FHA has announced the new changes for the Total Scorecard or Automated Underwriting system that have taken place as of March 18th. Although they are somewhat unclear I will be explaining who will be impacted and how throughout this article. You're more than welcome to view my video above as well.
FHA Borrowers with credit scores of 640 or less will be the ones impacted mainly. FHA's "Total Scorecard" is now analyzing borrowers based off of risk instead of the system looking at things black and white. If you obtained an approval to buy a home recently and your credit score is less than 640, please make sure to reach out to me to check and see if you're still eligible (or the loan officer you are working with).
We have seen this happen with conventional loans where the automated underwriting system was being a bit more picky than usual for people that had higher debt-to-income ratio's or recent economic events. Even though these borrowers met the seasoning, for some odd reason Fannie Mae and Freddie Mac wouldn't approve the loan with the borrower only putting the minimum amount down or having a certain amount of reserves. My guess is that FHA's new system will be working off of the same method.
In some cases, instead of receiving an approval - some borrowers will receive what is called a "Refer/Eligible" or what is called Manual Underwrite. When in these cases, debt-to-income ratio is limited among other factors that you must have to qualify under this type of underwrite.
Because of the release of this update is so new, if you run the system without identifying a property you are purchasing you will not get the correct feedback. An FHA Case number must be assigned (which typically means that you have identified a property) in order to get correct feedback.