to as “washing” the housing expenses on the property. Even though we still have a net loss that is included in the debt ratio, we were able to “wash” $300 of the $450 monthly PITI thereby improving our total debt ratios.
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Joel Lobb
Senior Loan Officer
Senior Loan Officer
(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
phone: (502) 905-3708
Fax: (502) 327-9119
Company ID #1364 | MB73346
Kentucky FHA Mortgage Lender 