The FHA and HUD have announced short-term alterations to appraisal and approval policies for single-family forward mortgages during the coronavirus outbreak.
The changes, originally set to expire on May 17, 2020, address issues involving how appraisers review their properties, and how lenders must reverify borrower financial data before closing time.
The changes to appraisal requirements (exterior-only inspections allowing the appraiser to work without being at risk of infection) were a big part of that, but not the whole substance of the policy changes.
Reducing the risk to appraisers is one thing, but some of the measures are intended to streamline loan approval in a time of crisis.
The FHA/HUD official site press release explains that certain measures were needed to, “maintain the stability” of the FHA Single-Family Home Loan program, “while concurrently aiding the housing market generally,” the agency is offering lenders “alternatives for re-verification of employment”.
When you apply to buy or build a home with an FHA mortgage, your lender is required to verify your employment to ensure it is stable, reliable, and likely to continue.
But that is not the only time your loan officer must verify your income and employment; re-checking employment is normally done a second time ten days before the note.
Under the revised guidance for these issues during the coronavirus, “Mortgagees do not need to provide a re-verification of employment within 10 days of the Note” as long as the lender “is not aware of any loss of employment by the borrower” and the lender takes some steps outlined below.
This process is not automatic. Your loan officer will ask for:
- Documentation that the borrower has two months of Principal, Interest, Taxes & Insurance in reserves;
- A year-to-date electronic verification of income (or a paper pay stub showing same) for the pay period that immediately precedes the Note date OR;
- A bank statement showing direct deposit for the pay period that immediately precedes the Note date.
These modified rules are enforced for a limited time only unless they are extended by the government, which is always a possibility. The modified loan approval guidelines mentioned above are effective immediately for FHA loans (as applicable for forward mortgages) closed on or before May 17, 2020.
If you are not sure how these rule changes affect your FHA home loan transaction, ask your lender to clarify. Never sign documents you don’t fully understand, and be sure to read all the fine print on your legally binding mortgage loan agreements for best results.