The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. FHA insures loans on single family and multi-family homes in the U.S. and in U.S. territories. As one of the largest residential mortgage insurers globally, it has insured millions of residential properties since its creation in 1934.
The FHA underwriting guidelines are published in the FHA underwriting manual. The manual was most recently updated in December 2013. Up to this issuance, most FHA-insured loans were underwritten using automated underwriting systems that score applications using FHA’s TOTAL ((Technology Open to Approved Lenders) Mortgage Scorecard. Depending on the result of the TOTAL score, some borrowers’ applications may need to be manually evaluated and underwritten. The newest revisions address lending standards for manually underwritten borrowers, and they specifically address:
- Use of a defined set of objective standards in the underwriting process;
- Defined ‘compensating factors’ considered in the underwriting process; and,
- Consideration of certain loan characteristics in the underwriting process, such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.
The FHA Underwriting Regulations include information and guidance about:
FHA Required Mortgage Insurance – Mortgage insurance protects lenders against losses that result from home mortgage loan defaults. FHA generally requires mortgage insurance for borrowers who make a down payment on a home loan of less than 20%. The FHA Mortgage Insurance guidelines provide information to lenders about up-front mortgage insurance premiums (MIP), including those for Streamline FHA Refinances.
FHA Loan Checklist – The FHA loan process requires certain information. A checklist to facilitate the application process should include and confirm documentary evidence of information to meet FHA underwriting requirements.